Headlines blared that Senate Banking Chair Chris Dodd [3] was done with dithering, and ready to move ahead with a financial reform package without Republican support. Financial reform groups should be celebrating this as a positive move that would roll back some of the worst elements of the bill inserted during recent bipartisan negotiations, including the nutty effort to put the Consumer Financial Protection Agency [4] (CFPA) into the Federal Reserve [5] -- an institution about as popular as the IRS [6]. Hold the champagne. Reading between the lines, it seems that negotiations are continuing behind the scenes and ranking Republican Senator Richard Shelby [7] (R-AL) says [8] “an agreement is still very possible.” The little spat between Dodd and the Republicans has been beneficial, though, because it flushed out more details about the points of agreement and contention.

You can hear the bankers cheering because there appears to be agreement to shrink and de-fang the best part of the bill, the Consumer Financial Protection Agency [4]. It seems destined for the basement of a failed regulatory body such as the Fed or the Treasury Department. The consumer protection agency was originally intended to be a stand-alone agency, with broad authority over banks and non-banks to crackdown on predatory mortgages, credit card fees, payday lenders and others whose abusive practices capture consumers in an unshakable debt cycle. Not only do the Republicans and the big banks want to put CFPA under the thumb of the bank-friendly Fed -- an institution which completely failed to protect consumers from predatory lending in the run-up to the financial crisis -- they want to strip it of its enforcement authority and shoot it full of exemptions. No agency would be preferable than this type of toothless tiger. Negotiators have failed to break up the too-big-to-fail banks, or effectively cap their size. Worse, the draft continues to exempt the most complex derivatives — including foreign currency swaps and credit-default swaps — from the requirement that they be regulated and traded on an open exchange. You remember credit default swaps. They allow parties with no insurable interest in an underlying asset (i.e., your house) take out insurance on whether or not your house will burn down. This of course gives them an incentive to torch the place. These "financial weapons of mass destruction" played a key role in the collapse of AIG [9] and the global economy, and are now being used by big American banks to torch Greece [10]. Janet Tavakoli, a respected financial analyst, recently called upon Congress [11] “to act immediately to abolish credit default swaps on the United States, because these derivatives will foment distortions in global currencies and gold,” a situation that could wreak further havoc on the U.S. economy. If Congress does not close the loopholes in the bill on the derivatives front, the next crisis is assured. Fortunately, a few brave men are willing to put the kaibosh on toothless reform. "I won't vote for a bill if the banks have control of it," Senator Sherrod Brown [12], (D-OH), told CNN [13]. In remarks on the Senate floor, Sen. Ted Kaufman [14] (D-DE) warned he won't support "compromise measures that give only the illusion of change and a false sense of accomplishment." And Independent Senator Bernie Sanders [15] told CNN he would vote "no" unless the bill includes an independent consumer regulator and tough new restrictions on banks. Senators Jeff Merkley [16] (D-OR), Carl Levin [17] (D-MI) and others are fighting hard for a real "Volcker Rule" that would reinstate some of the protection for Main Street banks against reckless Wall Street gambling. Dodd has said that he will unveil his new bill on Monday. Take your time, Senator. Get it right this time. It is not an exaggeration to say that the future of the world may depend on it.