The crisis currently roiling the financial world is the result of greed, ingenuity, stupidity and arrogance, all in large portions. Like all disasters--and it is a disaster--no one knows precisely the correct procedure to limit the damage, because history never repeats itself exactly.

Clouds have been forming on the horizon for at least 15 years. Whenever a CEO can continue to be paid millions while running a corporation into bankruptcy, there is a severe disconnect between performance and reward which bodes ill for the corporate world, as well as for the entire economy.

Opposition to Treasury Secretary Paulsen’s request for virtually unlimited powers is mounting, even among conservatives, who are suddenly worried about unaccountable executive power. Funny, it hasn’t bothered them for the last seven years, as Glenn Greenwald points out.

Economist Dean Baker writes the most intelligent suggestions I have yet seen on the subject, Progressive Conditions for a Bailout.

Perhaps his most logical proposal, which would be resisted by the banks to the last man, is to reform the governance of the Federal Reserve:

The structure of the Fed should be changed so that all the officials with a direct say in monetary policy are appointed by the president and approved by Congress. The Fed is supposed to act in the public interest, not in the service of the financial industry. It is disturbing that the public is being represented in this debate over the restructuring of the financial industry almost entirely by top figures from the financial industry. This would be comparable to having national policy on the auto industry determined by former top officials with the United Auto Workers. It is difficult to believe that the views of Treasury Secretary Paulson and other government officials from the financial industry are not influenced by their long association with the industry.

This problem should not be worsened by giving the banking industry a direct voice in the conduct of monetary policy, by allowing it to appoint Federal Reserve district bank presidents who take part in open market committee discussions. There should be a strict separation between the conduct of open market policy, which should be done exclusively by people appointed by the president and approved by Congress and the responsibilities of the district bank presidents. The banking industry deserves no special voice in the conduct of monetary policy.