The lead news of the day from Washington is the request by Treasury Secretary Tim Geithner and Fed Chariman Ben Bernanke for legislation empowering them to regulate non-bank financial services companies such as AIG.

The insurance businesses of companies like AIG are now regulated by the fifty state insurance commissioners. Their primary objective is to assure that the insurer has the financial capability to pay the claims of insureds in the respective states. But the business that caused the huge losses at AIG was a trading business which they located in London because it would be unregulated.

The banks which lost so much money in the financial derivatives business were also totally unregulated. In the case of the banks, the 107th Congress specifically exempted financial derivatives from regulation by any federal agency. That legislation, enacted in January, 2000 followed the repeal of the Glass-Steagall Act which was enacted in 1933 following the Great Depression to prohibit commercial banks from entering the securities and insurance businesses.

The repeal of Glass-Steagall was accomplished by the Gramm-Leach-Bliley Financial Services Modernization Act, enacted November 12, 1999, only days after the election of President George W.Bush. Between 1995 and 2000, Senator Phil Gramm (R-Texas) was the chairman of the U.S. Senate Committee on Banking. During that time he spearheaded efforts to pass banking deregulation laws. The act which he sponsored in 1999 repealed the Glass-Steagall Act which had prohibited banks from entering investment and insurance businesses.

I wonder why we don't see former Senator Phil Gramm interviewed anywhere? He was known as the "high priest of de-regulation" and listed by many as being one of the key people responsible for the current financial crisis. The Republicans blame Barney Frank for the current situation because of his unrestrained support for the Community Reinvestment Act. The CRA was certainly a contributing factor, but it's obvious that Gramm was the one who did more damage than Frank ever thought about doing by successfully spearheading the de-regulation of the banks and financial services companies and exempting risky businesses from any regulation.

So, it's pretty clear that much of the current problem was contributed to by specific legislation passed by the Congress, first permitting banks to enter the riskier securities and insurance businesses, then by prohibiting the regulation of the rapidly developing, complicated and as it turns out extremely risky financial derivatives trading businesses. Leaving those businesses unregulated was a significant cause of the financial crisis we now face.

So what should we do now? Some say that the free market will provide the best solutions to the problem. Yet it's clear that it was the unregulated free market in financial services that got us into this mess. Should the Congress pass legislation substantially increasing the ability of federal agencies to regulate banks and financial companies? Should their authority be extended to include insurance companies, superceding the authority of the states? Should legislation such as Glass-Steagall, which largely kept banks healthy for more than sixty years be re-enacted?