As the White House unveils its long-awaited proposals to prevent another Wall Street meltdown in the future, keep a lookout for three essentials. Without them the Street will revert to its old ways as soon as the coast clears. In fact, now that the government has bailed out the Street, the biggest banks will take even larger and more irresponsible risks because they’re officially too big to fail. So these three reforms are critical. 1. Stop bankers from making huge, risky bets with other peoples' money. At the least, require that they back their bets with a large percentage of their own capital, and bar them from raising money off their balance sheets through derivative trades. Also require that they take their pay in stock options or warrants that can’t be cashed in for at least three years, so they’ll take a longer-term view. Best of all would be a requirement that investment banks return to being partnerships and the capital on their books be their own, not yours or your pension fund’s. When investment banks were partnerships, every partner took an active interest in what every other partner and trader was doing. The real mischief started once they started selling shares to the public. Essentials #2 and 3 after the jump. --Robert Reich
