"We simply cannot walk away from the worst financial crisis since the Great Depression and not do everything in our power to reform the system," Treasury Secretary Tim Geithner said in a hearing in September in front of the House Financial Services Committee.

The financial crisis has begun to fade, but the structure that permitted the collapse is still intact. Charles Geisst, the man who called the 2008 financial meltdown four years prior,a professor of finance at Manhattan College and author of 15 books --including most recently Collateral Damaged: The Marketing of Consumer Debt to America --weighed in on a recent interview as to how we should restructure our financial system. (To see what the Fool has been doing, click here.)

First and foremost, Geisst says we should reinstate legislation akin to the Glass-Steagall Act that would create a wall to separate commercial banking activities from investment banking/brokerage activities.

"They've got to be separated," Geisst said. "Separate [the risk] from the non-risk takers. Get the risk investing away from savings, which is what Glass-Steagall did."

"... Citigroup (NYSE: C) only got itself into trouble when it went into securitized investments and it started trading derivatives," said Geisst. "If it hadn't done that, we probably wouldn't be having this discussion now. I think it's a matter of treating banks as banks and not full service security firms. You've got to get rid of that partner business. Then they won't be too big to fail."

The historian says the easiest way to reinstate separation would be to eliminate the concept of a financial holding company from the Gramm-Leach-Bliley Act, otherwise known as the Financial Services Modernization Act of 1999. Though Geisst says he thinks reinstating something like Glass-Steagall would be a great idea, he doubts there is the will for it.

Form an agency to oversee sales of Wall Street products to the public
Besides a wall of separation between commercial banks and investment banks, the Wall Street historian says he is in favor of the Consumer Financial Protection Agency (CFPA) proposed by the administration as well as another agency. Geisst says he thinks the CFPA could protect consumers from exotic mortgages they may not understand.

Geisst also believes a similar agency is needed to oversee products, which Wall Street can actually sell to the public. "It would have to be a bit closer to Wall Street," said Geisst. "Wall Street is not responsible for all the world's ills, but when it comes to, for example securitizing life insurance -- a difficulty recently -- we have to have an agency that oversees that that says you may not sell it to a fiduciary investor."

"There was a time in this country when pension funds and life insurance companies could not invest in derivatives. Now most of them do."

Regulate derivatives
Geisst is also in favor of regulating derivatives. "Don't forget AIG (NYSE: AIG) got into the credit default business guaranteeing credit default swaps -- and creating them -- because they viewed this unit as a natural adjunct to their insurance business."

Dealing with "too big to fail" banks
The expert says he does not think we need a separate regulatory body to wind down institutions that are "too big to fail." Instead, Geisst says he thinks leverage ratios and activities should be strictly enforced.

Extinguish big finance from the halls of government
Much of the failure to regulate was rooted in the structure of the New York Federal Reserve, according to Geisst. As a result, Geisst says he thinks we must remove the banks' influence from the Fed. "The New York Fed has certainly been way too cozy with banks," he said. "We know the banks own the Fed. I'm not too sure that they should have a say on how the Fed is actually run one way or another." Continued...