This is an excellent post on how investment banking took a wrong turn and nearly blew up the world. It's just about the only explanation I've come across that convinces me. Perhaps it's because it's written by an insider, the soi disant Epicurean Dealmaker ("TED").
This chap's persona is a delicious Platonic representation of the senior investment banker: arrogant to the point of obnoxious and beyond, but also rather irritatingly intelligent and witty. You can't help liking him even if he is a total bastard. Whether naturally occurring or an artful confection, it is a real piece of work. I used to toil in the industry and came across a number of big swingers whose voices I could comfortably hear enunciating TED's posts.
TED convinces that the deep-seated structural issues of contemporary investment banking are not amenable to resolution by the salary-cap circus currently being performed by our global politicians. It seems to me that the only way to address investment banking's excessive risk-taking is to diminish its profitability to such an extent that it doesn't really happen very much. Apply swingeing capital requirements on proprietary trading activity. Lots more capital = no profit, no risk, no problem. What's more, bonuses would soon start vanishing altogether.
However, this is just not likely to happen at all. For a start, it turns out that there's a lot of truth in the (previously dismissed as paranoid and cranky) theory that politics has been captured by finance in the Anglo-American world: turkeys don't get their proxies to vote for Christmas.
But more fundamentally, perhaps we all secretly wouldn't want it to happen. Why? More capital = no profit, no risk, no problem, and also NO TAXES. This would mean either more taxes from us or lower spending when we're already screwed. Who would want that? Best to double-up, keep rolling the dice and hope it doesn't happen again... At least that's what our pols seem to have concluded.