The remarkably ironic pronouncement from Sandy Weill that the U.S. should resurrect some form of the Glass-Steagall Act ― which he worked assiduously to tear asunder in the 1990s as he created Citigroup Inc. ― has touched off another debate about how to control the worst instincts on Wall Street.

There is no question that bankers, traders and executives need help reining themselves in. After all, it was their collective actions that brought us the financial crisis in 2007 and ― as if nothing had been learned about irresponsible behavior ― the current scandals about manipulating the London interbank offered rate, the $6 billion loss on an ill-advised proprietary bet by a handful of traders at JPMorgan Chase & Co. and the accusations of money-laundering at HSBC Holdings Plc.

Now, of course, Wall Street’s highly paid lawyers and lobbyists are working overtime to rewrite the regulations mandated by the Dodd-Frank law. It’s enough to make you wonder if the industry, which has been the envy of the world and the engine for much of the growth and innovation in the U.S. economy, has a screw loose and is on a path to self-immolation.

Among others, James Surowiecki, the New Yorker’s financial columnist, has wondered what could be done. When it comes to manipulating Libor, he suggested, the answer is simple enough: Make it harder for banks to game the system. “Then we need to admit that fraud is a crime and throw some people in jail,” he wrote.

I agree with him there. One of the most distinctive ― and highly disappointing ― aspects of this period of banksterism is that, despite repeated instances of malfeasance, prosecutors seem unable to win convictions (other than in a few high-profile and egregious insider-trading cases). The jury’s verdict in favor of Citigroup mortgage banker Brian Stoker on Aug. 1 in a negligence suit by the Securities and Exchange Commission was par for the course. And U.S. prosecutors’ record remains pristine: not a single conviction has been won of a Wall Street executive, banker or trader for their roles in the financial crisis.

But what else, besides some much-needed jail time can be done to change behavior on Wall Street? “We need an attitudinal shift on the part of regulators, who need to recognize that their gentleman’s-club ethos is ill-suited to today’s financial world, and who need to be aggressive not just in punishing malfeasance but in preventing it from happening,” Surowiecki suggested. “This new approach would be intrusive and overbearing, and would make it harder for bankers to do what they want.”

The idea that tougher regulation is the key to changing behavior on Wall Street also got support on the op-ed page of the New York Times from reporter-turned-banker-turned-columnist Steven Rattner. We should focus on putting the Volcker Rule “and other new regulations into effect, and devising better ways to deal with financial giants ― not distractions like Weill’s call for reinstating an outmoded concept like Glass- Steagall,” he wrote on July 31.

But guess what? Wall Street has enough regulation. The calls for more, or tougher, regulation completely miss the mark of what drives behavior. You want the people who work on Wall Street to change their behavior? You want them to be held accountable for their horrific actions? You want them to stop doing self-serving and fraudulent things that push our economy to the brink and that undermine what little confidence we have left in our once-prized capital markets? You really want to shame bankers, traders and executives into doing the right thing because they seem unwilling to do so on their own?

Then the answer is simple: Change the way they are rewarded. Instead of handing Wall Streeters multimillion-dollar bonuses for taking huge risks with other people’s money ― did someone say London Whale? ― or for creating and selling securities they know are fraudulent at best, top bankers, traders and executives should get paid if and only if there are pretax profits companywide in any given year. Instead of skimming their compensation off the revenue they generate, they should be focused instead of generating pretax income.

This is how Goldman Sachs Group Inc. rewards its 400 or so partner managing directors ― they get paid only if from there are pretax profits. The top 400 bankers, traders and executives at every “systemically important” Wall Street firm should get paid exactly this way.

That’s not all. The top 400 at each company should also have their net worth on the line every day of every year ― just as they did in the old days when Wall Street was a series of private partnerships. Returning to that structure would not only give shareholders and creditors something to survive on in a worst-case scenario, but it would also hold accountable for their actions the people who make the important decisions about how to deploy capital, what business lines to be in, and who gets fired, promoted and paid.

Without this kind of accountability, Wall Streeters can hide behind the corporate veil and let others pay the price for their stupidity and greed. This must stop.

After all, human beings are pretty simple. They do what they are rewarded to do. That is especially true on Wall Street. 

By William D. Cohan

William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. The opinions expressed are his own. ― Ed.

(Bloomberg)