Brad DeLong argued that getting rid of banking restrictions is a really bad idea. He reposted an article he wrote for the current issue of the Week. In it, he argues that we're living "A Wall Street Fairy Tale," in which we all believe that natural forces have, however tenuously, restabilized our  national banking apparatus. This is a false reality, said DeLong, and so long as the government is responsible for the resurrection of the banking system, we can't truly believe in its stability:

So, they say, there is no need for government investments in, or control over, their businesses; no need for restrictions on how much they can pay whom or for what; no need to restrict how much leverage they assume or what they invest in or how much capital they must hold. The smart banks, they say, figured out that the mortgage market was headed for a crash and managed to profit from the boom without being destroyed by the bust. It was only the dumb banks, they say-Bear-Stearns, Lehman, AIG, Fannie, Freddie, and to a lesser degree, Citi and Bank of America-that suffered severely. That's how the market works.

This is a fairy tale.

Paul Krugman's mind is on the big economic news of the day: regulatory reforms for the financial sector. They're in the right spirit, he says, but lacking strength in specificity and clarity. The measures express a clear intent to institute comprehensive oversight of the shadowy dealings of commercial banks, but in such matters, the devil is in the details, and the proposed reforms outline too few. Similarly, legislating capital requirements for all big financial institutions—including firms like AIG (AIG) and not just conventional banks—is a great idea, says Krugman. But a 5 percent rule is at best half of what the measures would need to be effective, he adds, echoing George Soros. Also, Krugman entreated whoever was responsible for drafting the plan to please take it easy with the acronyms. (Seriously, he's right.)

Barry Ritholtz's quoted Federal Reserve Governor Kevin Warsh to support his we're-not-out-of-this-yet campaign. He also explained why the bundling of mortgages into securities wasn't the root cause of the recession: Because it was the bundling of really crappy mortgages into really crappy securities that was the root cause of the recession. Low-interest rates and easy credit meant lenders weren't interested in the long-term security of their investments, says Ritholtz. Instead lenders focused on quantity instead of quality, with the intention of flipping loans into derivatives, turning a quick profit, and escaping liability for the low-quality instruments, he argues. What's the solution? Mandate longer default warranties on mortgages, which would make lenders responsible for a longer portion of the term and effectively incentivize good investments instead of bad ones.

Felix Salmon also focused on regulatory reform. Similarly to Krugman, he took exception with the plan's mind-boggling addiction to alphabet soup and liked the move toward a principles-based system less prone to the machinations of loophole-hungry lawyers. One of his main gripes with the plan is that it's likely to worsen the bureaucratic gauntlet that crusading regulators will have to run to get anything done by expanding the pool of agencies that can bicker over jurisdiction and complicating the breakdown of responsibilities. Sure the plan outlines a theoretically cohesive granddaddy, the Financial Services Oversight Council, but it's a "high probability" that it will be a "Terribly Important Body which achieves essentially nothing," argues Salmon. Oh, and by the way, banks "will continue to pick and choose whichever regulator they think will have the softer touch."