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To fix 'Too Big to Fail' start with simplicity, diversity and fairness
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The big banks are too big. By themselves they represent the very embodiment of systemic risk. Here is a possible solution.
Simplicity - many banks have thousands of divisions in their corporate structure. To unwind a structure this complex is a gargantuan task. What is needed here is limits on a corporation's tax structure that make it much easier to take it into receivership in the event of a bankruptcy.
Diversity - a bank should be either a savings and loan, a brokerage firm, a credit card company or an insurance company. When these types are mixed the punch is ready and the trouble starts.
Fairness - no tax havens please. If you operate in this country the money stays here unless it is in stocks and bonds of legitimate foreign markets. If you hedge your own book of investments and you take the other side of your clients' positions, at least let them know what your net position is relative to the various markets.
FDIC Insurance - don't tax the whole world for future bailouts. We are wise to this strategy and we do not want bailouts of any kind no matter how they are funded. This should only be available to savings and loans.
Proprietary Trading - if you want to play the global casino, use your own money and do not borrow one dime from your clients or the Federal Reserve or the Treasury i.e. the Taxpayers. Fix this and the bonuses will take care of themselves.
Securitization and Financialization - if you originate a loan it's yours for life. We do not want every debt in the world turned into a financial instrument. Corporate and treasury bonds will do just fine.
Derivatives - these instruments are like selling multiple insurance policies on one car or home. Hundreds of people look to collect on the same claim. That's how Goldman-Sachs got $12.9 billion from AIG. Do you wonder why they (AIG) got bailed out and Lehman did not? Sell them only to qualified investors and let's have some ratings agencies who are truly independent and not paid by the creators of these instruments so there is no conflict of interest.
Regulatory Agencies - we have enough of them. But there is a revolving door between regulators and Wall St. firms. This is another obvious conflict of interest. Let's put up a brick wall between the two and get some citizens into the regulators, including the Federal Reserve, as well as more oversight of the regulators as in HR 1207.
This might be a good start!
P.S. Mr. Obama where is my financial reform?
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