By: Matthew Arndt, CFA, CPA, CFP | September 1, 2009 | Investor Information, The Politicians, The Regulators, Wall Street Ethics

Since it appears through sheer luck we have averted a complete meltdown of our financial system, U.S. lawmakers have grown complacent about passing any legislation to alter the way Wall Street and large financial institutions do business. Being susceptible to Wall Street lobbying, there is resistance on Capitol Hill to enact any meaningful financial-reform. We have a free-market system where the politically well-connected do not have to play by free-market rules.

Normally under a capitalistic system market participants are allowed to fail; this is what instills market discipline and order. Instead of taking the large failing banks like Citigroup into receivership and breaking them up in an orderly fashion the brilliant minds in government (probably due to political influence) have chosen to keep ailing financial institutions in business by providing loans, purchasing assets, guaranteeing liabilities, and making equity investments in them (all this with taxpayer dollars). The financial institutions in this country are so huge that even a rumor of one going under could threaten systemic stability.

The bail-outs (or corporate welfare) have only promoted excessive risk-taking leaving taxpayers and investors vulnerable. Without any significant reform coming from Congress or the Obama Administration it is a certainty that excessive risk-taking will once again undermine the stability of our financial system. Next time, we may not be so lucky.