Paul Volcker expounds on his plan to fix the financial system in a New York Times op-ed.

The plan is a good one:

Prevent banks from owning hedge funds and other proprietary trading vehicles (Glass Steagall II)

Give the government resolution authority to step in, liquidate, or sell any firm it deems to be in trouble (including mortgage lenders, investment banks, and insurance companies)

Make shareholders, management, and, yes, bondholders pay for any costs associated with this (the latter is what we refused to this time, which is the most appalling part of the current bailout policy)

If we do only these things, we will have eliminated the most insidious and problematic part of the status quo: Too Big To Fail.

Under this plan, big firms would be allowed to fail--in an orderly fashion, with their owners and lenders taking the hit. In good times, they will also remain competitive in a global economy without arbitrary size constraints that put them at a disadvantage versus international banks that face no such restrictions.

Read Volcker's op-ed here >