The reason the government had to pick up the tab is because they assumed the risk for the banks on the mortgage investments. This was not a result of deregulation- it was more due to the moral hazard the government created. If the FDIC, Fannie/Freddie, the Fed, etc. had not existed, these companies would not have been bailed out and perhaps more importantly, they would not have acted so irresponsibility because they would have no insurance on losses. The government provided that insurance and with that paved the way for bad decisions. You can say that more regulation would've solved it, but not only would more regulation mean a less free society, a larger tax burden, and distorted markets, but would also likely create a moral hazard somewhere in the system. A more deregulated market would have allowed for sustainable market growth, while not holding the risk of moral hazards.
Sure there was some deregulation, but the reason the banks lobbied for it was because of the moral hazard it created due to other market interference that already existed in government. It was really the unsafe middle ground where we found ourselves that created this mess. Now, you can argue that we should have had more regulation, but that would only stall markets and create more distortions. Even before deregulation such as with Glass-Steagall, the existing regulation had been enlarging and pumping up bubbles as is evident by the boom-bust cycle that grew in intensity since the late 1920s. What I am saying is we should go the other direction and rid of as much regulation as we can, in which case if a company makes a bad decision and goes under, then so be it. Bankruptcy and the market will always evolve to meet demand and any assets held by the company that aren't toxic would quickly be sold off to investors (and even toxic assets could be sold to long-term investors.)
But, it still isn't that simple
Such legislation would still leave room for drastic over-leveraging due to the Fed's monetary policies and irresponsible behavior due to GSEs and government programs that assume risk for private firms.
