What Kind of Regulation?

Yesterday, Matthew Yglesias took on the deregulation of the financial markets with his usual combination of light substance and heavy snark.

What nobody has told me and I don't understand is this: how exactly would regulation of the financial markets have prevented the current situation. My understanding is that securitization of mortgages has never been prohibited, under Glass-Stegall or any other regulatory regime. I could be wrong about this; I am hoping my vast readership will fill me in if so.

Anyhow, now the Krugmans and Yglesiases of the world are calling for regulation. I don't have anything against regulation per se, but it would sure be nice to debate something concrete.

I think there is an opening for the Republicans here; while "stick it to those bastards!" is nice rhetoric, it's not good policy. If the McCain campaign can actually come up with something that might ameliorate the specific problems without strangling innovation, it could be helpful in the election.