In my blog on Paul Volcker, I said not much had changed in the financial markets since last year, amazing considering what a heart attack to the system that was.  That wasn’t quite true. Money market funds, which came close to causing a bank run just by themselves where they “broke a buck,” are now guaranteed by the government.  Credit card companies can’t market to people under 21, and have to tell consumers before raising rates.  Short selling has been clipped.  And, of course, some major players on Wall Street, Bear Stearns and Lehman Brothers, are gone.  So are 95 commercial banks.  But what needs doing most hasn’t been done.

The financial press has been hung up on executive compensation, where one bill has passed the House.  And of course, investment banks that would have died, like Goldman Sachs, are now commercial banks, where they have access to the Fed, but can only borrow at 12 to 1 instead of 35 or 40 to 1.

The Group of 20 met in Pittsburgh and said yes, they needed some international rules.

But derivatives, the instruments of leverage, are still unregulated.  Sheila Bair, the chair of the Federal Deposit Insurance Corporation, says “the off exchange derivates market is still the Wild West.”  She, and other regulators, want to see derivatives traded openly, on an exchange.  That would mean that banks could not hide money losing positions, and would have to put up more money if the bets moved against them.  Some banks oppose open derivatives trading because it might cut their profits by making pricing more visible and competitive.  So nothing has happened.  And some people who see the big picture fear that, as the crisis fades, so will the momentum to do something.  Robert Shiller, the Yale economics professor who predicted the housing bust, says “people will accept change at a time of crisis, but we haven’t managed to do much.  Maybe complacency is coming back.”

The government had to put up $180 billion of our tax money to save one firm, AIG.  That’s a lot of schools and roads.  (And while General Motors is not a bank, the government owns it, too.)

Nassim Taleb, who wrote “The Black Swan” about long-odds events happening, thinks the possibility of an even bigger bust could be in the making because people believe the government will bail out the risk takers.  Sheila Bair says investors in financial institutions must believe they will lose their money if the institutions fail.  ”You need to send a very strong, clear signal to restore market discipline,”  she says.

All of this scares me.  Not for this year.  I suppose Congresspeople will say, well, if we are going to change it, we have to get it right.

But will we waste the opportunity, and learn nothing from the experience of 2008?