Thanks to the repeal of glass-steagall and the rule changes applied to Freddie/Fannie those securities grew exponentially

But who lobbied for the repeal of that act? The banking industry. Who provided "evidence" to demonstrate that such legislation was no longer needed? The banking industry. Who proposed itself as a reliable manager of the market with natural checks and balances based on competent self-interest? The banking industry. Having got what it wanted, who then proceeded to behave contrary to the claims they had made about their own competence and ability? We all know the answer.

If government made a mistake it was to listen to the banking industry and believe the tales of competence, ability and free-market theory they trotted out. Maybe it also was a mistake to listen to the politically powerful Freddie/Fannie executives and to be concerned about voters wanting to buy a house. But to suggest that government is responsible for misbehavior of people who promised that they could be trusted and did not need to be watched by a security guard all the time but abused the privilege as soon as they were given a chance to prove themselves, is not tenable.

Based on the above, the most competent government behavior today is NOT to trust or listen to the banking industry. A cynic might suggest that the most competent course would be to seek advice from the banking industry and then do the exact opposite of whatever they advise. ;-)