Still, Leonhardt’s and the academics’ theory explains much of the current crisis, as he explains in distinguishing their idea of “looting” from classic moral hazard:

With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government’s involvement is crucial to the whole enterprise.

Think about the so-called liars’ loans from recent years: like those Texas real estate loans from the 1980s, they never had a chance of paying off. Sure, they would deliver big profits for a while, so long as the bubble kept inflating. But when they inevitably imploded, the losses would overwhelm the gains. As Gretchen Morgenson has reported, Merrill Lynch’s losses from the last two years wiped out its profits from the previous decade.

What happened? Banks borrowed money from lenders around the world. The bankers then kept a big chunk of that money for themselves, calling it “management fees” or “performance bonuses.” Once the investments were exposed as hopeless, the lenders — ordinary savers, foreign countries, other banks, you name it — were repaid with government bailouts.

In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it.

When you look at it in this light, doesn’t the case for clawing back some of those ill-gotten gains look much better? Think about Warren Spector of Bear Stearns who was fired in 2007 and made out like an, um, bandit. Think he should cough up some of that $600 million he made from 1992 to 2006?

Leonhardt is right to say there’s nothing we can do about this crisis now. This goose is cooked. Without bailouts the system will just shut down and I’ll finally get to fulfill my longtime wish of seeing what life really was like for my grandparents in Dust Bowl Oklahoma.

But it’s imperative to end the government “put” as best we can. Here’s what Leonhardt and his economists suggest:

But the future also requires the kind of overhaul that Mr. Bernanke has begun to sketch out. Firms will have to be monitored much more seriously than they were during the Greenspan era. They can’t be allowed to shop around for the regulatory agency that least understands what they’re doing. The biggest Wall Street paydays should be held in escrow until it’s clear they weren’t based on fictional profits.

Above all, as Mr. Romer says, the federal government needs the power and the will to take over a firm as soon as its potential losses exceed its assets. Anything short of that is an invitation to loot.

Great. That’s all needed.

But we also need to shift our thinking about antitrust laws and banking-merger regulations. If companies are “too big to fail”, they’re too big to exist. Prevent them from getting so big and break up the ones that already are. This is imperative (and it is not limited to banks), and it amazes me that it isn’t mentioned more in the press.

Sure, we’ll lose some of the “efficiencies” that arise from having a Bank of America on every corner. But we’ll return banking more to its roots in the communities, prevent the government from having to bail out ones that get into trouble, and eliminate some of the trickle-up effects on pay disparity. CEO’s can’t get paid as much if they have far less revenue. Plus, I’d think owners are better operators and more attuned to their community’s needs than salaried branch and regional managers.

And hey, newspapers: More companies means more advertisers. Remember the days before Wal-Mart?

Ryan Chittum , a former Wall Street Journal reporter, is deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.