Unknowing the known - The Banks

Geoffrey Wheatcroft's January 1st opinion piece in the NYT unveils a political newspeak that I am not comfortable with. Generally it's a political discussion of truths that knock out all further investigation of a line of reasoning.  The editorial mentions Donald Rumsfeld famous line of knowns and unknowns. First there are the known knowns, then the known unknowns and thirdly the unknown unknowns. But curiously it takes an Irish author, Fintan O'Toole to illuminate the fourth of the series, the willfully unknown known.

The piece goes on to describe the Iraqi war and the Madoff ponzi scam as examples of willfully unknowing the known.  I find, with the exception of Ron Paul, that our political class on both sides of the aisle of practicing the unlearning of lessons learned. The best example that I can think of is the Pecora commission of 1933 which created the the Glass Steagall act.  The past fifty years was the gradual undoing of the act.  Today's version of Glass Steagall, Dodd Frank, will not withstand the test of time because it does not separate investment from commercial banks.  It's the known risk of giving a banker a huge bonus or the taxpayer a giant liability that is compromised out of Dodd Frank so that its an exercise in regulatory masturbation, much heat generated for no purpose.  Glass Steagall had a framework that was very clear. There was a need for bank services and insurance of those services in case of a calamitous event.  In order to play with FDIC insurance banks had to follow bank regulations and pay for the insurance. It works well as long as there are many small players where none are TBTF, so a new requirement should be that no bank can control assets more than x percent of GDP.   One tenth of one percent sounds good to me.  If you want to be free to fail then as a bank you opt out and serve as an investment bank with no safety net for the partners or customers.