Is it really the SEC's job to monitor how much risk a private company takes? So if I start a business, a government agency has to assess how much risk I take? Should the government regulate if I can but stock deemed risky? What about options -- can I but them or should the government act as my risk manager? Where does this end? Let the free market work.
Should a business be “free” to invent money as it pleases and create dollar denominated products on a whim?
If you’re a large investment bank or insurance company or broker/dealer holding other people’s money in your accounts, yes, it is the SEC’s job to monitor how much risk you take.
If you’re an investment bank issuing credit instruments such as muni bonds, corporate bonds, buying/selling US Treasury and agency debt, yes, it is the SEC’s job to monitor how much risk you take.
The government already regulates if you can buy a stock deemed risky. Check out how much margin you can get to buy an IPO stock. None. That’s a result of the dot-bomb implosion. The government regulates how much leverage you get in your brokerage account (as an individual) to buy stocks on margin. The government regulates how large a margin position you can have in commodities. The government regulates when you have to settle stock trades, what the requirements are on your broker for record keeping, etc.
There are no “free markets” (in the sense you describe) other than the markets for contraband. All legit markets are regulated to one extent or another.