Today, there will be a vote in the Senate on a motion to proceed to financial reform. It may or may not pass. Ultimately, no matter what happens, it will be tinkering around the edges. Only two things would qualify for real financial reform - and neither is in this bill.
The first thing is to revoke the corporate charters of most Wall Street firms and force them to operate as partnerships. This would quickly make them risk averse, since the personal property of the partners would be on the hook, rather than simply the accumulated shares of the owners. That probably won't happen and I am not sure it should - although it would certainly end Wall Street as Casino.
The second thing is to move more quickly to employee-ownership in the economy as a whole. (The reason I can't insist on the first thing is that I can't honestly argue for employee-share ownership of Chrysler while denying it to Goldman Sachs). Employee-ownership can be expanded in two ways:
The first way would be to allow unions to sink most of their pension funds into the firm(s) that their members are employed at. This is currently forbidden under the Taft Hartley Act, primarily to stop what was seen as socialism from taking over American industry (even though that would have been the cure for what currently ails the economy). Some portion of pension funds would be invested in other firms, but safety can be achieved for less than 90% diversification if unions have enough employers to spread the risk or if many locals combine their insurance pool for a larger, more secure, fund.
The second way to do this is to use Social Security personal accounts to allow employees to invest two-thirds of their (equalized) employer contribution in employer voting stock - with the other third invested in an insurance fund made up of similarly situated companies. To make funding adequate the income cap would be blown away and employee-paid contributions would be ended, with the remaining employer contribution equalized at the average contribution. If a company's management pulled an Enron - or even started to - one quarter of the employee stock shares plus one in combination with the insurance fund shares could fire management and install a neutral manager from the insurance fund to investigate and reorganize the firm. If the firm could not be saved, employees would be paid off with shares in the insurance fund. The other feature of this reform is for unions or employee professional organizations to vote the shares of their employee-owner members rather than appointing a unitary board.
Employees at non-stock firms would buy shares non-voting shares in the insurance fund only. Even though most firms are non-stock - most employees work for firms that are, which are bigger firms.
Very quickly, most publicly traded firms would go private (under either scenario) and most employers would reorganized to become employee-owned - since the best employees would want to be owners - especially if employee-owned firms got smart and began to pay for innovation directly rather than burying it in higher salaries for "creative" personnel.
Employee-owned firms could also do what European unions do and offer financial services to their employees, including consumer debt, mortgage debt and educational debt - as well as the full gamut of insurance services. This would both encourage long term employment arrangements and lower interest rates - since employee-ownership means that interest need not be charged if there are no outside investors. Indeed, the only way to avoid peonage is to limit these tools to employee-owned enterprise.
As you can see, this would radically reorganize the financial sector. Financial sector employees would go to work for employee-owned firms. While some firms might utilize outside services, the vast majority would internalize most of their supply chain and employee-services (from finance to medical to land acquisition and home building). The entire financial sector would cease to exist as an independent entity and would no longer need to be regulated except to make sure that employee-owners are free to leave or are treated equitably if terminated.
Employee-owned firms could also offer services that replace the State. They could hire teachers to train employees' children or pay for their tuition at a public or private charter school. They would send younger employees to university and pay them to attend. They could provide involuntary mental health services to employees and family members - replacing the prison system and preventing most tragedy before it happens. They could provide additional income to larger families so that government can get out of the income redistribution business (and take it away when children leave home to remove the perverse incentive to fire experienced employees who demand more money to support their families). They could pay longer term employees with stock dividends rather than hire salaries - another way to encourage longevity. They could hire under-educated workers and send them to school as well instead of paying taxes for the government to do so. They could build employee homes in cohesive neighborhoods and provide the same services that Home Owners Associations provide (roads, road clearance, security) and even some that local governments provide (rescue and fire protection).
Employee-owned firms could even do international development - at least the ones that are already multi-national in employment or supply. Indeed, they would have to so that trade isn't used to offshore their jobs. Giving overseas workers and suppliers the same standard of living that American workers get saves American jobs by stopping exploitation. It also raises the standard of living for overseas workers generally and leads to the creation of a world-wide middle class, with the demand for local democracy and the recognition of human rights. Democracies generally do not go to war with each other, so the need for military spending goes way down and may even become non-existent - thus overcoming the need for any kind of government at all.
The only reason for any taxation would be to finally pay off the national debt and fund moving from Social Security to private ownership - although when these limited obligations are met, even income taxes can sunset.
All this would occur from repealing the Taft Hartley Act prohibitions on union control of employers and creating personal accounts for Social Security.