John Kay has a lucid and level-headed article in the Guardian about the bankster's current FAIL, and how to prevent it from happening again. For the FAIL, I'll single out two points:

Conflicts of interest
The con?ict between retail and investment banking is central to the current crisis. This con?ict was the result of deposit insurance. The deposits of the retail bank, e?ectively underwritten by the taxpayer, could be used as collateral for the trading activities of the investment bank. Deposit insurance introduced the large and costly subsidy to investment banking which we are all now meeting through higher taxes. In addition to these con?icts between retail and investment banking, there were the con?icts of interest within investment banking itself.

The modern investment bank gives ?nancial advice to large corporations, o?ers asset management services, engages in market making, issues securities, and undertakes proprietary trading on its own behalf. The customers of every one of these activities have interests which con?ict directly with the interests of the customers of every other.

Management failure
The claim made was that market forces bolstered by internal and external regulation through Chinese walls would mitigate these con?icts, and allow conglomerates to reap the informational advantages of conglomeration without the associated disadvantages. This claim has proved false. Worse, the con?icts of customer and taxpayer interest were aggravated by clashes of organisational culture. At its most extreme, it is hard to imagine two more diverse business styles than the individualistic opportunistic aggression required in proprietary trading and the routine bureaucratic processing of millions of daily transactions needed for retail banking. In practice, these ?nancial conglomerates, characterised by incompatible baronies and unfathomable complexity of interactions between products, were unmanageable and, e?ectively, unmanaged. That management failure is the central explanation of why we are where we are today.

Now, the same unethical and FAILED managers, still in charge at Treasury and the no-longer-indepdent Fed, have just rebuilt the too-big-to-fail banks, but bigger. So, the chances for SON OF FAIL look good, although that is not the Official View.

So, how to prevent SON OF FAIL? Well, if you've got a systemic problem, it's likely that a systemic solution is needed. Here's Jay's:

The way forward: restore narrow banking
We need to restore narrow banking* – to ensure that the casino [the infestment banks] cannot again jeopardise the utility [the retail banks]. That means ringfencing the payments system, the routine deposit taking and the lending to consumers and to small and medium-sized businesses. ...

Measures to re-establish narrow banking will necessarily involve the divestiture or closure of the investment banking activities of retail banks. Such restrictions will provide an opportunity to reintroduce measures of structural separation between fundamentally incompatible wholesale ?nancial activities. The causes of the crisis, and the remedial measures now required, are embedded in the structure of the modern ?nancial services industry. Addressing these structural issues, which will require high political courage, is a prerequisite of policies to prevent a similar crisis re-emerging a decade from now.

"High political courage"? Well, surely with the Bestest Progressive President EVAH that won't be a problem!

NOTE * Krugman frames this as "making banking boring."