What if the biggest rewards on Wall Street went to those who thwarted dangerous and excessive risk-taking instead of to those who enabled, approved or simply ignored it?

What if every senior Wall Street executive had to worry that he could lose his entire net worth at any moment — including his mansions in Greenwich, Conn., and Palm Beach to say nothing of his job — if the revenue he was generating turned out to be unprofitable or excessively risky?

Wouldn’t that combination of potential rewards and fear of calamitous personal loss instill in every Wall Streeter a zealous desire to insist that the products his firm was peddling were safe for others to buy?

If such simple incentives had been in place on Wall Street, wouldn’t the latest crisis — as well as the multitude of others that have been perpetrated on us in the past 25 years — been largely avoided?

The obvious answer to these questions is that human beings always do what they are rewarded to do and always have, especially on Wall Street. Rewarding prudent risk-taking on Wall Street while punishing recklessness would result in a new ethic on Wall Street, one not solely driven by generating as much revenue as possible in a given fiscal year with no regard to the long term.

To that end, shareholders must demand that corporate boards of directors revamp the entire compensation structure on Wall Street away from one based on revenue generation to one that rewards long-term profits. For goodness sake, what other business on the face of the earth, aside from Wall Street, pays out between 50 percent and 60 percent of each dollar of revenue generated to employees in the form of compensation!

As with so many simple and obvious solutions, this one has the benefit of having a long track record of success. Once upon a time — not so long ago — this was how investment banking compensation worked. During the Golden Era of Wall Street, the years between the reforms of 1933 and, say, 1970, Wall Street was a series of small, private partnerships. If a firm made money in a given year, a partner would receive his share of the pre-tax profits. If the firm lost money, a partner was liable for his share of those losses up to and including his entire net worth. In those days, Wall Street stuck to prudent risk-taking.

Firms made much of their profits by giving advice on mergers and acquisitions, where revenue came essentially free of risk, unless a bad deal damaged a firm’s reputation. They underwrote debt and equity securities for growing businesses, where revenue came from briefly buying the securities from companies and then immediately selling them to previously identified investors. Bankers often sat on the boards of directors of the companies whose securities they underwrote, in large part because they believed they had a responsibility to investors to be as informed as possible about the goings-on at their clients.

That era started to change in 1970, when a small Wall Street partnership — Donaldson, Lufkin & Jenrette — decided to go public. (The New York Stock Exchange rules had to be changed to allow it.) Merrill Lynch followed the next year. And, within a generation, the rest of Wall Street had followed suit in a mad rush to compete with those firms that had substituted other people’s money for that of their partners. By going public, not only did the partners of these firms become fabulously wealthy — when Goldman Sachs went public in 1999, longtime senior partners were instantly worth around $300 million — new compensation policies were instituted based on revenue generation rather than profits.

Over time, prudence was replaced by taking big, unbalanced risks with shareholders’ and creditors’ money in order to generate the revenue that would lead to big annual bonuses.

Given the total lack of personal liability and accountability for such behavior — despite Congressional efforts to reform the place — can it really be any surprise that, for instance, Howie Hubler, a trader at Morgan Stanley who engineered a series of mortgage-related trades that cost his firm more than $9 billion in losses in 2007 was able to resign quietly and leave without having to cough up one penny of his $25 million 2006 compensation?

The consequences of this rotten system were laid bare in the 2,200-page autopsy of the collapse of Lehman Brothers that was made public by the bankruptcy court last week. Thanks to the court-appointed examiner, Anton R. Valukas, we now know that one executive after another at the firm signed off on the now infamous “Repo 105” trick in order to move some $50 billion of squirrelly assets off Lehman’s balance sheet at key moments. It worked this way: Lehman executives moved assets off the firm’s balance sheet at the end of quarters in 2007 and 2008, in exchange for cash that was used to pay off other liabilities, but it classified the deals as sales rather than as financings. This allowed Lehman to reduce the assets it showed investors in its public filings, and to argue that the firm’s “leverage” was less than it really was. After the quarter ended, the assets were returned to Lehman and its balance sheet, without anyone informing investors they were back.

Bart McDade, Lehman’s head of equities, wrote in April 2008 that these accounting shenanigans were just “another drug” the executives were on. McDade told Valukas, the examiner, that he had informed Dick Fuld, Lehman’s chief executive, about the Repo 105 moves in March 2008. Now, of course, Fuld insists he had no knowledge of the gimmick. “Mr. Fuld did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment,” his lawyer said in a statement after the report came out.

Frankly, the idea that Fuld was unaware of Repo 105 is not credible, especially as he was devoted to reducing the appearance of risk on the firm’s balance sheets. But if that’s the sorry argument that Team Fuld wants to make, at the very least it once again shows the world the face of a leader so out-of-touch, and yet so ridiculously overpaid, that only one long overdue conclusion can be reached: Until it is once again in the financial interest of every senior Wall Street banker to thoroughly understand and monitor each and every product his firm is shoving out the door, and to stop them from being created and sold if there is even the tiniest shred of concern, then all the tedious and expensive re-regulation that Congress and the White House are seeking to implement will have exactly zero chance of preventing another financial crisis.

(How damning is the examiner’s report on Lehman? You can judge for yourself. Go to my annotated version of the section of the report dealing with the Repo 105 scam.)