By: Matthew Arndt, CFA, CPA, CFP | December 21, 2009 | Investor Information

“Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market. The troubled lenders, for the most part, have not been institutions with federally insured deposits.” – Fed Chairman, Ben Bernanke in May 2007

Regulators and Wall Street analysts will never be able to foresee any crisis; how many of these disastrous events must we endure before we realize this simple truth? We must create a banking system that can accommodate this lack of foresight, and one that is robust enough to withstand risk taking in a financial system which doesn’t expose taxpayers and investors to large losses when a few institutions fail.

It’s time to put capitalism on a sound footing. Public money should not be used to benefit reckless investment banks and mismanaged financial companies. In the event of bankruptcy, losses should be forced on the stock and bond holders, rather than onto taxpayers. It’s time to reinstate Glass-Steagall.

Currently congress is discussing reinstating Glass-Steagall. After its creation in 1933, this country witnessed almost 80 years without a major upheaval shaking the entire financial system, and then less than eight years after the repeal of Glass-Steagall in 1999 we have a financial meltdown of seismic proportions. This was no accident. Under a proposal being considered, too-big-to-fail banks would be forced to return to the business of conventional banking, and investment banks would be allowed to take risks without any taxpayer guarantees.