The truth is that the most acute problems in the years leading up to the financial crisis occurred in what we would traditionally think of as pure investment banks – Bear Stearns, Lehman Brothers, Merrill Lynch and Morgan Stanley – which had generally gone hog wild in the manufacture and sale of mortgage-backed securities, billions of dollars of which they allowed to build up on their balance sheets.

When the banks’ short-term lenders no longer wanted these assets as collateral for overnight loans, the investment banks could not finance their daily operations and sent up the white flags of surrender. As we all remember, JPMorgan Chase rescued Bear Stearns and Bank of America rescued Merrill Lynch. Lehman Brothers was allowed to fail after the British regulators blocked Barclays, another big commercial bank, from buying it. Both JPMorgan Chase and Bank of America were already in the investment banking and commercial banking businesses when the federal government encouraged them to save the two failing investment banks.

It was clear that the path to salvation for the financial system – at least in 2008 — was through the big banks that were already in the investment banking business. (The glaring exception to this pattern was Citigroup, which, while a big commercial bank, would surely have failed without its government rescue, in large part because of the behavior of its investment bankers.)

If Senator Warren had her way, JPMorgan Chase’s rescue of Bear Stearns and Bank of America’s rescue of Merrill Lynch would have been prohibited. What fun to contemplate the idea of Lehman Brothers, Bear Stearns and Merrill Lynch in bankruptcy at the same time.

You can bet that Morgan Stanley and Goldman Sachs would have also filed for bankruptcy in Senator Warren’s world because essentially the Federal Reserve rescued both of those investment banks, in late September 2008, by allowing them to become bank holding companies. That gave them access to short-term funding from the Fed, a huge benefit because short-term financing in the markets was drying up. (After the Fed allowed Goldman Sachs and Morgan Stanley to become bank holding companies, each quickly obtained a lifesaving equity investment: Goldman from Warren E. Buffett and the public market; Morgan Stanley from a large Japanese bank.)

The problem on Wall Street is not the size of the banks, their concentration of assets or the businesses they choose to be in. The problem on Wall Street remains one of improper incentives. When people are rewarded to take big risks with other people’s money, that’s exactly what they will do. The problem is that the top bankers, traders and executives on Wall Street collectively no longer have enough of their own skin in the game to make a difference to them when the things that they do go awry. They get rich either way. That is what needs to change on Wall Street, not some outdated, cockamamie notion of having the government dictate what businesses Wall Street can be in or how big a bank can be.