An eminently reasonable proposal from Richard Posner, I think:
Another possibility would be to finance regulatory agencies by Congressional appropriation rather than by fees paid by the firms they oversee. The current system makes the firms customers rather than wards and incites competition among agencies for clients — a competition likely to be won by the agency with the least regulatory zeal.
If you did a couple very simple but fundamental things like this and limit leverage and limit the size of derivatives portfolios and force financial institutions to become partnerships rather than public corporations, which was the moral of Michael Lewis's excellent piece last December in Portfolio, I think you could go a long way toward preventing something like the crisis we've just been through. (Oh, and bring systemically important non-bank financial institutions like hedge funds under the governmnet's regulatory umbrella, which fortunately Obama has proposed.) Not all the way. But a lot of the way.
Update: Or, rather, force financial institutions that trade for their own book to become partnerships. I have no problem with a big, boring commercial bank selling shares to the public.
--Noam Scheiber