When you cross the street at a traffic light, do you look at the color of the light and immediately propel yourself into the intersection? Or do you take a few seconds to glance from left to right to make sure that there isn't a vehicle careening toward you?

My guess is that you double check the government when it comes to your personal safety. So why should anyone believe automatically that just because the SEC exists, any investment bank will be a safe bet and act in precisely the way it ought to?

Any firm is prone to conflicts of interest, fraud, deception, lack of transparency, etc. Investment banks are no different.

It's a reality of life that sometimes people/groups will try to defraud/deceive others. Self-interest (being symmetric) offers a backstop against this, UNLESS regulation gets in the way.

The analogy I'd use is this? SEC regulations on iBanks were as effective as a paper seatbelt. In other words, not effective at all. What did the SEC spend last year doing while the financial meltdown was brewing? It shut down prosper.com!

You may think that it's optimal to declare that everyone should put on a paper seatbelt and that when things get bad just do a bailout, but libertarians would prefer to let people make decisions based on facts the whole time.