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Senate Majority Leader Harry Reid (D-NV), right, and Senate Banking Committee Chairman Christopher Dodd (D-CT) speak to the media after the final vote on Wall Street reform in Washington. (Mark Wilson/Getty Images)
Senate Majority Leader Harry Reid (D-NV), right, and Senate Banking Committee Chairman Christopher Dodd (D-CT) speak to the media after the final vote on Wall Street reform in Washington. (Mark Wilson/Getty Images)

Spewing smoke over the financial reform bill Add to ...

The always constructive Republican leader in the House of Representatives, John Boehner, likened the 2,300-page financial reform bill that just cleared Congress to “killing an ant with a nuclear weapon.”

As President Barack Obama and fellow Democrats congratulated themselves on the bill's 60-to-39 vote Senate passage on Thursday, there was no visible mushroom cloud over Capitol Hill. There was, however, plenty of the usual haze as politicians on both sides blew smoke.

“I think it ought to be repealed,” Mr. Boehner said, reprising the talking point Republicans have used for Mr. Obama's health-care reform bill. “It gives far too much authority to federal bureaucrats to bail out virtually any company in America they decide ought to be bailed out.”

The President, on the contrary, insisted the bill he can now sign into law “will prevent the kind of shadowy deals that led to this [financial]crisis” and ensures that “the American people will would never again be asked to foot the bill for Wall Street's mistakes.”

Listening to both sides describe its awesome powers, you have to wonder whether the only thing this octopus of a bill doesn't do is correctly predict the winners of World Cup soccer games.

In reality, the bill will neither be repealed by a Republican Congress nor stop Wall Street from doing what it does best, which is making the rules made in Washington irrelevant or immaterial to its business.

Though a considerable legislative victory for Mr. Obama, given the intransigence of all but the three Republican senators who voted for it, history is unlikely to rank it on par with health-care reform as a legacy item.

What sticks in the American public's mind about the bill may not be the “punishment” it inflicts on Wall Street – and Mr. Obama made it clear Thursday that he wants to be seen as penalizing bankers for their “recklessness and irresponsibility” – but rather the overriding impression of a government on steroids.

Alabama Republican Senator Richard Shelby called the bill “a legislative monster” that “expands the scope and power of ineffective bureaucracies.” Kentucky GOP Senator Mitch McConnell predicted Americans will not like “this government-driven solution to the financial crisis any more than they like the Democrats' government-driven solution to the nation's health-care crisis.”

Officially called the Wall Street Reform and Consumer Protection Act, the bill will have more impact with respect to the second part of its title than the first. The creation of a new agency to oversee consumer interests – outlawing, for instance, the fine print on those subprime mortgages – may be the bill's most consequential and lasting contribution to financial regulation.

Overall, though, the bill's content is reflective of a legislative system so exceedingly complex – and so perverted by lobbyist intervention, political game-playing and crass deal-making – that coherency becomes an early victim of the process.

It's true the bill will equip regulators with vast new powers, none more so than the ability to seize and wind down large institutions. And, in theory, a new council of regulators will improve co-ordination among the web of agencies responsible for financial regulation in a way that can identify and defuse systemic risks before they explode.

But regulators are human beings. They often travel in the same social and professional circles as the people they regulate, especially in the U.S. system where regulatory agencies are stuffed with political appointees. Those agencies, meanwhile, compete relentlessly with each other for power. And if information is power, agencies tend to hoard it, rather than share it.

“I've thought a lot about it: This is very people driven,” Henry Paulson, the Bush-era treasury secretary at the helm at the height of the 2008 meltdown, told The New York Times this week. “A lot of this is about the people who have the responsibility for the regulation when there isn't a crisis and the people who have the responsibility during a crisis.”

So much in the bill is left to the discretion of regulators that whether or not a future financial crisis is averted (or at least minimized) will depend largely on whether those regulators have the foresight, intelligence, courage and conviction to know when and how to exercise their new powers.

The track record of history suggests that is asking too much.

Besides, the lobbyists are not anywhere near finished. Much of the bite of the new law will depend on the minute regulations that must be drafted to implement it. This is especially true when it comes to the so-called Volcker Rule (aimed at limiting banks' involvement in trading for their own account with depositors' money) and restrictions on derivatives. Lobbyists will make sure the regulations are as permissive as possible.

“There is a long phase-in period in which the actual rules will be crafted by regulators,” analysts at Goldman Sachs wrote in a research note sent to clients last week. “While this may lead to further surprises down the line, we see this as important as financial institutions have time to adapt their business models.”

That is Wall Street-speak for circumvention.

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