Commentator Chris Farrell thinks that "tough-minded" former Fed chairman Paul Volcker would be key in bringing effective reforms to the financial system.
Commentator Chris Farrell thinks that "tough-minded" former Fed chairman Paul Volcker would be key in bringing effective reforms to the financial system. - 
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Tess Vigeland: In addition to the whole fiscal cliff mess, seems like every other week or so we hear about some new scandal on Wall Street. From the LIBOR to that trading firm that caused wild swings on the Dow one recent morning.

Commentator Chris Farrell says a lost piece of regulation could restore investor confidence.

Chris Farrell: Is our financial system any safer than it was in 2008? The JPMorgan, multi-billion dollar "London Whale" trading debacle and the rigging of the LIBOR market by traders -- suggest not.

Big financial institutions are bigger than ever -- and every bit as reckless and dangerous as before. We need to rein in these "too big to fail" behemoths before they take down the economy again.

Step one is to put the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 out of its misery. The act is more than 2,300 pages -- and it's complicated, weak, compromised, riddled with loopholes.

Step two is to immediately replace the bill with the Glass-Steagall Act. It was written in 1933 and it's just 37 pages long. It separated banks that accepted deposits backed by the FDIC from investment banks. It blocked Wall Street traders from speculating in the capital market casino with government-insured money.

Glass-Steagall worked for some 60 years until it was repealed in 1999. It's simple, it's pro-competition and pro-capitalism. Best of all, if it was restored, it would slash the odds of another taxpayer-funded bail out.

Paul Volcker, the legendary former Fed chairman, is a fan. He wanted to bring Glass-Steagall back after the global financial crisis. The administration and Congress ignored him. But now the law is winning support from some unlikely quarters. Sandy Weill was a hyper-aggressive dealmaker who built Citigroup in a megabank. He pushed hard for the repeal of Glass-Steagall. But now, he supports its return.

So, step three is to put Volcker in charge of making the dream of a new Glass-Steagall act a reality. Three decades ago, Volcker broke the back of inflation -- refusing to bend in his mission, despite fierce opposition. Unleash the tough-minded Volcker on the banks. He's exactly what the American taxpayer needs.

Tess Vigeland: Chris Farrell is the Marketplace economics editor.

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Follow Chris Farrell at @cfarrellecon