While I am not sure about the details, I believe that our future financial architecture should reverse the problems that got us into today's distress. As such it should be based on these five principles:

• End securitization. If financial engineers can find a way to bundle loans into securities that are guaranteed not to lose money for investors, then securitization should continue. The collapse of the market for MBSs and CDOs demonstrates that achieving this could be nearly impossible. If there is a way to reconstitute the benefits of securitization -- namely lower interest rates for borrowers -- without the costs we're now incurring, then it might make sense to continue the practice. Otherwise, end it for good.
• Low leverage. We should closely monitor all actors in the financial system -- including banks, hedge funds, insurance companies, businesses, and households -- to set clear targets for maximum leverage and to assure that none of these actors is able to exceed those targets. More importantly, we need to create a culture of savings and living within one's means to extinguish the urge to borrow and spend more than one can repay.
• Complete transparency. Trust in the financial system depends on timely, accurate, and complete information. Such information should extend across all kinds of financial transactions -- providing investors with the ability to assess the financial strength and future prospects of the companies in which they invest; giving companies knowledge of the soundness of their partners, suppliers, and customers; and providing consumers a true picture of the honesty -- or lack thereof -- of their lenders and brokers.
• Morally defensible incentives. As I posted, bankers and other participants in the financial system get paid to bring in big volumes of business. Their bonuses are calculated as a percentage of the size of their deals. If investors later lose their investment from those deals, the bankers get to keep their money. To fix this problem I would require them to keep their bonuses in an escrow account. If after, say, five years, that investment was still valuable the banker would receive the money out of escrow. Otherwise, the escrow would pay the losses that the investor incurred from the bad deal. This kind of structure could reduce the moral hazard in the current incentive system by encouraging bankers to book deals likely to make money for investors.
• Global firewalls. Designers of our new financial system must establish ways to keep the problems of one institution from bringing down others -- whether in the U.S. or in other parts of the world. For instance, AIG's collapse could have damaged many of its inter-connected CDS counter-parties. However, that problem would not have arisen if there had been an independent exchange for trading CDSs.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.