05/24/2012 11:52 am ET Updated Jul 24, 2012

Wall Street Reform: Taking a Knife to a Gunfight

In the heated climate leading up to the presidential elections and in the middle of a difficult economy, Wall Street reform has become the focal point of political debate. But even if people can agree that it is necessary, the question still remains of how best to go about it.

As for the law, Congress needs to beef up the Volcker Rule (part of the wider Dodd-Frank Act) to capture the spirit and power of the Glass-Steagall Act of 1933, which banned commercial banks from engaging in investment banking activities and was successful at preventing the type of risk-taking that brought down Lehman Brothers and which has recently rocked JPMorgan Chase. The Glass-Steagall Act was systematically dismantled by the banking lobbies over the last few decades but now we have the Volcker Rule, which with some revision and combined properly with closer oversight of Wall Street, can get the job done.

But laws are useless without proper enforcement and this is our deadly blind spot.

This week, Securities and Exchange Commission Chairman Mary Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler told lawmakers that their agencies lack the manpower, technology and overall budget to effectively police the financial sector. This is not news but given the urgent need for Wall Street reform, it is no longer something that we can ignore. The fact is that bodies like the SEC or CFTC are veritable ants next to the mammoth of Wall Street; the scale, wealth and power of the banking industry are so vast that a handful of forensic accountants with limited resources cannot possibly do what is needed -- the equivalent of bringing a pocket knife to a gunfight involving AK-47s.

The solution to this is obviously money but there is a big catch. The decision to fund government agencies are made by Appropriations Committees, which are often influenced heavily by lobbyists -- in this case the banking lobbies. Given the astronomical amounts of money that banks currently make through activities that might get regulated, you can bet that they will spend a fortune on buying support in Washington. And in a climate where Republican lawmakers are ideologically opposed to big government in the first place, and are champions of special interests in the second, it is guaranteed that any agency overseeing the financial sector will struggle to secure funding for its mandate.

But this does not mean that things are hopeless. With both public and political support at a peak for regulating Wall Street, the Democrats have a real opportunity to convince their Republican cousins to do the right thing, not to mention that it is a good way for Barack Obama to prove his commitment to our economic welfare by exerting his presidential muscle on this issue.

Even so, there is still one more roadblock on the highway to banking reform, and that is a dearth of talent in Washington.

Monitoring a complex industry like banking requires experienced ex-bankers who understand the inner workings of the system, who can read between the lines of financial statements, who can recognize the signs of fraud even when they are well-hidden or seemingly insignificant; in other words, those who have the knowledge, intelligence and instinct to be good financial cops. Washington needs financial experts in order to do its job.

But people like that don't come at bargain basement prices. True, public service is its own reward, but that only goes so far. There must be some balance between the public service aspect of the job and financial rewards. Funnily enough, if the SEC were a corporation, no one would argue that the abysmal pay scale is a big factor in the agency's poor track record. From Enron to JPMorgan Chase, the SEC's failures can at least partially be attributed to a lack of motivation on the part of its employees. As they say, "You get what you pay for."

And yet, while people continually carp about the competence of government servants, no one is willing to pay for the service that they want.

That is not to say that the SEC must pay investment banking salaries to attract smart people. There are plenty of talented people who would gladly take a pay cut from their private sector jobs in order to serve their nation. But the SEC must still make the overall package worthwhile. After all, who in their right mind would give up a well-paying job to join an organization that is severely under-funded, hated by the private sector, saddled with a history of failure, under constant political fire, and pays poorly? A talented person might put up with some of the drawbacks, but not all of them.

So the bottom line is that if Congress is truly serious about banking reform, it needs more than just well-intentioned laws on the books like the Volcker Rule; it also needs the right people to enforce those laws, it needs to give those people the resources they require to do their job properly, and it needs to pay them decently. Expecting the financial watchdogs to monitor an arena as large as Wall Street without the right tools and motivation is unreasonable and stupid.