I would counter with the great financial crisis of 2008 - and the stated reason for the creation of Bitcoin. Those were all regulated banks and financial entities that were deeply involved in a fraudulent scam to mis-represent the quality and contents of their mortgage backed securities. They took sub-prime mortgages and then added massive amounts of leverage and somehow the ratings agencies all gave them a AAA rating. This was all in a heavily regulated environment and as such it proved the need for a decentralized alternative.
My questions for those who trust in regulation:
-Why was no one ever prosecuted for this fraud?
-Why did regulation not work in the case if the 2008 GFC?
-If it didn’t work then, why would it work the next time?
It’s not really a counter though: for that you’d need to compare 2008 against markets with weaker or absent regulation.
I’m not sure the relative weighting of causes, between fraud, the misuse of Black Scholes[0], the elimination of various regulations which has been created at the end of the previous crisis, and the failures of credit rating agencies.
At least some of the fraud which did occur resulted in prison time.
[0] I did hear one of the big problems was everyone looking at the (Nobel Prize for economics winning) Black Scholes model, applying it inappropriately, and justifying this in the grounds everyone else was doing it. This is hard to fix, and group-think of this type is also very much the kind of failure mode I expect to happen more often in unregulated markets, but that doesn’t mean I don’t expect it to pop up everywhere given time.
> At least some of the fraud which did occur resulted in prison time.
Could you point me to any examples? When I looked into this the only person to serve prison time during this period was Bernie Maddoff and his great crime was stealing from the rich.
Thanks for sharing that link. It was very informative. They didn’t go far enough (e.g. None of the ratings agencies were impacted) but I’m glad to be proven wrong on this issue.
on a related note: I mentioned in other comment here that people will demand regulation. On the other hand, on numerous occasions I've stated that the next financial crisis will come from crypto. You already have wrapped tokens, tokens that wrap other yield making tokens, tokens that are just confirmation of collateral, yet they can be used as collateral elsewhere, tokens that can wrap multiple different tokens, NFTs that can wrap other NFTs, etc. etc.
Given the human nature, it's pretty much inevitable that some dirt will get lost in this chain, and we will face the exact same fate as we did with CDOs, just with different terminology.
My questions for those who trust in regulation:
-Why was no one ever prosecuted for this fraud?
-Why did regulation not work in the case if the 2008 GFC?
-If it didn’t work then, why would it work the next time?