Want to shape up Wall St? Put some risk in the game. Right now, they can play risky games, and when they loose, the tax payers bail them out. FDIC and all that. Since the risky games are high yield (except for when they become high loss) they keep on playing them. Step one, make it perfectly clear to everyone, that the next Wall St operation to go broke will stay broke, no bailout, anyone who gave them loans will loose, and the broke outfit's executives will be prosecuted for fraud.
Make a list of risky games, credit default swaps, mortgage backed securities, commodities trading, and the like. Either tax the bejesus out of them or make them illegal.
Forbid banks playing the stock market. Glass Steagall had it right.
Discourage banks from lending to each other. The purpose of a bank is to make loans for economic development. Lending money to another bank doesn't develop the economy. Loans should go to builders and businesses to build plant and equipment, buy inventory, or build houses. If the loan doesn't create anything that you can see, touch, or pack in a truck, it isn't developing the economy or creating jobs. Which means the bank should not be doing it. Discouragement can be taxes or worse.
Forbid banks selling mortgages. Mortgages are good investments, safe as houses they used to say. The borrower is highly motivated to make the payments on time, if for no other reason than to avoid the things his wife will say when they get foreclosed on. The collateral is fairly sound, and it's immobile, nobody can drive it out of state. Make a mortgage and the bank has to keep it, until the borrower pays it off, like when he sells the house. This way the banks won't make NINJA (No Income, No Job, No Assets) mortgages and, won't do balloon notes. And they won't crash the global economy with mortgage backed securities.
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