Why Risk Reduction Needs More Than Compensation Reform

There will always be a way for bank leadership to skim off the top.  The only solution, therefore, is to either (1) make sure failure hurts by refusing to dole out bailouts; or (2) make sure they stop taking risks by increased capital reserve requirements, regulation, and separating -- again -- their commercial and investment functions.  For only then will banks' competition-induced risk-taking be effectively cordoned off from the rest of our economy.