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Finally someone with real power in the current financial world has stated the obvious: The world’s big banks need to be broken up into utilities that do what you and I think of as banking and speculative trading companies that take risky bets on the markets with their own money.

The speaker of such truths: Mervyn King, Governor of the Bank of England.

Proposed market reforms, including rules that would require banks to raise more capital, don’t address the basic danger posed by banks that are too big to fail, King said in a speech on October 20 in Edinburgh.

Requiring banks to keep more capital wouldn’t create a big enough margin of safety as long as big banks were free to engage in unlimited risk taking with the expectation that tax payers would pick up the tab for any losses large enough to endanger the financial system.

King echoed recent comments from former Federal Reserve chairman Paul Volcker who is now serving as an advisor to the Obama administration. Volcker has called for separating retail banking from trading units that risk the bank’s own capital in the markets.

 King’s speech puts added pressure on British Prime Minister Gordon Brown to deliver promised regulation that would require banks to write living wills that regulators would use to wind down a bank if it faced bankruptcy.

And King’s words actually stand some chance of changing government policy. The United Kingdom is in the midst of an election campaign that’s like to turn Prime Minister Brown’s Labor government out of office. The Conservative Party, currently in the lead in polling, picked up on King’s remarks to criticize the government’s policies during the crisis.

Here’s my favorite line from King’s speech: “The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.”

Can’t ask for anything clearer than that.

Over to you in the United States Chairman Bernanke and Secretary Geithner.