The shakeup recently proposed by Treasury secretary Hank Paulson is a good first step. But beyond organizational flowchart tinkering, it is essential that when the current crisis abates, the government will demand far greater transparency to protect individual investors in the future.

The Securities and Exchange Commission, created in 1934 after the stock market free-for-all that preceded the Great Depression, was supposed to do this by ensuring that markets are fair, transparent, and orderly. But it has never been given meaningful jurisdiction over the very entities that so often determine whether markets are fair, transparent, and orderly: hedge funds (two of which lit the fuse on the Bear Stearns explosion), private equity firms (whose current debt levels are disquieting), and derivative instruments (which could potentially become a huge problem as more corporate defaults occur). Consequently, like some hapless street cop who’s shoved aside when the F.B.I. swoops in, the S.E.C. stood by as the Federal Reserve, fearing a domino effect, orchestrated the Bear Stearns rescue.

The quaint fiction, so convenient for Wall Street, has been that the government need only regulate—and demand full transparency from—commercial banks, publicly traded companies, and the exchanges, while allowing “private” entities to operate in the shadows. Even Barney Frank, the Democratic chairman of the House Financial Services Committee, told the Financial Times in 2006 that if these players want to ride a motorcycle without a helmet, that’s their problem.

The core fallacy has been this: As long as the activities of public companies are subject to rigorous oversight, individual investors are protected. That approach may have made sense in 1950, when retail investors represented 90 percent of direct investment in stocks, but not today, when markets are dominated by private institutions that are all but exempt from disclosure requirements.

What next? Courts have blocked the S.E.C.’s efforts to solicit data from hedge funds, which account for 30 percent of all equity trading, so Congress must grant the agency muscular oversight over them as well as private equity firms to ensure transparency. Banks should not be permitted to omit structured investment vehicles, with their massive potential liabilities, from their balance sheets. Jurisdiction over derivatives needs to be clarified, and the Paulson plan to merge the S.E.C. with the Commodity Futures and Trading Commission is a good start.

This year marks the 75th anniversary of the law that presaged the S.E.C. and made disclosure its hallmark, as chairman Christopher Cox recently put it. It’s long past time for that mandate to be fulfilled.