Famed blogger Megan McArdle 2 weeks ago --
By contrast, so far the worst misbehavior I've seen has been the two Bear Stearns executives who told people their fund was okay the month before it went belly up. This was a bad thing, and the people who did it no doubt richly deserve the jail terms they are going to get, and then some. But on the scale of dishonesty generally uncovered during recessions, this wouldn't normally rank high enough to trigger more than a "You boys!!!" and a finger-wag.
This probably has something to do with just how tightly regulated financial companies already are; when the SEC wants to know about every transaction you do, it's hard to get too funny with the books. Still, it's pretty impressive.
Well, since that post was written, we've found out about a potential $50 billion fraud at Bernard Madoff, a mere $100 million alleged fraud by Marc Dreier, and some dude in Miami who was rewriting the value of mortgages to make the associated securities more valuable. And that's just in 2 weeks with the limited resources that the FBI and SEC have to find this stuff relative to the total scale of what was going on.
Various things went wrong to produce the current financial shambles. But one of them was an "if it feels good, don't stop it" regulatory ethos that came straight from the top of government. That ethos attracts particular kinds of people.