“How is this possible if the government was no longer “watching and regulating”?”
The idea is, OBVIOUSLY, to watch before the government has to backstop hundreds of billions in losses, as happened in the S&L case.
It’s not too hard to figure out there was a problem in the past tense, as thousands of depositors are demanding their money back.
So the government has to vet every security before it can be sold? That could require a few hundred thousand additional government employees.