Like many other observers, I am disgusted with the obscene levels of debt financial institutions used going into the recent financial crisis. I am disgusted with the huge bonuses bankers are seeking at a time when the middle class is suffering greatly.

That said, I do not think the way to clean up the financial industry now is to pile yet more regulation on it. As long as the Federal Deposit Insurance Corp. operates, a certain amount of

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regulation will be necessary to protect taxpayer-backed deposits. But the real remedy does not rest with government. It was, after all, government's consistent meddling with markets that engendered the crisis to begin with.

As bad as their troubles were, the credit crisis did not emanate from banks like Citigroup (NYSE:C) or Bank of America (NYSE:BAC). The root cause was government manipulation of money and its supply. If banks are given a virtually unlimited amount of money for free, they will find a way to lend it out. That's what banks do. Excessively low interest rates also distort demand for money among consumers and enterprises. The result is that money supply booms and asset bubbles inflate. Capital then becomes stretched and balance sheets become overleveraged. Yes, bankers acted irresponsibly and I am in no way exculpated from their bad behavior. But our central bank, the Federal Reserve, gave them the kerosene and then lit the fuse. How can the subsequent explosion of their balance sheets really come as a surprise? (The financial crisis wasn't all bad. Read The Bright Side Of The Credit Crisis to find out what positive changes this financial catastrophe inspired.)

But the government does not have any incentive to relinquish control of how much money is in circulation and what interest rate it should carry. That is where it derives a great portion of its power and influence. Therefore, the solution deemed appropriate on the part of government will be to: tax financial institutions; place a size limit on banks in order to avoid the too big to fail concept; regulate the trading practices on money derived from deposits; and to impose arbitrary and capricious capital requirements.

To be sure, no amount of regulation will be able to abrogate greed. Instead, it will serve as an example of the law of unintended consequences. Banks got into trouble and then the government bailed them out. Now the government thinks it owns the banks. But it won't stop with increased fees and regulations. Government officials actually want to dictate the lending practices of banks and force them to write down the principal of their loans.

Just listen to Robert Weissman, president of Public Citizen, who appeared with me on CNBC's "The Call" recently calling for draconian government regulation of banks, including forced mortgage principal reductions for those who bought homes they cannot afford. Unfortunately, his views are also shared by James B. Lockhart, who is the former Director of the Oversight Board of the Federal Housing Finance Agency (the regulator of Fannie Mae and Freddie Mac).

This slippery slope of statist intervention won't reverse course until there is a renaissance of markets and a repudiation of government manipulation on the part of American citizens. However, at this juncture we are going full speed ahead in the wrong direction.

The truth is that greed cannot be regulated and banks will find a way around virtually any government-led attempt to fetter risk-taking. The reality may be hard for some to come to terms with, but the global experiment in having money created by fiat and interest rates set by decree is a miserable failure.

Interest rates must be derived from the market-based relationship between the demand for money and the supply of savings. Money should also be backed by something other than a push of a button. Our founding fathers were correct when they provided in the constitution guarantees that our money should only consist of gold and silver. They were afraid of relinquishing the value of our currency to politicians and bankers, whom they knew would destroy the middle class by eroding the purchasing power of their money.

If we were to revert a system under which our money supply is backed by gold, we would be able to eliminate the Federal Reserve and the bailout nation it brought about. Banks would lend much more prudently because there would no longer be a central bank "put" waiting in the wings - meaning a way to foist their losses on taxpayers in a worst-case scenario. The gold standard would also spare us from the rampant creation of money, which always manages to enrich the elite in a society first. (Those who believe such logic is inescapable, or that current inflationary policies will continue to boost precious metals prices, should consider owning Barrick Gold (NYSE:ABX) (USA) and Eldorado Gold (NYSE:EGO) (USA)).

Unless we recognize that fact, bankers will grow fatter on bonuses. The chasm between the very rich and poor will grow deeper. The devastation of the middle class will continue and this current economic malaise will only become exacerbated by a steady incursion of the state into affairs better left to markets.

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