[GOPJ]

...each institution would be required to buy insurance against its systemic risk – that is, against its own losses in a scenario in which the whole financial sector is doing poorly. In the event of a pay-off on the insurance, the payment should not go to the company, but to the regulator in charge of stabilising the financial sector. This would provide incentives for a bank to limit systemic risk (to lower its insurance premium), provide a market-based estimate of the risk (the cost of insurance), and> reduce the fiscal costs and the moral hazard of government bail-outs (because the company does not get the insurance pay-off).

Flat out brilliant.

Regulating toxic incentive patterns will deal with this mess.

Every banking nightmare that happened was rewarded in subtle and not so subtle ways - - find those "rewards" and stop them...

[marshmallow]

One of the major causes of this mess (but by no means the only one) was that the originator of the mortgage (that is, the risk) became separated from the eventual holders.

That problem must somehow be addressed.