Today Paul Volcker outlined a financial plan, which harks back to Glass-Steagall Act days:

“Maybe we ought to have a kind of two-tier financial system,” Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, said today at a conference at New York University’s Stern School of Business.

Commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, “relatively free of regulation,” Volcker said.

I couldn’t agree more. Basic banking services (i.e. deposits and simple mortgage loans) are as essential to our society as electricity and water. As such, basic banking should morph into a regulated utility so that society can function normally and economic activity can grow off a firm basis. The more speculative and ponzi-like aspects of banking, like trading, asset-backed securities, and the like, can be carried on by non-regulated financial institutions with their own capital and at their own risk. In this way society as a whole is protected against the loss of basic social functions, while substantial gains are still available to those who which to bet in the financial markets and other non-essential economic spheres.

And for those die hard capitalists who decry all forms of government regulation, I ask: how they would generate profits if they woke up every morning to find themselves without electricity and running water? You can’t have any form of capitalism without regulation of basic necessities that ensure a stable social framework. And simple banking services, including the right to obtain a mortgage to own your own home or get a solid education, are surely basic social needs like water and electricity, and therefore should only be administered by a regulated government entity.