Can Paulson really do anything about 'too big to fail'?

Isn't the controversy over interconnectedness or being "too big to fail" a bit beside the point? Isn't the real problem that risk taking is disproportionately rewarded, and failure not sufficiently punished? And given that these are areas under the purview of the CEO and the Board, isn't that precisely where the responsibility and remedy lie?

Well yeah. But if an institution is too big to fail, the cost of the problem ends up being borne partly by taxpayers.

True enough that taxpayers end up bearing a part of the cost. And corporations have clearly demonstrated that they cannot, on their own, insure a viable financial system. Shouldn't the taxpayers, as stakeholders (which, by the way, they are even in the absence of a crisis) insist on additional appropriate regulations?

Shouldn't the taxpayers, as stakeholders (which, by the way, they are even in the absence of a crisis) insist on additional appropriate regulations?

The problem is that we replaced human underwriting standards, with a computer. The computer was fairly easy to trick into giving out loans it shouldn't have. Even "full doc" loans weren't full doc because many times the computer didn't require verification of income.

The biggest problem is that out of everyone responsible for decent lending standards (borrowers, brokers and lenders) none had any skin in the game. I think that the most useful policy would allow the government to sue executives/managers for their bonuses/salary due to poor lending practices ending in a government bailout. If they knew they could be on the hook for poor loans, they'd never have let it happen.