The damning new Senate report proves Wall Street still can't be trusted to police itself.

With crises mounting daily—wars, deficits, debt limits, natural disasters—it's tempting to forget the cataclysms of the past. In particular, America seems to have amnesia about the Wall Street-induced catastrophe that destroyed so much of our economy. We still haven't learned its lessons, and if we don't pay attention, we're soon going to pay again for its perpetrators' callous disregard for the public interest.

The report last week issued by Sens. Carl Levin and Tom Coburn was a bipartisan indictment of Wall Street and its lead architect, Goldman Sachs. Putting the Levin-Coburn report together with the FCIC report, we now have a pretty extensive set of documents with which to understand the inner workings of a still compromised Wall Street, riddled with conflicts of interest and favoring half-truths at best when dealing with government.

I want to focus on the two most critical conclusions that jump out from these documents. The first has been remarked upon but bears repeating. The second, I do not believe has been discussed at all and is perhaps the more important.

First: The banks traded for their own interests directly against the interests of their clients. Goldman harnessed its proprietary trading power to go short on the subprime market. It held a $13 billion short position at one point. At the same time, it aggressively marketed the very securities it believed would founder. It knowingly sold junk to its clients so Goldman could prosper on the other side of the trade. Such is the conclusion of bipartisan investigators. Sen. Levin has suggested that federal prosecutors should investigate whether Goldman executives committed perjury when they testified about this before Congress. Whether charges are brought or not, the Goldman testimony fundamentally misled the public.

People I respect at Goldman tell me that there is another side to this story. If so, Goldman sure hasn't told it. And the burden is on it to do so. After receiving public support worth tens of billions of dollars, and regulatory relief worth at least that much, if Goldman wants to repair a deeply damaged image, it should waive attorney-client privilege, let us see its internal documents, and have its top management answer the tough questions under oath.

The second, undiscussed issue is the danger of a self-regulatory market. Remember, the entire predicate to the laissez faire, de-regulatory philosophy that led us to the precipice was that the magic of the market and self-regulation would make the government's intervention unnecessary. Rules relating to capital requirements, leverage ratios, conflict of interest, or any of a myriad of other subjects should be left to the banks themselves.

The investment banks repeated this creed over and over. They spent enormous amounts of money to create a political environment supportive of their theory. They promised the public that they could be trusted to play by the rules they would impose upon themselves. Just don't let government come in and spoil the game, they said.

We now know that Goldman was well aware that the market was heading for disaster. It took gargantuan positions on the short side, moved with lightning speed to limit its own exposure to the subprime market, and sold its clients down the river in order to protect its own capital. It  knew the ratings placed on the complex securitized investments were not accurate, because it traded against them. Goldman knew the debt was unlikely to be repaid, even as the company sold it to others.

Yet did Goldman executives ever go to the rating agencies and say: "Fellas, it is time to change the way you rate these instruments?" Did they ever go to their colleagues in the investment banking industry and say: "It is time that we collectively slow down this train, because we're creating a mess?" Did they ever go to any governmental agency and suggest that the government step in to slow down a market that was running out of control?

No.