I think this has to be done extremely carefully - we don't want governments interfering too much in the operations of companies but it is clear that something has to be done.

My own personal scheme is that some public body would monitor companies and try to identify those that belong to the "too big to fail" category. If any organisation falls into this category then the executives of the organisation would be notified individually that if the organisation fails and has to be rescued using taxpayers money that they personally would be on the hook for all of their assets. It would then be up to the executives to reduce the size of the company, e.g. by splitting into smaller organisations that would be under the threshold, or accepting the risk if they believe their organisation is perfectly well run.

Of course, there are a lot of problems with this scheme - notably that banks would simply incorporate somewhere else, but something like this has to be put in place or the same thing is bound to happen again.

[Edit: In one of Vernor Vinge's short stories he has Earth being conquered by an alien race whose only form of central government are officials who have the power to order any organisation to be split up if it becomes too powerful.]

I couldn't agree more that banks should face severe penalties, both civil and criminal, if they engaged in system fraud or deception.

But denying someone employment and investigating them for criminal wrongdoing because they made more than $5m working for financial institutions?! You must not know any venture capitalists... and in any case, whatever happened to innocent until proven guilty?

Yea I'd at least investigate if they were any criminal wrongdoing FIRST, then deny employment if it turned out they were.

I don't think we need any new laws for this:

* If someone committed a crime, then they will usually be in jail (a pretty effective way to be denied employment!) * If they've also violated an SEC statute (or settled with the SEC), they will often be barred from the securities industry for life by the SEC. Examples include Michael Milken and Henry Blodget. Or they can be barred for life from serving as an officer or director of any public company (examples include Angelo Mozilo of Countrywide Financial).

We don't need new ways to blackball people. We have a powerful system of civil and criminal statutes that do a great job of doing that. The problem is that nobody is being prosecuted for any crimes by state or federal prosecutors, or by federal agencies like the SEC. That's the real problem to solve.

Ballsy.

I sorta agree with #1. "Too big to fail" is too big. Doubly awesome, "too big to fail" is also counter to standard issue investing advice: diversify your portfolio. "Too big to fail" really means "poorly diversified portfolio".

But #2 risks throwing out the baby with the bath water. No doubt that some people prospered solely at the expense of the taxpayer, but it's also likely that some of the people who prospered were competent folks who were just at the right place at the right time. Removing them, even if they did prosper,might remove the best folks to right the banks.

Well, honestly, I've toned my feelings down a bit in my post. My first thoughts were of mass Wall Street hangings, burnings at the stake and branding surviving executives/technocrats/economists on their foreheads with the letter "E" ("Its the Economy, Stupid!").

There are potentially at least 3 problems with employees involved: negligence, crookedness, and competence. I want to expand on the last of these, "competence", since, unlike the other 2 problems, I do not believe that it can be corrected.

The financial industry has failed to absorb the lessons of the last 100 years concerning financial instruments. Taleb's "Black Swan" addresses this failure as does Fox's "The Myth of the Rational Market". Those executives/economists/technocrats unfamiliar with the ideas in those works should be removed forever from the industry. That means most of them. Why? Because they are ineducable - their entire training is based on defunct financial models. The finance industry must be rebuilt from the bottom up with more robust models.

But I don't expect such real reform (of either sort: the burnings or the education). Instead I expect the same damn thing, another financial meltdown, to happen yet again within the next decade. Perhaps then some crazed financial Savanarola will be able to arouse the crowds to a passionate frenzy over the trillions lost. Maybe then heads will fall and true change will take place.

Breaking up the banks will only delay them for a bit or will encourage them to do some neat accounting tricks and further take advantage of whatever loopholes they can.

Even if they do split, what's stopping them from forming a free organization of banks that colludes to further mess things up? Note that I said free organization rather than corporation.

No, what's needed is a completely different system that makes having a lot of money no different than having just a bit of money. Then there wouldn't be an incentive to make millions of dollars.

You're asking for more government intervention because of the poor results from the first intervention. If the government didn't bail out the banks in the first place, most of these banks would have been broken up and their assets sold off during bankruptcy. Many of those executives who made big bucks running their companies into the ground would have been out of a job.

You could even go one step back: if the government and its central bank didn't subsidize risk through low interest rates, incentives to lend to people who were massive credit risks, and so on, we may not have had the housing bubble - at least at that scale - to begin with.

Let's go back even further to the easy money .com bubble and the resulting collapse which "excused" the artificially low interest rates mentioned above...

Instead of focusing on more intervention, how about we argue for fixing the real problem: let the market work, end these artificial interest rates, and stop debasing the currency.

I agree absolutely. It really irked me when the government took over Fannie Mae and Freddy Mac( FNMA, FHLMC). As a result, home prices remain ridiculously high given the record number of foreclosures and large numbers of mortgages "underwater".

As expected, government intervention has created obvious winners (the financial industry, people who buy too much home) and losers (almost everyone else) once again. I would prefer your solution.

But structuring the financial industry to prevent it from re-creating known problems is also necessary.