Now Treasury Secretary Hank Paulson has proposed a $700 billion bailout of the entire industry. I do think that some sort of sweeping measures needs to be instituted; otherwise, having the sword of Damocles will hang over every financial firm for far too long. That being said, his refusal to doing anything more other than give Wall Street firms a 'Get out of jail free' card is bothersome, but not surprising: before he was at Treasury, Paulson was CEO at Goldman Sachs after Jon Corzine's departure in 1999 up until his appointment in 2006...just before the housing bubble burst.

Put in plain English, if Congress wants to hold banks accountable for their actions, there has to be some punitive action. Otherwise, the same thing is going to happen again - but on a bigger scale - as it did this time. Looking back since the onset of the conservative ascendancy in politics - and the increasingly laissez-faire attitude taken towards regulating the financial industry - each financial crisis that has hit the markets has been on a bigger, grander scale each time. Whether it was the real estate bust and the ensuing RTC resolution in the late 1980s, or the Long Term Capital Management blowup in the late 1990s (a hedge fund that had to be bailed out by a consortium of banks because of leveraged bets went awry when Russia was hit with a financial crisis), the lessons weren't learned. What we see happening today is a confluence of the two problems that led up to those crises - lax lending standards and the making of huge bets on borrowed cash.

For Wall Street, there is always plenty of talk about managing risk and doing due diligence, but at the end of the day, it's always about making as much money as possible, as fast as possible. That's why there was shoddy documentation done on subprime mortgages, less-than-adequate analysis of the securitization of all kinds of debts into structures such as CDOs, and a poor job done by the rating agencies in properly evaluating these complex derivative securities. And when the only way you had of valuing a great many of these securities was plugging them into proprietary computer models instead of seeing a market price - because they were illiquid instruments that were thinly traded - it was inevitable once things blew up that contagion was impossible to avoid.

In this situation, no one really knows what to do, but what Paulson has proposed is simply to throw money at the problem. Yes, whether we like it or not, Wall Street has to receive some kind of government assistance in order to prevent prolonging the credit crisis longer - or risk dragging the worldwide economy into a deep recession. But the fact that there is not going to be any significant increase in transparency or regulation - or, more importantly, punitive action taken against irresponsible banks who got us here in the first place - suggests that we are going to end up back here sooner or later. The end result of the makeover by the financial industry is to concentrate even greater pools of risk in fewer hands. Be thankful that this time, it was non-deposit-taking investment banks that took the fall. Imagine if it was a Citigroup or a BoA that had been the victims...it would have been worse. While it's now taken as conventional wisdom that it's safer having an investment bank tied to a deposit-taking retail/commercial bank, the main effect is to allow the investment bank to take on even more risk than before - with a bigger asset base, they can borrow at even higher levels. The Glass-Steagall Act was meant to prevent that from happening, but its repeal in 1999 (via Gramm-Leach-Bliley) means that customer's deposits can be used to effectively fund losses in riskier parts of the bank. Instead of separating the units - which is what UBS did with its investment bank, putting it out to sea without the ability to fund its losses from the much more profitable wealth management unit - there's now a move to further consolidate. All it means is that next time, it will be even worse.

Bailing out Wall Street has to happen in some form or another, but they have to be held accountable for their actions. That is Congress' job, and they should not simply acquiesce to the wishes of Paulson and Ben Bernanke, who have ad-hoc'ed their way through this whole crisis - mainly by throwing lots of money at the problem. If Congress doesn't stand up to the bailout in its current state, don't be surprised if the same thing happens 5, 10, 20 years down the road...because in the financial industry, history will likely repeat itself.