Perhaps Paul Volcker is not so keen on Glass-Steagall after all.

I listened to the former chairman of the Federal Reserve at a conference in Florida organised by the CME Group today (immediately after he had walked out on an interview with Maria Bartiromo) and thought he might be softening his stance a bit.

Mr Volcker was one of the original voices calling for some division of risky financial activities from commercial banking, a division he himself compared to the 1933 Glass-Steagall Act which split banking from securities underwriting in the US.

However, he emphasised this afternoon that he was “not proposing a return to Glass-Steagall” because he regarded securities underwriting as “a reasonable banking function analogous to lending”. Nor did he want to bar banks from mergers and acquisitions advice.

The only activities he believed should be split out by legislation or regulation from commercial banks were hedge fund and private equity fund management and proprietary trading. Banks should be able to do “whatever Goldman Sachs and Morgan Stanley did in 1980″.

As a matter of history, I am not sure this is accurate since Goldman had an arbitrage trading desk - where Robert Rubin made his name - many years ago.

I also wonder whether allowing the merging of investment banking and commercial banking goes against Mr Volcker’s own analysis of what went wrong. As he put it:

“Commercial banks became much more complicated and adopted lots of functions that sit within capital markets . . . more complex, more complicated, more opaque, more difficult to manage and also bigger.”

Today, Mr Volcker did not sound too much at odds with Tim Geithner, the Treasury Secretary, and the rest of the administration. Indeed, he said he believed the latest version of financial reform put foward by the US Treasury could prevent banks getting too big.

The best moment of Mr Volcker’s talk was when he forgot the name of the Economic Recovery Advisory Board, the body that he chairs. It did not seem to bother him any more than leaving Ms Bartiromo in mid-interview.

I reviewed Too Big To Fail - favourably - in the FT today:

For 19 years, the curse of Barbarians at the Gate, Bryan Burrough and John Helyar’s groundbreaking book about the leveraged buy-out of RJR Nabisco, has hung over the publishing industry. Every time there is a tumultuous financial collapse or scandal, journalists scurry to write proposals for books, promising to recount it Barbarians-style.

The finished products are often letdowns, for various reasons. One is that to reproduce the level of human and financial detail in Barbarians – the thoughts that ran through the minds of the executives and bankers as they struggled over the deals, the culture clashes, the petty rivalries – requires an enormous amount of work. When the authors fake it or use shortcuts, it shows.

More important, few stories have the scale and the range of larger-than-life characters – from Henry Kravis of Kohlberg Kravis Roberts to Ross Johnson of RJR Nabisco – of Barbarians. Even events that appear dramatic at the time, such as the collapse of the hedge fund Long-Term Capital Management in 1998, lack an enduring grandeur.

With Too Big to Fail, however, Andrew Ross Sorkin has broken the Barbarians curse. Weighing in at 600 pages (and immediately dubbed by cynics “Too Big to Read” or just “Too Big”), Ross Sorkin’s densely detailed and astonishing narrative of the epic financial crisis of 2008 is an extraordinary achievement that will be hard to surpass as the definitive account.

You can read the rest of the review here.

My FT column this week is about how to restructure banks:

When the history of the global financial crisis is written, it may record that Neelie Kroes, the European Union’s competition commissioner was the only politician willing to respond in a logical manner.

By insisting on the break-up of the ING Group into its banking and insurance divisions – and on it divesting its US direct savings arm – Ms Kroes set a welcome precedent this week. She made a troublesome too-big-to-fail institution shrink.

The US, meanwhile, is joining the UK and others in proceeding in the opposite direction. Rather than making the Citigroups and Deutsche Banks of the world get smaller, they are bolstering them and preparing to deal with them next time they sink.

As Terry Smith, chief executive of the broker Tullett Prebon and a former banking analyst, puts it, this is “like the designer of the Titanic arguing that the provision of extra lifeboats would solve the problem”.Along with Ms Kroes, central bankers including Mervyn King of the Bank of England and Paul Volcker and Alan Greenspan, formerly of the US Federal Reserve, and now, improbably, John Reed, an architect of Citigroup, I prefer the simpler, sterner approach.

My colleague John Kay has described this as splitting banks into utilities and casinos – or deposit-taking banks that need to be backed by governments and investment banks indulging in proprietary trading that do not.

I think a more logical division would be a three-way split into utilities, casinos and people who visit casinos to gamble. That means retail banks, investment banks and asset managers, including private equity and hedge funds.

It may sound like a three-way split rather than a two-way one is a fine distinction. Yet it matters because this mix of businesses is what many too-big-to-fail institutions contain, with all the conflicts of interest and systemic problems it creates.

You can read the rest of the column here and comment below.

Good for the European Commission. The news that ING, the financial services group, is now breaking up its banking and insurance divisions - and being forced to sell ING Direct USA - is one of the first times that a  banking group has been properly humbled for its role in the financial crisis.

So far, national governments have largely avoided actually making banks smaller as the price for needed to be bailed out. Indeed, the trend has been in the other direction - Hank Paulson, the US Treasury secretary last year, pushed for deals such as Bank of America taking over Merrill Lynch.

There has been a spate of central bankers and former central bankers arguing for banks to be divided up to avoid the mingling of deposit-taking and “casino” activities such as hedge fund management.

The list of splitters (maybe in honour of Jonathan Swift they should be called “Little-Endians” as opposed to the government “Big-Endians” who favour keeping banks together and regulating them more tightly) now includes quite a roster of names.

Mervyn King, the governor of the Bank of England, has  joined Paul Volcker and Alan Greenspan, two former chairmen of the Federal Reserve, in favouring banks being broken up.

That has led to a chorus from Treasury ministers (and even other central bankers) saying that dividing up banks is too tricky and the end of financial stability can be achieved by other means.

However, the EU competition authorities have ventured where national governments have been too timid in demanding that an effective price is paid for state aid. They deserve a pat on the back, I think.

My FT column this week returns to Goldman Sachs:

A decade ago, when Goldman Sachs was a private partnership, it had $6.5bn in equity and its 220 partners, most of whose money was tied up in the firm until they retired, took good care of their pot of gold.

The bank’s trading and principal investing division – the part that took the most risks with partners’ capital – was balanced with its fee-based investment banking and asset management divisions. Trading contributed about a third of its revenues in the two years leading up to its 1999 initial public offering.

After it sold shares in the IPO to outside investors – pension and mutual funds hold about 80 per cent of its equity – it steadily increased its appetite for risk. Its fixed income and currency division has become dominant, bringing in two-thirds of Goldman’s revenues in 2006 and 2007 (and 78 per cent in the first nine months of this year).

In last year’s crisis, the US government made clear that it stands behind Goldman and other big investment banks. It received a $10bn (€6.7bn, £6.0bn) capital injection from the Treasury (since returned) and $21bn of its debt is backed by the Federal Deposit Insurance Corporation. It is now a financial holding company whose regulator and lender of last resort is the Federal Reserve.

So, if Goldman Sachs took on more risk when its equity was held by outsiders than with its partners’ own money, what can we expect now that the government implicitly accepts that it is “too big to fail”? Goldman has an even bigger incentive to risk other people’s money.

You can read the rest here and comment below.

The Companies & Markets section of the US edition of the FT has the following headlines today:

Apple leaps ahead with 47 per cent surge in profits

Options-driven rally likely if oil prices move above $80

Dutch bank DSB left to fail after run (because regulators were confident it was safe to do so)

Henderson says GM on track for public offering

Daimler accelerates to 470m profit in surprise bounce-back

Sands chief back in the money after $1bn punt

Fed tests tools for draining liquidity

UK’s rebound sparks fears of overheating (the UK commercial property market, that is)

Investors take rosy view in big week for earnings

Bullish climate sees S&P sweep through 1,100 level

All this may be coincidental but it indicates a strikingly bullish mood not only in markets but also among big businesses that suffered badly in the financial crisis. How long it lasts may be another matter but it is worth noting.

Of these stories, I was most struck by Matthew Garrahan’s interview with Sheldon Adelson, chief executive of Las Vegas Sands, recounting Mr Adelson’s near-financial death experience.

He denies ever fearing that the group risked bankruptcy. “Never,” he growls. “Not for a moment. I wasn’t going to cap my career of 64 years with a loss.”

However, he admits the year had some low points. “I bit the bullet and I sold equity. That was the lowest point . . . because I felt that my job was to enhance shareholder value and here I had diluted it, including [my own stake].

“But I paid the price. I put up $1bn to save the company. We were down as low as [a market capitalisation of] $1bn and we’re back to $12bn today.”

The equity sale diluted his stake from 69 per cent to 52 per cent. But the recent revival in the company’s shares has lifted the value of his holding up to $6bn from about $500m at the low point this year.

I imagine there are a few similar stories out there of companies that looked like they might be about to founder last year but pulled themselves back from the brink.

David Einhorn, the hedge fund manager who is most famous for shorting Lehman Brothers before its collapse, was talking at the Value Investing Congress in New York today.

Mr Einhorn talked about his reasoning for buying gold as a hedge against future inflation, and went into the reasons to be wary not only of the dollar but of currencies including the yen and sterling. Making a choice among them was like choosing between different forms of dental treatment, he said.

The most intriguing moment came when he was asked where he stored the physical gold that his hedge fund Greenlight Capital has amassed. The questioner asked whether the metal was kept in London, since the US government has in the past tried to limit gold speculation in times of economic distress.

No, said Mr Einhorn, his gold was being stored “close to here”. He was speaking at a hotel in Times Square and Greenlight’s head office is on 45th Street in Manhattan.

It felt quite tantalising.

My FT column this week is on Goldman Sachs, and identifies what I think is the biggest problem facing the  investment bank, which announces its results today. Next week, I intend to offer some solutions, both for regulators and for the bank itself.

Meanwhile, I am interested to hear your thoughts. Do you think I am being fair - or too fair - to Goldman? Do you think I am right about the problem? If so, what should be done about it?

You can read the whole article here and add your observations below.

It will be business as usual for Goldman Sachs this morning. The bank will annoy a lot of people.

Goldman, the institution that came through last year’s financial crisis best – arguably the only pure investment bank left standing – will say how much money it made in the third quarter (a lot) and how many billions it has stored for bonuses (about $5.5bn towards a likely 2009 bonus pool of $23bn).

For believers in Goldman’s ethical standards and way of doing business, these are difficult times. Although it avoided the mistakes that brought down Bear Stearns and Lehman Brothers, forced Merrill Lynch into Bank of America’s arms, and prodded Morgan Stanley further into lower-risk retail broking, Goldman has become a whipping boy.

There is outrage that, having taken government money to survive the crash, Goldman is in such rude health that it will hand out billions in bonuses. Matt Taibbi, a Rolling Stone writer, caught the mood memorably by describing Goldman as “a giant vampire squid wrapped around the face of humanity”.