Congress writes the laws, he can only enforce, and has very limited enforcement powers that he has to treat like a criminal complaint and give to Justice.
The derivatives markets are intentionally unregulated. This is why it took so long before the crap hit the fan. The issuers of these things simply doubled down and issued more on the same debt and like with Lehman, they compounded their problems as the mark to market rules reduced the equity.
They will have to regulate them now, but that won't help this problem.
The Fed is doing the only thing they can afford to do, which is stabilize the underlying assets, those being mortgage backed CMO's, and this in turn should free up the derivatives for discounted sale.
I do blame Cox for part of this. While derivative trading and construction is not totally regulated (it would not be Cox, anyhow — that would be an SRO) the SEC does have the duty to examine SEC filings. The post Enron laws gave them plenty of ammunition to “review” earnings reports of the public BDs. That is all it would have taken to stop this or short circuit it a long time ago.
I agree completely with your last paragraph. It will be interesting to see just how the mark down (cramdown) the CDSs. The CMOs should not be too hard to at least ball park.
Done right this could be a heck a money maker for the fed. Done wrong it is a federal jobs program for million dollar a year NYC peeps, er perps.