"A Govt. Not Run by the Financial Sector": James Galbraith's Rx for Wall Street Reform

"Unfortunately, the regulatory regime that failed so terribly leading up to the financial crisis is precisely the regulatory regime we have today," Treasury Secretary Geithner declared. "We need comprehensive financial reform."

As a former executive director of the JEC and professor of government/business relations at University of Texas, James Galbraith knows a bit about public policy. As the son of esteemed economist and "The Great Crash" author John Kenneth Galbraith, he also knows something about what it takes to put the pieces back together after a speculative boom and bust.

There is a way to have a financial system with a "reasonable degree of stability" and "serves a public purpose," Galbraith says. "But it does require having a government which is not run by the financial sector."

Galbraith didn't use the term "Government Sachs," but said "we're not going to get where we need to get...if you have this revolving door where all the people from Wall Street go down to Washington and offer their services and basically serve their own worldview and the financial interests of their friends."

While there seems to be no discussion of prohibiting the sort of "public service" practiced by so many alums of Goldman Sachs, or of reinstating Glass-Steagall (something he also supports), Galbraith says there is some progress being made on the reform front.

"As the process is unfolding, Congress has been gradually strengthening what were initially very weak measures," he says, expressing specific support for the Consumer Financial Protection Agency.

Galbraith also supports Ron Paul's bill to audit the Fed, which the House Financial Services Committee passed on Thursday. It's "a very important piece of legislation," he says. "It would set for the public and the Congress exactly what was done on the Federal Reserve's balance sheet in the crisis period and that is something that would be very useful and important to know."