Enough with the big bank wild bets

In a conversation yesterday with an extremely knowledgeable and financially sophisticated friend (former CEO of a major public company and former Board of Directors member of a very major big bank) we discussed the JPMorgan bank's 2 billion dollars derivative write off (with at least another 1 billion to come).  We agreed on a few "solutions" to the problem of out-of-control derivative programs.  One, cut down on the amount of leverage banks can utilize in making these bets because the huge profits they can make from them are driven by leverage.  Two, break up the biggest banks into smaller banks, and three, let the banks fail when they get in trouble.  The very idea that these banks can make these huge bets is predicated on the premise they are "too big to fail" and consequently will be back stopped by the lender of last resort, the Federal Reserve System and/or the Federal Government.  The "moral hazard" that results from the de facto privatization of profits and socialization of losses is by any reasonable standards not acceptable and what's more is readily avoidable.  It was my friend's contention that the profits that result from these highly leveraged bets are such that the bankers simply cannot resist making them, no matter the risk involved, especially since they know they will be bailed out in the end should things go wrong  After all who can resist tens of millions of dollar bonuses derived from bets placed with other people's money.  This can be and should be fixed with a few strokes of a regulatory pen and no one would suffer except the beneficiairies of these outlandish mostly sure bets.  The current system is crony capitalism at its worst.