That is not what would happen at all. There were a list of buyers both for BoA, Citibank, et al. None of the buyers were american corporations. In fact, there were dozens of banks bought by international banks. They would eventually sell the junk back to the US government under the treat of just defaulting and exploding the US market.

That romantic vision of how the market works is very different from what happens in reality. There were cases where individuals were responsible for the havoc, most are in jail. But, in general, banks were stupid and led by a government desperate for GDP numbers and campaign money.

There is a culprit for the re-insurance and debt re-packaging mess: The american people. Freedom without social responsibility is not freedom, is something close to anarchy.

What role do industry representatives have in writing a huge bill like Dodd-Frank, and the implementation of it after it passes? It was my assumption that industry has a big role in crafting the laws that regulate them.

This is unlikely to change as long as one side is willfully determined to remain ignorant of finance. If you want to write effective regulation, you'll need to understand the industry. Until then, the insiders will continue to run the show.

To balance that out, I would state that neither the regulator, nor the regulatee, really understands finance enough to make arbitrarily accurate predictions of consequences to their actions. They are betting that they understand how the whole market, the rest of the market, or the regulators (regulatees only need consider this) will act in response to information they may or may not possess based on analysis they may or may not be able to justify.

What do you advise the Chinese government should do in regard to bailing out consistently under performing fiscal entities who blame the person lending them money for their financial woes?