"Our results show that government policy decisions, often in deregulation but also in regulation, have undermined the ability of our economic system to function and made it highly susceptible to crises." (emphasis mine)
Seems you missed a key point. Also,
"...other acts of regulation and deregulation have been carried out under the influence of corporate interests."
So it seems regulation or deregulation isn't the real issue. The real issue is manipulation of laws based on corporate interest.
The losses on Fannie/Freddie are estimated to be in the range of $100-200B, depending on what house prices do.
http://online.wsj.com/article/SB1000142405297020368750457700...
If Fannie/Freddie lost less money relative to their size (citation?), it's only because the denominator is so large.
The uptick rule is also a red herring. We had a controlled experiment in 2004 - the SEC eliminated the uptick rule for about 1/3 of securities. No disaster occurred for those 1/3 of securities that didn't also occur for the remaining 2/3.
There is no compelling argument whatsoever why shorting stocks should be harder than going long. The main people who want to prevent short selling are executives of failing companies - short selling allows speculators to inform the market about the companies impending failure, which tends to be bad for the CEO.
Actions have consequences, so when the government regulates a market, the market players react, often in unintended ways. Likewise, when the government then re-regulates (often called "deregulation") the market, the market players react again in unintended ways.
The financial crash was caused by the government coming in and taking over another industry, residential real estate mortgages, by purchasing all the secondary mortgages and setting standards. When the government lowered lending standards to help lower class people purchase houses (they couldn't afford), it unintentionally caused the mortgage-based securities market to crash. Mortgages used to be a safe investment, but after the government lowered lending standards, this assumption that the markets had previously used was no longer true.
Further government distortions of the market are cited in the report, namely ethanol subsidies. So, I would conclude that government distortion is what is breaking the markets, and that less government control is needed to return to freer markets.
