Right. People who say we shouldn't interfere in the "free market" have to also say that nobody is to big to fail. I haven't heard any CEOs say that.
In the Bear Stearns case, it seems that the CEO and the stockholders were placing large bets (relative to their capital) on the basis of "heads I win, tails the taxpayers lose". We either need the will to let them go down (my first choice) or put floors on capital and ceilings on compensation.
In the Freddie/Fannie situation, it's the same type of bet, but the gov't explicitly set up the deal. We don't need "regulation" in the F/F situation. We just need to avoid the temptation to set up these private/public time bombs in the first place.
When it comes to selling individual mortgages, there is no reason to have regulation that keep the companies from doing stupid things. We do need laws against consumer fraud. If current laws aren't adequate, the various states can experiment with ways to improve them.
I've seen one creative idea on the "to big to fail" issue. When a financial company gets TBTF, we should break it up.
The Fed/Treasury should continually look at the players and see if there are any cases where they would say "If this company started to go down, we'd have to bail out either the stockholders or the creditors". If they find one, then they start action to split it into parts. The mechanics would be the same as anti-trust breakups, but the purpose would be different.