The cornerstone of our financial regulatory system is disclosure. The argument makes some sense: If investors have all the facts they need to make a decision, the government should let them make the decision they feel is in their best interests.

Securities regulations require companies to tell investors about how much the business is making. Managers must also discuss the risks facing the company.

Housing regulations require lenders to disclose key details of a home loan. Borrowers must be given a detailed settlement sheet spelling out fees and terms.

Clearly, there is lots of disclosure out there. The question is, why doesn’t it seem to be working?

Let’s consider securities disclosures. If you read through any SEC filing, you’ll find lots of risks. In fact, you will find every conceivable risk spelled out. Yes, some of that disclosure helps investors understand the businesses they own. But much of that disclosure is inserted by lawyers hoping to give the company cover in case of a lawsuit.

The same is true for any mortgage. Yes, I found my settlement statement helpful. But I didn’t bother to read all the terms disclosed in my loan documents. Did you? If I had actually bothered to read all of the paper put before me, I would still be settling on my home.

It should also be clear to everyone that disclosure was not enough to prevent the subprime crisis or stop the credit crisis on Wall Street.

To be sure, disclosure is not the only tool regulators have. The SEC and banking regulators can put companies out of business, repealing licenses, and, in the worst cases, referring individuals for criminal prosecution.

The law also requires stockbrokers to determine whether investments are suitable for their clients. A broker can’t stuff Grandma’s life savings into cattle futures.

But suitability and the threat of prosecution are last resorts. Regulators clearly rely on disclosure to do much of their work. Too much, I would argue.

Over the years, I’ve seen regulators respond to crisis after crisis by tweaking the disclosure. Add another form here, put it in plain English, add on a box.

The problem is people just don’t seem to pay much attention to disclosure. In some cases, market forces are too powerful to withstand. In other cases, the disclosure is simple ignored or not understood.

The alternatives to an over-reliance on disclosure is to limit behavior and the products that enter the marketplace.

Regulators do some of that now. Unsophisticated investors are not allowed to participate in hedge funds – too risky. Some states don’t allow lenders to offer loans carrying interest rates over 36%, which means borrowers can’t elect to take on such a loan, even if they need or want one.

There is a risk to regulating behavior. Doing so limits innovation. And innovation is the engine of our financial markets.

I don’t know what the right balance is here, but I suspect disclosure has run its course. Mandating more of it won’t protect investors in an increasingly complex financial world. We’ll have to find a different way, if we want to have a better shot at preventing the next financial crisis.