During his three-hour appearance on CNBC Monday morning, Warren Buffett mentioned a point marked here the other day. Asked why the Federal Reserve didn't stop MF Global from betting on European debt, he said: "to some extent, they're making the same mistake that regulators have made all over the world about sovereign debt. Sovereign debt is pretty generally regarded as risk-free, and that's why the European banks loaded up on it. They didn't have to count it for capital requirements, and it was a way they could leverage up further without having the leverage rules called into play. ... the regulators in my view were very lax in terms of just regarding all sovereign debt as terrific, even when the spread started widening out."
This site is often critical of Mr. Buffett, but that particular point sounds about right.