Some good articles to read: Keynesianism Vs. Coordination (from The Freeman, via Cafe Hayek)
Why creditors should suffer too (Cowen in NYT)
And in the NYT article, Tyler Cowen has this to say about how regulations should force investors to have more skin in the game:
"Even in good times, when there is no threat of insolvency on the horizon, credit agreements should provide for the possibility of a future, prepackaged bankruptcy. Those agreements should require that the creditors themselves would suffer some of the damage — even if the government stepped in to bail out the afflicted firm. There is a risk that these sacrifices will not be extracted when the time comes, but the prospect might still check the worst excesses of leverage...
"The more open creditors are to risk defaults, the more that risk will be priced into the system and into the investments, making catastrophe much less likely. A much simpler regulation that is likely to be more accurate because a creditor has way more information available to them than the SEC does. Of course this is a method that is difficult to "control" by those making the rules and they have to trust the system. That's why we have the SEC to watch the process to stop fraud."