The subprime situation is one of those ongoing stories that journalistically call for an intensification in how they are described over time. To wit: at first it was broadly described as a mess, then as a crisis, then as a disaster, and now… what?

The next order of intensification would call for the word ‘catastrophe,’ and though naysayers will cluck at the use of that word, we may well yet see it justified.

One thing that has really been bothering me and which doesn’t seem to have been raised very often, if at all, by commentators in the press is simply this: Where were the regulators?

Where were the Securities and Exchange Commission, the Federal Reserve Board, and the rest of the phalanx of regulators that are supposed to be protecting the investing public?

The answer is that they were nowhere to be found as weird and weirder instruments made their way into the financial markets and thus into the accounts of investors. They were nowhere to be found as risky and riskier securitizations proliferated like rabbits in heat.

I find this scary because if the very agencies that are supposing to be protecting us are, in fact, asleep at the wheel, then for one thing, trust in the markets takes a big hit, and secondly, it gives credibility to the feeling that the game is rigged because at some point somebody made a ton of money on what is now worthless.

The truth is that if anyone at the SEC, FINRA or the Fed knew what was going on, they did a pretty good job of hiding it. But even more to the point, regulation should not be a retroactive activity. To truly be effective, it needs to keep pace with what is going on in the market.

This is where our regulators failed. While pointy-headed math whizzes were locked in tiny back rooms at investment banks until they come up with an even more exotic tranche for tomorrow’s securitization, our regulatory agencies were still trying to figure out how to sharpen the pencils.

They need to have personnel on staff that can keep up with the MBAs at the Merrills and the Bears. There needs to be a place in government for pointy heads!

Even now, months after the tremendous exposure of commercial banks and investment banks started to surface, no one seems to be able to put their finger on what is the extent of that exposure and how many shoes have yet to drop. So complicated had the instruments become that that it’s all but certain that many investors–even institutional ones–didn’t know what they were buying. Turns out they bought the goods.

This is why the stock market has been so volatile of late, with triple-digit swings in either direction becoming commonplace, sometimes on consecutive days. The oscillations have become so rapid and violent that hummingbirds are starting to look placid by comparison.

It also doesn’t help to know that those executives who led their companies into this Crimean-like charge are being richly rewarded as they are shown the door for their efforts.

The whole experience reminds me of the old Wild West. Fun to play when you’re a kid because the bullets aren’t real. Not so much fun when you’re an adult whose money is taken by the bad guys. It’s then that you understand just how important it is to have the sheriff in town.