Markets are supposed to fail. It's their nature. Something better will rise from their ashes.
No need to regulate market failures at all, like you said, they nearly always have the opposite effects.
Only when some people gain advantage at the expense of others, should there be regulation.
what does 'regulate market failures' mean?
If we don't regulate, then those who can-will loot. So we always should start with regulation. What failure enters this picture? 'Gain advantage' includes being responsible for setting a Libor rate... for that matter, any point which is setup to run on "the honor system" needs to be regulated without any hesitation or debate. No failure is required to warrant regulation and watchdogs.
We regulate nuclear weapons without debate... we need also regulate bankers and their investor buddies too. In either case, failure is not an option.
EDIT: and to head you off, Maddus, abusing the financial system metrics, e.g. Libor, is not the same as allowing Bear Stearns or Lehman Brothers to fail.