Care to elaborate on what that “one thing” is? You seem to be suggesting that if AAA-rated tranches of securitized assets were to “attract new demand”, then somehow the taint of regulatory arbitrage is wiped clean.

I’ll proffer again my solution to this flavor of regulatory arbitrage: that in any securitization, the regulatory capital requirements for the securitized pool be held constant both ex-post and ex-ante securitization. Capital requirements should travel with the risk, no matter how it is sliced and diced. If you want to use securitization to reorganize the risk profile of a pool of assets (be they loans, bonds, mortgages, other securitized products, or whatever), the aggregate capital requirement for the securities backed by that pool should equal the aggregate capital requirement of the pool prior to it’s having been sprinkled with securitization-flavor pixie dust. And for fun, let’s call it the law of conservation of regulatory capital.