The Dow broke 14,000. Home prices are trending up in most markets. The Recession's over! The Recession's over! Sailors are kissing nurses, and nurses are kissing sailors as ticker tape descends on Wall Street.Well, maybe we got a bit carried away with that last part, but there's no doubt that the economic pendulum is getting nudged back, one millimeter at a time.That doesn't mean, though, that there isn't a lot of debris to clear away, and a lot of fixing to do. Not everything is running with all cylinders firing.Especially the banking industry.Not that it's in danger of massive collapse, as it was feared in 2009, nor is it moribund. Some institutions are recording healthy profits, and one of the ironies of high finance, 2013 edition, is the number of mega-banks booking robust net income despite paying billions in settlements to the federal government. Is this a great country, or what?No, the problem is that federally insured banks can't do the job that they should do, that they were, essentially, designed to do, and pretty much always did do, in helping right an economy tentatively emerging from a crash.This is nobody's fault, and everybody's fault. In the rush to protect everybody from themselves, from borrowers to bankers, Congress and their loyal henchmen, the regulators, have effectively nationalized the banking industry. Sure, the mega money center depositaries are funneling tons of money into the economy, especially single family mortgages. Housing wouldn't be reawakening if they weren't. And millions of Americans are taking advantage of record low interest rates, either buying homes or refinancing.But, because banking is pretty much a government run enterprise, at least for now, the borrowers that the economy needs the most, the creative entrepreneurs, are getting the least money, mostly, they're getting none at all, at least from insured banks.The regulatory infrastructure in the U.S. was probably broken before the Great Meltdown, and it's fixing hasn't necessarily made it run better. Rather, it's just stripped the threads on the nuts (and there are a lot of nuts in regulatory agencies).Jimmy Stewart's S&L in "It's a Wonderful Life" today would toe the same mark, under the same regs, as CitiCorp. This makes as much sense as 5-year-old Little Leaguers playing on a major league size diamond.Sometimes we have to look at the past to see what the future could, or should be.Back in the 1960s, when I first broke into the lending business, there was no such thing as cash out refinances of home loans, and hardly any refinances of any kind. There were no Home Equity Lines of Credit (HELOCS). No bank or savings and loan did anything resembling a second mortgage. In fact, in most instances, they were forbidden to do so by law or regulation.There were, however, finance companies and industrial banks. The former raised money through commercial loans from big banks, pledging loan portfolios as collateral, and the latter actually took deposits that were uninsured by the FDIC. Their rates were high, but they did what the banks couldn't do: allowed people to start businesses through second mortgages, or flash cash loans to an entrepreneur who needed some money to meet a payroll until the big contract paid off.Sure, there were abuses; there was no Federal Truth in Lending Law, no Real Estate Settlement Procedures Act, no Fair Credit Reporting Act.But there was a solution for the folks in the neighborhood bar that couldn't get into the country club.Another level of banking is sorely needed today, and to do its job, it can't be run by the government. Certainly, it would have to operate under all of the statutes currently in force, of which there are a plethora sufficient to provide all the consumer protection necessary.Economic recoveries are always led by entrepreneurial innovators and operators. This time around, it would be very bad to keep the white knights in the dark.Pat Dalrymple is a valley native. He's been in the mortgage and banking business since 1961. He'll be happy to answer your questions or hear your comments. His e-mail is email@example.com.