Regulatory capture because open models undermine the business models they have used to rack up debt. I suspect they didn't think the Chinese / open source communities would catch them so quickly. Turns out it's not so hard to build frontier capabilities, the capital has been harder, but is also shrinking as a requirement
A question I find gets closer to the heart is "Why is The West so negative/fearful on Ai prospects while much of the world is positive/excited?"
Regulation is in order, however what/where/how (the details) is the hard part. We don't forbid writing code, even in finance, but we do require companies selling such software to follow certain rules. Regulate the applications, not the tool