Back to the Future for Banks?

A movement is stirring both here and in Britain to roll back commercial banks to the post-Depression era, when they were barred from gambling on markets with depositors' money by the Glass-Steagall Act.

Today Paul Volcker, the former Fed chairman who heads the President's Economic Recovery Advisory Board but is overshadowed by ex-Wall Streeters Tim Geithner and Lawrence Summers, goes public with his proposal to do just that.

“The banks are there to serve the public,” Volcker says, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks."

He wants to break up the too-big-to-fail giants created by a Republican Congress repeal of Glass-Steagall and signed by Bill Clinton in 1999 that led to the 21st century gambling spree on Wall Street.

If Volcker had his way, JPMorgan Chase would have to shed its Bear Stearns trading operations, Bank of America would un-merge from Merrill Lynch and Goldman Sachs would stop being a bank holding company.

Bank of England Governor Mervyn King calls for other governments to deal with the same dangers posed by banks that are “too important to fail,” urging separation of risky activities from more stable businesses such as taking deposits.

“The massive support extended to the banking sector around the world, while necessary to avert economic disaster," he says, "has created possibly the biggest moral hazard in history.”

Meanwhile, Obama's watchdog of the $700 billion bank bailout is warning that it will fail to earn back taxpayer money and hasn't changed Wall Street's culture of recklessness.

"The American people's belief that the funds went into a black hole, or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government," says Neil Barofsky, special inspector general of the Troubled Asset Relief Program.

With all the Wall Street lobbyists still working in Washington and attending fund-raisers like the President's in New York last weekend, will anybody in Congress or the White House be willing to do anything about it?