Paul Krugman, Nobel Laureate and New York Times columnist, has argued consistently against the Obama administration's recovery plans.  They are either not enough or wrong-headed, he has claimed.  In today's column, he presents a thesis for reconfiguring the banking system in order to avoid future collapse.

To stabilize the financial sector for the long-term so that it avoids future bubbles.  The key is to lower the potential gain from banking so that risk-taking and market manipulation diminish.

Krugman argues that excitement in banking -- the ability to make billions of dollars with complex transaction and obscenely high-risk to the system as a whole -- must end.  He claims that the US financial sector should transform into a boring system that is more conservative in providing loans and more "tightly regulated."  Krugman believes that banks should be incentivized by regulation to become more boring.  In other words, government should limit banks' ability to create complex financial instruments and merge with non-deposit taking financial institutions.

The policy will require negotiation with the Chamber of Commerce and the acquiescence of free-market Democrats and Republicans who are otherwise opposed to limits on the market's ability to allocate burden and rewards.