08/03/2009 05:12 am ET Updated May 25, 2011

Restructure, Don't Revive, the Broken System

Check out this sad story in the New York Times: apparently Morgan Stanley has been doing the right thing by taking fewer risks in their trading than their competitors at Goldman Sachs and Citibank. But in the perverse Wall Street system we have allowed to remain in place in this country, where the big financial traders make money for their firms by big gambles, the bankers who are actually being more responsible are being punished for it. Meanwhile there are record bonuses for the traders at Citibank and Goldman.

This is the problem I have with the resuscitation model rather than the restructuring model when it comes to Wall Street. I give the Obama team credit for wanting to regulate these big financial traders more, but they need to go further than that and change the fundamental financial trading system. What is being recreated in front of our very eyes is the exact same system with the exact same problems that led to our financial collapse in the first place. These big financial conglomerates will still have all the same incentives to take huge risks, and because they are so huge, the risk is to not just to their own company, but to our entire economy. And their financial clout will be compounded by the political power of being that big, which will inevitably lead to weaker regulations and captured regulatory agencies.

Oh, and by the way, that whole "we have no choice but to revive the banks, because that will start the credit flowing and create jobs" thing: it's not working either. Unemployment is going up, we're still losing hundreds of thousands of jobs every single month. I know that it takes a while for jobs to start being produced, but this jobs report is much worse than the forecasts predicted, and the Geithner/Summers team has consistently been too optimistic in their guesses.

We need a big, bold change of direction in this economy. The old models aren't working. Let's get some economists in the White House who actually made accurate predictions on the economy, and let's take on the big banks that brought us this mess. These Wall Street guys are back to their old tricks -- risky trades, huge bonuses -- and the rest of us are getting hosed.

It's time for a fundamental change in direction.