Christy Romero, Special Inspector General for the Troubled Asset Relief Program, told a Senate Banking, Housing and Urban Affairs Committee hearing today that the Dodd-Frank regulatory reform law and other measures taken by the federal government to combat the Great Recession of 2008 have yet to solve the main problem at the heart of the economic collapse.

"In 2008, the U.S. Government assured the world that it would use TARP and access to the Federal Reserve's discount window to prevent the failure of any major financial institution. But in so doing, it encouraged future high-risk behavior by insulating the risk-takers from the consequences of failure," Romero said, repeating a warning she has delivered multiple times in recent months.

"This concept - known as moral hazard - is alive and well. A 2012 study by Federal Reserve economists found that large TARP banks have actually increased the number of loans that could be considered risky, which may reflect the conflicting influences of government ownership on bank behavior," she said.

"Fannie Mae and Freddie Mac also operated with an implicit government guarantee, which led to lower borrowing costs that enabled them to take

on significant leverage. According to Treasury, these entities were a core part of what went wrong with our system. Dodd-Frank did not address Fannie Mae and Freddie Mac," she said.

Federal regulators considered many of the nation's largest commercial banks and key corporations like Detroit's Big Three automakers to be "too big to fail" because their failure could spark a chain reaction capable of bringing down the nation's entire financial system.

Many of the commercial banks had invested heavily in mortgage-backed securities that packaged hundreds of sub-prime mortgages backed by Fannie Mae and Freddie Mac. When the bottom fell out of the housing market in 2007, home values plummeted and millions of owners were left "under water" and unable to make their monthly payments.

Once the mortgages started going south, credit dried up, which severely damaged the auto industry. The $700 billion TARP program was used to shore up the banks and two of the automakers in 2009. The Dodd-Frank financial reform measure was intended to prevent a recurrence of the problems that led to the 2008 crisis.

Romero told The Wall Street Journal in April 2012 that "we are letting our guard down against things like moral hazard and 'too big to fail' banks," Christy Romero, the special inspector general for the financial-system bailout, said in an interview. "And that causes me great concern."

In June 2011, Romero told the House Financial Services Committee that "the mere enactment of the Dodd-Frank act did not end the concept of 'too big to fail' in the market's eyes. So long as the financial institutions, counterparties, and ratings agencies believe there will be future bailouts, competitive advantages associated with 'too big to fail' institutions will almost certainly persist."

Go here for the full text of Romero's latest Senate testimony.