John Gapper, writing in FT, makes three suggestions for regulating Goldman. One, hive off private equity and hedge fund from Goldman but allow market-making and investment banking activities to continue. Two, allow it to fail in future. Three, revert to the compensation structure Goldman had when it was a partnership- that is, 90% of all bonuses to be retained until retirement. Then, top managers cannot cash out even while placing the firm in jeopardy.
I think one and three are good suggestions although the difficulty with three is that it cannot be applied only to Goldman- you would need an industry-wide norm. It's the second that poses a problem. How do you regulate Goldman so that it is allowed to fail? I can't see any easy solution.
It's interesting, though, that Goldman today makes little money from proprietary trading- only 10% of revenues. The biggest money-spinner is market-making and, there, Goldman is not betting its own money. The basic principle that Gapper espouses is a sound one: there has to be some restriction on the scope of activities of firms that have the backing of taxpayer money in principle.
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