With the threat of a Wall Street crack down looming, we turned to a key figure for insider insights. And he tells us if the Volcker plan fizzles, there are other ways to crackdown on Wall Street.

That's the general thrust of what Eric Dinallo, a candidate for NY state attorney general told us in an exclusive interview.

If that names rings a bell, it's because Dinallo was formerly New York Insurance Superintendent and during the bailout of  AIG

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[AIG  Loading...      ()   ] he landed squarely in the middle of mess.

Although the rescue of AIG was complex -- in a Wall Street Journal editorial Dinallo pinpoints a few simple lessons -- lessons he says, that should be front and center as lawmakers draft reform.

- Unregulated use of credit default swaps threatened the financial system because of ‘wildly insufficient reserves’, made possible when Congress deregulated derivatives.

- AIG policyholders were always protected because state regulation mandated proper reserves.

And on Fast Money Dinallo makes the point again.

When crafting legislation Dinallo wants lawmakers to remember that a major cause of the Wall Street crisis stemmed from the decision to decrease reserves. Going forward, he advocates mandating a much higher level.

"Other wise you end up with shadow Wall Street," he tells the desk.

“Financial institutions should be required to hold adequate reserves so they can deliver on their guarantees.” That alone, Dinallo says will make a replay of the Wall Street crisis “much less likely.”

And if Congress doesn't get on board, Mr. Dinallo isn't going to shrug his shoulders and walk away.

Were he to become NY state attorney general he tells Fast Money, “If Congress doesn’t pass the right laws to protect consumers of financial products that’s where law enforcement must step in and make sure it happens.”

In other words, even if the Volcker Plan gets watered down there could be a 'next leg' of regulation. Law enforcement may need to stop gap loopholes left by Congress. "The attorney general's office will have to make sure (firms) are not selling financial products without proper capital."

What do you think? We want to know!

Hear more from Eric Dinallo.

Find out what he thinks about paying about $100 million in early bonuses to employees of the Connecticut-based division of AIG that nearly bankrupted the company.

Watch the video above.

 

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Trader disclosure: On February 3rd, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Kaminsky Owns (LULU) June Puts; Pete Najarian Owns (AAPL) Call Spread; Pete Najarian Owns (AKAM) Call Spread; Pete Najarian Owns (INTC) Calls; Pete Najarian Owns (MGM) Call Spread; Pete Najarian Owns (MS), Is Short (MS) Calls; Pete Najarian Owns (QCOM) Call Spread; Pete Najarian Owns (X) Call Spread; Pete Najarian Owns (XLF) Calls; Pete Najarian Owns (YUM) Call Spread; Terranova Owns (BAC), (JPM), (OIH), (FCX), (GOOG), (EMC), (AAPL), (DELL), (MSFT), (QCOM)

For Joe Terranova:
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of  (DLR)
Virtus Investment Partners Owns More Than 1% Of  (EXR)
Virtus Investment Partners Owns More Than 1% Of  (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of  (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of  (XLB)
Virtus Investment Partners Owns More Than 1% Of  (XLI)
Virtus Investment Partners Owns More Than 1% Of  (SKT)

For Dennis Gartman:
Funds Managed By Gartman Own (SU), Are Short Crude Oil
Funds Managed By Gartman Are Long Australian Dollars, Canadian Dollars; Are Short Euro, Yen, British Pound Sterling
Funds Managed By Gartman Own Gold Futures, (GLD); Are Short British Pound Sterling
Funds Managed By Gartman Own (DRI), (PNRA), (BWLD)
Funds Managed By Gartman Are Short (MT), (NUE)
Funds Managed By Gartman Are Short (MOS)

For Paul Latta:
Latta Owns (SBUX)

Other Relevant Disclosures:
Jon Najarian Owned (KCI) Today

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