In Thursday's installment, the discussion of how Dodd-Frank would operate in the next crisis had progressed to the point where the authorities would get to choose which creditors to bail out and then supposedly recover the funds later on from institutions with $50 billion in assets or more.

The authors of Dodd-Frank faced a problem. When they contemplated establishing a fund to prepare for the next episode, opponents accused them of contemplating another bailout. So under Dodd-Frank, the government would provide the working funds and then recover them later somehow. This provides a measure of deniability that another round of bailouts is in store.

The discussion also conveniently ignores the availability of an array of backdoor devices the authorities can use to prop up zombie financial institutions. Ironically, the bailout that commentators are speculating about may already be taking place behind the scenes.

Moderator Steve Liesman of CNBC asked whether Dodd-Frank ends "too big to fail," whether creditors are lending with the expectation that the firms will be bailed out. Economist Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, responded that there is an academic skirmish going on using measures, like spreads compared with Treasury securities, to try to gauge what assumptions lenders are making.

Former Rep. Barney Frank, D-Mass., added that the idea for the resolution process came from former Treasury Secretary Hank Paulson, and much of the execution program came from former FDIC Chair Sheila Bair. He then firmly asserted that the people who claim that too big to fail still exists are "the best friends of the doctrine, because this is a matter of perception. Legally it's clear that no Treasury Secretary and no Fed Chairman can pay any institution's debts without first abolishing it."

Then, going farther out on the high wire he was already dancing on, Frank insisted that no official would want to commit a felony. (For me, what Frank is attempting to do is to blame the critics for the fact that Dodd-Frank enshrines too big to fail rather than ending it by giving captive regulators more tools with which to save zombie institutions, given that the incentive to do so already exist, because the too big to fail institutions are past and future clients of the individuals temporarily serving in government.)

Frank demanded to know in what universe the critics believe the government would rescue too big to fail institutions, and I would respond, in the same universe that has supported, subsidized and rescued zombie institutions over the four-plus decades of the financial crisis.

Liesman then asked what keeps the regulators from falling asleep on the job again once the good times appear to be back, and Frank responded, nothing, because memories fade and the value of regulation comes into question.

Holtz-Eakin remarked that there is too much arrogance about the ability to identify speculative risk and too many institution-specific arrangements, so the economy is not out of the woods yet, and he cited Basel III as an example of a regime that provides specific rules for banks.

When Frank sought to remind Holtz-Eakin that Dodd-Frank seeks to regulate activities, rather than entities, Holtz-Eakin was ready to remind Frank that the legacy risks to specific institutions are already in place.

At the conclusion of the panel, Liesman mentioned a letter from all 12 Fed presidents calling for greater regulation of money market mutual funds. Frank decried the practice that has developed within the Senate of stacking the agencies with staff appointees when vacancies occur.

We turn now to another event that took place at the Council on Foreign Relations (CFR) in New York that brought former Hank Paulson into the discussion as he and Frank were questioned by David Wessel of The Wall Street Journal.

In response to a question on how to hold people responsible for the crisis accountable, Paulson argued that bubbles develop that may have roots in government policy, and banks make mistakes, but what happened in 2008 was the result of a 100-year storm, not the attempt by anyone to blow up institutions.

Frank added that there are ambiguities in the system that don't imply illegalities, and people who don't appreciate this are seeking "psychic income."

Paulson and Frank then rehearsed the argument that before Dodd-Frank the authorities lacked the tools to deal with failing nonbank financial institutions. Frank accused critics of the Bear Stearns bailout of indulging in "National Free Market Day" by singling out this event for the market to take its course.

He recalled that Lehman would have been rescued by a deal with Barclays analogous to what JPMorgan Chase did with Bear Stearns, but the U.K. Financial Services Authority pulled the plug.

Wessel then sought reactions to statements by former Barclay's CEO Bob Diamond and Sen. Elizabeth Warren, D-Mass., that Dodd-Frank hasn't solved the problem of too big to fail.

Paulson proclaimed that more needs to be done in the international arena to make sure that financial institutions aren't propped up in their current form.

Frank restated that the Act prevents the regulators from keeping institutions alive and requires any assistance to be recovered from the largest banks.

The panel ended with Paulson and Frank lamenting that the public doesn't appreciate how well it was served by the regulators' actions in the crisis. Frank exhorted political donors in the financial community to contribute $5,000 to support the Fed rather than criticize it.

As an inveterate critic of the regulators, I would point out that the elements that are needed for the public to have confidence in regulators are transparency, independence and accountability, and all are lacking under the current system. This is especially the case when a flow of high-powered industry executives passes serially through sensitive policy positions where they are in a position to rescue institutions they worked for and then cash in again after they leave government.

To say that the events of 2008 represented some sort of force of nature is to ignore longstanding defects in the business models of both specialized and diversified institutions that were allowed over decades by compliant regulators to engage in risky activities on a grand scale with little or no capital behind them, with the result that any event that would interrupt the availability of needed liquidity could bring down the U.S. and global financial systems.

Nothing has ever been done to contain this risk. The number of vulnerable institutions and the scale of their exposure to liquidity events is greater than ever before, but Wall Street has voted daily that the risk of missing the current government-sponsored boom is greater than the risk that the new Treasury secretary and Fed chairman will fail to answer the call and redeem the put.