Three years later and what do you get? Another financial crisis and the globe slips deeper in debt. Could regulators have averted this after their near-death experience in the fall of 2008? They have run from Paris to Basel to Frankfurt to Washington and back again talking through rules that clock in at thousands of pages to save the day. But in critical respects, all of these regulatory tomes leave the causes of the crisis untouched.

A week or so ago, we suggested that the U.S. bail on Basel because it wasn’t accomplishing its twin goals of ensuring competitive parity and preventing systemic risk. As we watch the financial markets teeter and our portfolio suffer, the more it seems that the U.S. commitment to these collegial cross-border negotiations does little but contribute to deferred action on least-common-denominator proposals that do nothing but delay tough decisions. We wish global negotiations worked – the financial system would be stronger if they did – but we fear not only that current events prove that these talks take far too long, but also that they may even encourage recalcitrant nations to hide from ugly truths about their own high-risk practices.

It’s not as if the financial system neared a cliff in 2008 and, then, was pushed back to relative safety, allowing regulators the luxury of cautious deliberation. The system bumped along in 2009 as financial institutions largely stayed under cover, stabilizing markets at the cost of the elusive economic recovery. But, in 2010, the EU hit the wall. In part because Irish banks and others in the EU were allowed to run wild up to 2008 and, in some cases, even thereafter, the sovereign-debt market blew a major gasket last summer. Ultimately, Europe claimed it had conquered the crisis, but this was largely because it faked the stress tests and cobbled together a giant bail-out package designed to avert attention from disastrous fiscal policies and highly-leveraged banks.

Speaking of the latter, the risks in the Continent’s banking system have gone from bad to way-worse, in part because policy-makers not only didn’t reform key rules, but also decided to perpetuate several that are, all over again, creating systemic risk. One key lesson of the crisis in 2008 was that models don’t work all that well and they surely back-fire if they aren’t tested under stress. Banks, like cars, need to be sure that the brakes work in an emergency stop, not just on a casual roll up to a well-lit stop sign. So, the EU grudgingly decided in the spring of 2010 to bow to US pressure and stress-test its banks.

Except, it didn’t. The stress test was in several respects fictitious. Sovereign debt is at the heart of this disastrous decision because regulators decided to build on the myth that this paper is risk-free by treating it as such – even under market and liquidity stress – for purposes of the stress test. Banks were thus allowed to pass the test with flying colors even if they held multiples of capital in debt issued by countries cuing up for an EU bond bail-out as investors priced their paper to reflect real liquidity and solvency risk.

Since the stress test didn’t reflect market reality, the EU rescue had to be large enough to prop a credible safety net under all of the high-risk nations and their banks, not just the few obvious basket cases. Or, at least, that was the plan. Politics of course makes it impossible to in fact craft so strong a basket for so many nations at so much cost.

So, the EU went back to Plan A: cover up. The 2011 stress test was no more credible than the 2010 exercise. It thus had a predictable result: worrying investors far more than comforting them. Investors then went back to testing the EU’s financial safeguards and found them wanting all over again.

What else wasn’t done during the repeated opportunities to make hard decisions before known problems resurfaced in still more dangerous form? Reflecting real risk in the rules related to sovereign debt – no luck there. In fact, the Basel III rules pretend for all the world as if this paper is just as magically risk-free as ever it was. Stress test financial institutions, including major shadow institutions that pose systemic risk? Not yet, as noted. And, given all these lapses, one more thing – how about planning for systemic risk through orderly resolution? Again, nothing doing in the EU, where the best the Continent could do for its banks was to provide taxpayer bail-outs all over again as stress mounted and counterparties yet again ducked for cover.

Last month, global regulators carried on as before. They published a consultative paper on capital surcharges for big banks – not shadow ones, as that’s still too tough to tackle – and kept the surcharge just as dependent on “risk-free” sovereign debt as all the regulatory-capital rules that underlie it. They also issued a nice consultative paper on systemic resolution and stress testing. It’s got lots of good stuff in it, although much of it was all the rage three years ago when regulators and analysts understood that too big to fail meant trillions in costs to taxpayers. We’ll all comment dutifully on the latest round of global proposals, but we’ll do so as two things happen – markets will remain, at best, unstable because the fundamental framework on which they rest is fragile and, even as this happens, nations that think the rules to come too tough will find lots of ways around them.