The current capital market structure, with its high fees, delays, and limited access, is a direct result of regulations from the 1930s. These laws created layers of intermediaries to enforce trust, baking in complexity and rent-seeking by design. This historical context explains why the system is ripe for disruption by more efficient technologies.

A major regime change is underway to "reprivatize the financial system." This involves shrinking the Fed's footprint and loosening bank regulations to compel commercial banks to step back into their pre-GFC role as the primary creators of credit and market liquidity, reducing reliance on the central bank.

Core components of today's financial landscape, including FDIC insurance, Social Security, and even the 30-year mortgage, were not products of gradual evolution. They were specific policies created rapidly out of the financial ashes of the Great Depression, demonstrating how systemic shocks can accelerate fundamental structural reforms.

Morgan Stanley's 1935 founding was a direct consequence of the Glass-Steagall Act, which forced a separation between commercial banking (deposits, loans) and investment banking (trading, underwriting). This regulatory mandate created the specialized firms that define the structure of modern finance today.

Large banks, private credit giants like Apollo and Blackstone, and trading firms are carving out specialized roles. This effectively disaggregates the financial system, recreating the separation between deposit-taking and riskier securities activities that the Glass-Steagall Act once mandated.

The financial system operates in a cycle of crisis and calm. After a crash, strict regulations are imposed. But the constant demand for growth and profit eventually leads to these rules being relaxed as memories fade, inevitably setting the stage for the next crisis.

The massive growth of private capital was a direct consequence of post-2008 regulations like Basel III and Dodd-Frank. By imposing strict capital and liquidity rules on banks, regulators curtailed their risk-taking, creating a vacuum that the private capital industry expanded dramatically to fill.

The Basel III regulations, intended to de-risk the financial system by making risky lending expensive for banks, had an unintended consequence. The demand for risky loans didn't vanish; it simply migrated from the regulated banking sector to the opaque, unregulated private credit market, creating a new systemic risk.

The migration of risk-taking from banks after the financial crisis spawned three major, distinct industries. Private credit absorbed bank lending, proprietary trading firms took over market-making, and multi-strategy hedge funds replicated the activities of internal proprietary trading desks.