Regulation-what's it good for?

The government's rules in the banking and insurance industries purport to limit the risk that firms in those industries are permitted to take. In a free market, each individual and each firm would make its own risk/reward assessment and act accordingly. Young people and young firms might eagerly seek more risk and more reward than old people and old firms.

Government rules in banking and insurance are necessarily for the purpose of limiting risk, else why have them? One-risk-fits-all rules prohibit some people and some firms from seeking the risk and reward that they would seek voluntarily in a free market. Why have such rules? What does "society" get in return for limits on freedom to choose? Over the last two years we have seen that the regulators missed the dangers in mortgages, banking, and insurance. Of course they did. If the people at Lehman Brothers didn't know they were risking their very firm, how could the regulators know, with their inferior knowledge? Regulators always have inferior knowledge compared to the people on the front lines who are risking their own money, or that of their employers and/or clients. The only conclusion is that regulation is good for nothing except raising costs and lowering rewards.