Under the new theory of fi nancial regulation developed by this author, collapse in the United States fi nancial system was inevitable. Removal of protective measures accompanied by the failure to increase prudential measures, accompanied by confl icting state/federal relations, barriers to entry to the real estate industry, together with regulatory confusion resulting in regulatory arbitrage, set the
scene for not only erosion from within, but also for transnational crime to destabilize the entire fabric of the world fi nancial system. Understanding the causes helps in rectifying the fi nancial architecture. Th is chapter details the enormous numbers of regulatory models that can exist and outlines formulas to assess the type of regulatory model that should be imposed on a system aft er assessing the stage of economic and social development.