Why did the regulators not stop the excesses in the mortgage market?

There were three main reasons.

1) Lack of Power: The regulators were stripped of much of their investigative power by a number of conservative lobbying groups. The restrictions included how often they could perform spot-inspections (this is when a company has an inspection without warnings), the ambit of files they could examine (this is the variety and number of files the inspectors could look act), and funding (the regulation agencies were given less money and, therefore, had fewer personnel working fewer hours.

2) Lack of Knowledge: The new mortgage-backed securities and other financial products were very complex and very poorly understood. Both regulators and financial institutions did not know the extent to which these new financial products could destroy the economy and, therefore, there was not an active vigilance over these products as there should have been (had regulators known then what they know now).

3) Quasi-Legal: Most of what the bankers were doing may have been immoral, but it had not clearly been established to be illegal. As a result, the regulators did not know how to hold the bankers accountable since the standards and laws did not match the ongoing activities.