President Barack Obama announced moves to limit the size and risk-taking ability of the largest banks because of the risk they pose to US taxpayers. Adviser and former Federal Chairman Paul Volcker, no longer marginalized in the administration, backs the changes.

Banks will no longer be allowed to own or operate hedge funds or private equity funds, among other things.

Missing here: Giving Fannie Mae and Freddie Mac an unlimited, uncapped credit line into the US Treasury on Christmas eve.

This, at a time when both disclosed in securities filings that the housing policies of the Administration and Congress will lead to additional taxpayer losses. Both have combined balance sheets equal to about 40% of US GDP, and combined both received the biggest taxpayer bailouts.

Which company really needs to be shrunk to protect taxpayers?

You should worry that the bank fixes don't target the real causes of the crisis, as the administration attempts to re-affix a regulatory antenna to the roof of the government that was knocked off long ago.

Government housing and mortgage policies, as well as monetary excesses at the Federal Reserve, are really the causes of the banking collapse.

Washington Mutual and Wachovia collapsed because of bad loans, the latter from its acquisition of Golden West, which sold disastrous pick-a-payment loans letting borrowers essentially choose their own payment terms.

And the meltdown at the two invalids permanently stuck in Congress's intensive care unit, Fannie Mae and Freddie Mac, the recipients of the largest taxpayer bailouts, was created by the government's disastrous housing policy.

A government-distorted housing market continues to get a government bailout, showing Washington has no more sense than a flock of pheasants.

And those policies have cost TARP dearly. Taxpayers have lost $27.1 billion on the government's new Home Affordable Modification Program to date; they've lost $30.4 billion on AIG, and $30.4 billion on the automakers.

Fannie and Freddie have already cost taxpayers $110 billion in losses; to date they've drawn down $111 billion from the Treasury.

You should worry about the lack of imagination and vision, where the US Treasury, Federal Reserve officials and Wall Street executives all admit they never fully factored in a nationwide housing crash in their risk models during the bubble years.

And borrowers, too, figured they could live fat and happy in their golden years by selling each other houses at inflated prices, which is like trying to sell annuities on the Titanic, as one Wall Street analyst says.

Wall Street trading did not solely create the crisis, although the Street did go berserk. Yes, the Bear Stearns hedge funds triggered its collapse, as well as rotten asset-backed securities, and it was rescued because of its massive clearing desk, a key player in the Treasury bond market. Citigroup, which is already breaking itself up, couldn't move rotten loan assets off its books.

Bank liabilities triggered the crisis and a potential run on the banks, leverage ramped up by bad mortgages, made with the encouragement of government--and trades made to capitalize off of those loans. Ergo Fannie and Freddie.

Other problems abound. 

The FDIC may now have a hard time trying to get the private equity crowd or hedge funds to rescue banks, as it's been trying to do. Private equity funds have already purchased a number of banks during the downturn, with the FDIC's blessing.

The Administration also wants to expand a 10% market-share cap that restricts a bank from  owning no more than 10% of the nation's deposits to include liabilities such as non-deposit funding. If this rule existed before the meltdown, JPMorgan Chase may not have rescued Wamu.

Another big focus in the Administration's new financial fixes is stopping the risks involved in trading in the firms' own money, called proprietary trading, versus customers' money sunk in securities, commodities, derivatives, hedge funds and other financial products.

However, since 2003, proprietary trading amounts to just 12% of net revenue. Goldman generated $203 billion net revenue from 2003 through September, meaning that about $24 billion was proprietary trading.

With the Administration's new proposals, watch how fast the banks define proprietary trading as helping all customers, not just their own accounts. And watch h ow quickly Goldman and Morgan Stanley turn in their bank charters, which they won during the crisis to get at bank bailout programs.

Yes, Wall Street was corrupt. Yes, Wall Street did successfully pressure the Securities and Exchange Commission in 2004 to ease up on capital reserve requirements, letting them blow out their wallets which inevitably caused American taxpayers to back them up.

Those were all government decisions — even JPMorgan Chase's Jamie Dimon candidly admits now that the banks needed more regulation to stop their own recklessness. A laissez faire market led to laissez faire bookkeeping, to be sure.

And fake paper trades have been with us since the turn of the 20thcentury, with the bucket shops full of them, and throughout the ‘30s, with the Congressional Pecora Commission previewing the recklessness on Wall Street today.

Market cops know you can't legislate out of existence greed. But you can put the guardrails back up.

Forget the hand-wringing commissions. Get a market cop swinging a night stick that's not made out of macaroni noodles. Regulators in the little Office of Thrift Supervision apparently didn't realize they could have sued AIG, or merely threatened to, and stopped its lethal financial products division in its tracks.

However, the ‘30s saw something else. It saw the dawn of the U.S.'s present housing policy, culminating in President Franklin D. Roosevelt's 1944 address outlining a new economic bill of rights, where he said Americans have a right to a decent home, a right to health care.

Rational thinkers can debate this issue as to what the Constitution really says, that you have a right to the pursuit of happiness, which involves the pursuit of the acquisition of such items.

What you should be worried about is this: Fannie and Freddie were placed into conservatorship in the early fall of 2008 and are now hostage to the government's every crisis move.

Again, the government just lifted the caps on their Treasury borrowings to an unlimited amount. Unlimited. Meaning they can take on all sorts of rotting mortgage paper, a mountain of which taxpayers will be staring at morosely for some time to come.

Fannie and Freddie have combined balance sheets of more than $5 trillion, with hundreds of billions more off the balance sheet. The administration and Congress now explicitly continue to give support to the worst, most irresponsible crop of borrowers taxpayers have ever endured.

The Obama administration is putting off any effort at reforming Fannie and Freddie; pay czar Ken Feinberg has no jurisdiction over the two companies, both of which just agreed to pay their top executives up to $6 million in compensation for 2009. In cash. Not stock, as the pay czar is forcing other companies. In cash, because the executives see their companies' stock at about a buck apiece.

Already, Fannie and Freddie hold or insure about 10 million subprime and Alt-A loans, as well as mortgage-backed securities, worth in total about $1.6 trillion. This stew of loans and debt is seeing record delinquencies.

It's more than just rising home delinquencies. Fannie Mae just reported that the rate of serious delinquencies - those at least three months behind - on conventional loans in its single-family guarantee business rose to 4.98% in October, up from 4.72% in September - and about triple the 1.89% rate in October 2008.

Again, the Federal is now the mortgage securitization market, and now has $910.3 billion in mortgage-backed securities on its balance sheet, out of a planned $1.25 trillion in such purchases. But it can only tread water for so long. And that Fed program is set to expire next March, which means Fannie and Freddie will need an assist once that happens.

So the new Glass-Steagall rules are a step towards what former Federal Reserve chairman Volcker says what really should be done: break up the banks.

Former Fed chairman Alan Greenspan agrees. The U.K. and the European Commission are breaking up Royal Bank of Scotland and Lloyds Banking Group after deals to prop up both banks. Essentially, European banking regulators there are telling their banks if you want more taxpayer money, you've got to sell off units and Kryptonite assets.

Stop the too big to fail psychosis. The U.S. government and the banking sector have moved in the opposite direction. The banks are getting taxpayer money first, and then are breaking themselves up after the fact.

U.S. banks are essentially giant black boxes, holding notional exposures to derivatives amounting to $203 trillion, or more than three times the size of the planet's GDP, estimated at $65.6 trillion in 2007.

Citigroup and Bank of America each have balance sheets roughly 10 times the size of ExxonMobil's, analysts note, and their disarray proves that a $2 trillion balance sheet is beyond the realm of mere mortals. That $2 trillion equals the size of the economy of France.

Officials are so submerged in problems there that they need scuba gear to get out. Bringing back some semblance of Glass-Steagall is a step in the right direction.