Last week's "flash crash [3]," which sent stocks plummeting 1,000 points in an afternoon, was just the latest indicator that the U.S. financial system is still spinning out of control and desperately in need of new rules.

Wagering On Angelina Jolie

When I visit London, I can drop into a corner kiosk and bet on anything I want. I can put down a million dollars on whether or not Angelina Jolie's next baby will be a boy or a girl, but these bets are regulated for what they are -- gambling. In America, the big banks can spend billions in a far more destructive type of speculation, but this speculation in the so-called "swaps" or derivatives market is completely unregulated.

Right now, the largest banks -- Goldman Sachs [4], Bank of America [5], Citigroup [6], JP Morgan Chase [7] and Morgan Stanley [8] -- control over 90 percent of the swaps market. Their activities do nothing to build the real economy, but are key to inflating Wall Street's outsized salaries. Goldman has not only been caught betting against America on the collapse of the housing market, it was also caught betting on the collapse of a trucking firm [9] that employed 30,000 Americans. Goldman has peddled its toxic dreck to cities and towns around the world [10] who have enough troubles and really do not need to be conned and impoverished by Wall Street behemoths. Now Greece is in flames, and some [11] U.S. banks and their destructive swaps and indices may be playing a role in that evolving tragedy.

To make mattes worse, all this gambling is currently supported by the Federal Reserve [12] and backed by the taxpayer guarantee. If I lose my money when Angelina has her kid, I lose. When the big bank bids go awry, the taxpayer can be stuck with the bill in the form of big bank bailouts. As financial reform advances in the Senate, it's clear that the top priority for legislators is to make banking boring again.

It's Time to Make Banking Boring Again

The good news is that right now, the finance reform bill makes tremendous strides in this direction. Late in the game, Senator Blanche Lincoln [13] (D-Ark.), Chair of the Senate Agriculture Committee, demanded that provisions be put into the bill that would force the biggest banks to spin off their swaps desks into a separate entity. That entity can remain part of the bank holding company, but it no longer has access to the Federal Reserve's flow of funds and the FDIC's taxpayer guarantee.

"In my view, banks were never intended to perform these activities, which have been the single largest factor in these institutions growing so large that taxpayers had no choice but to bail them out in order to prevent total economic ruin," says Lincoln. [14] In one fell swoop, her measure effectively spins off the craps table, protects the taxpayers and downsizes the behemoth banks. What's not to love? The howls from Wall Street could be heard in Wisconsin.

The bad news is that these strong provisions are under threat, and not just from Senator Judd Gregg [15] (R- Wall Street) who is offering an amendment to strip the Lincoln language from the bill, but also from well-respected observers like Sheila Bair [16], head of the Federal Deposit Insurance Corporation [17] (FDIC), and former Federal Reserve Chairman Paul Volcker.

Volcker and Bair Are Wrong Say Experts

Volcker and Bair appear to have been spending too much time talking to Timothy Geithner [18] who, like every big bank, opposes Lincoln's strong language. On this issue, they are simply wrong. Michael Greenberger [19], formerly Director of the Division of Trading and Markets at the Commodity Futures Trading Commission [20], says that "even an independent swap desk would be fully regulated, to make sure they have adequate capital reserves, abide by prudential conduct standards, as well as strict business conduct standards. Ninety per cent of swaps trading will be required to go through a clearinghouse with an exchange facility, so there will be transparency and capital adequacy."

Jane D'Arista, former staff economist for the Banking and Commerce Committees of the House of Representatives, goes further in chastising Volcker and Bair for "strewing misinformation in the path of what, to date, is the most powerful structural change in the bill in terms of both mitigating risk and preventing future bailouts."

Think of it as "CitiBank" and "CitiCraps, Inc." CitiCraps will continue to be regulated and they will have tougher capital and margin requirements under the bill, but taxpayers will not be on the hook as grifters make bad calls.

The fight now will be over amendment to strip or weaken the proposal. It's time to ask your Senator if he or she will vote to continue the Wall Street casino or vote to keep Blanche Lincoln's language in the bill.