In the wake of The Great Financial Implosion of 2008, we've seen a major push to stop Wall Street from taking insane risks and blowing up our economy again.

On the other hand, hedge funds, Wall Street lobbyists, and financial commentators are warning about the possibility of "over-regulation." Their position -- that rules limiting risky speculation could reduce "financial innovation" and efficient pricing -- was exemplified in a March editorial in The Washington Times: "Speculators make money by reducing price differences. ... [For example,] they buy oil when it is still relatively plentiful and put it aside for when oil is expected to be scarce. ... Markets have gotten extremely good at smoothing out these prices."

Really? How's that working out?

Now, I forget a lot of things -- asparagus, chicken, and milk left to rot in the fridge. But like you -- if you have heating bills, drive a car, or were conscious in 2008 -- I remember what happened to oil prices. "Smooth" is not how I'd describe them.

OK, so speculators didn't do such a great job smoothing out those prices, but at least we can concede that heightened speculation tended to ease oil's volatility, right?

Not so much

A prominent Forbes article tells the tale of an SEC and bankruptcy court investigation into possible oil price manipulation by a number of Wall Street firms that may have cost us up to $500 billion in higher oil prices.

Last year, Semgroup, the now-bankrupt oil pipeline giant, bet reckless amounts of money that oil prices would fall -- much of it against a Goldman Sachs (NYSE:GS) trading arm. When that didn't happen and Semgroup ran into trouble, Goldman, along with Merrill Lynch and Citigroup (NYSE:C) , offered to help Semgroup raise money. Goldman then reportedly examined Semgroup's trading positions before retracting its offer.

Meanwhile, Semgroup was destroyed as a number of Wall Street firms bid oil prices up from the mid-$90s to $147 per barrel -- the biggest of those gains on no news. After Semgroup collapsed, there was no reason to continue bidding oil higher, and prices promptly fell. The results were windfall profits for one of Goldman's trading arms and whichever firms participated in the short squeeze against Semgroup.

Oh yeah, and a possible $500 billion price tag, which, if you believe John Catsimatidis, is "how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days," reported to Forbes. (Granted, Catsimatidis isn't an impartial bystander in this -- he's been battling to gain control of the bankrupt Semgroup.) If true, that money would've benefitted not only ExxonMobil (NYSE:XOM) and other Big Oil players -- who garnered so much bad press for last year's windfall profits -- but also places like Saudi Arabia, Iran, Russia, and Venezuela.

Not the first time this has happened

A similar confluence of events occurred in 1998 when a group including Goldman Sachs, Salomon Smith Barney, AIG, and others ganged up against Long Term Capital Management (LTCM) as Goldman and JPMorgan (NYSE:JPM) downloaded the faltering hedge fund's trading files, according to interviews of the participants recounted in Roger Lowenstein's expose of the debacle, When Genius Failed.

Far from reducing pricing inefficiencies, the banks' actions and LTCM's reckless accumulation of $1 trillion in derivatives made Treasury spreads go crazy and nearly brought down the entire financial system -- before the Fed stepped in to broker a bailout.

Is this the "innovation" we must protect?

Stories like these and the recent blowup of the financial system -- in addition to common sense -- should make us suspicious when Wall Street complains that increased oversight could limit its ability to create amazing new "innovations." Remember that its most recent innovations, like credit default swaps and collateralized debt obligations cubed -- mind-bogglingly convoluted bundles of bundles of bundles of toxic mortgages -- not only had little practical function, but they nearly destroyed our economy, impacting even strong firms unrelated to the financial industry like Microsoft (NASDAQ:MSFT) .

As Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) Vice Chairman Charlie Munger observed, "It isn't as though the economic world didn't function quite well without [credit-default swaps], and it isn't as though what has happened has been so wonderfully desirable that we should logically want more of it."

All of this has happened before and could happen again

Recently, when we asked Warren Buffett and Charlie Munger for their thoughts on the subject, they lamented that "even after this mess it'll be tough to get anything passed" because, they said, Wall Street spent $500 million over the last decade in lobbying and financial contributions. And given that lobbying efforts are now apparently intensifying, it's not the specter of too much reform, but rather a return to business as usual for Wall Street that we should fear most right now.

Buffett has been warning for years that we need improved oversight over financial institutions -- especially on the use of derivatives and leverage -- so that we aren't faced with a repeat crisis, telling CNBC: "Derivatives enable people entirely to get around margin regulations. ... So we need something new."

Yes, our economy is facing tremendous challenges, but as Buffett reminded his shareholders, the United States has overcome two world wars, more than a dozen recessions, stagflation in the 1970s and early 80s, and massive unemployment during the Great Depression.

Yet despite these challenges, and without credit default swaps, Buffett explained that Americans' standard of living rose seven-fold last century, while the Dow increased from 66 to 11,497: "Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

Ilan Moscovitz owns shares of Berkshire Hathaway, a Stock Advisor recommendation. Microsoft and Berkshire Hathaway are Inside Value selections. The Fool owns shares of Berkshire Hathaway. The Fool is investors writing for investors.