<i>Every meaningful financial scheme is the same.</i> Borrow more money than you can be asked to pay back, and gamble it heavily. This is the only way to <i>make money</i> without doing any work. It's theft, very simply, but its hard theft to detect.<p>This theft is made more difficult to efficiently regulate when a blacklist style bottom up approach to regulation is used. If I have to evaluate every investment strategy that <i>calls itself</i> a bank for hidden leverage, I'm guaranteed to miss some. Its a hard game to play, and investigators are humans with both the capacity to make mistakes and be corrputed.<p>This is further dynamically complicated by the fact that the government is the insurer of last resort in a lot of these cases. The FDIC was instituted in response to what happens in the absence of government intervention (the great depression), and it doesnt really stop there. The federal government has the authority to bail out overleveraged "banks" that fail, and banks know this, leading them to seek out even riskier (more correlated) investments.<p>If we cannot consistently identify hidden risk, we need to be taxing the shit out of leverage. We are the ones who are going to be on the hook when the dam breaks, and they file a claim. so we should set the price of the premiums.