This week, Pres­i­dent Obama pro­posed reg­u­la­tory changes that would limit big banks, implic­itly those that received the guar­an­tee of a gov­ern­ment back­stop dur­ing the crash last year, from invest­ing for prof­its using their own hedge-funds or pro­pri­etary trad­ing desks. This would be an excel­lent first step in rein­ing in the power that the JP Mor­gans and Gold­man Sachs of the world wield over our econ­omy and polit­i­cal land­scape. It is unfor­tu­nate that Obama waited 12 months before lis­ten­ing to Paul Vol­cker, los­ing pre­cious polit­i­cal cap­i­tal in the process. 12 months ago, the banks were beholden to the Pres­i­dent and the Amer­i­can peo­ple. We essen­tially owned them and should have taken steps then to limit their power.

Instead, we let them pay back TARP and gain mon­strously atro­cious prof­its this year, mak­ing money by suck­ing cash from the tit of the Fed­eral Reserve and refus­ing to then lend it out to the peo­ple who actu­ally needed it. The banks are now embold­ened to go right back to busi­ness as usual as they came through 2008 learn­ing only the les­son that the gov­ern­ment will make sure they do not fail no mat­ter what the con­se­quence. They have not been pun­ished, not even rep­ri­manded for behav­ior that sucked the life out of the Amer­i­can and global economy.

While the finan­cial sys­tem is far stronger today than it was one year ago, it is still oper­at­ing under the exact same rules that led to its near col­lapse,” Mr. Obama said. “My resolve to reform the sys­tem is only strength­ened when I see a return to old prac­tices at some of the very firms fight­ing reform; and when I see record prof­its at some of the very firms claim­ing that they can­not lend more to small busi­ness, can­not keep credit card rates low, and can­not refund tax­pay­ers for the bailout.”

This is exactly right, some­thing that is a direct result of not rein­ing in the banks 12 months ago. Now, the reg­u­la­tion has lit­tle chance of emerg­ing from Con­gress with any teeth. It will die a death of 536 pricks, bled to death on the floor of the insti­tu­tion cre­ated to rep­re­sent the people.

Of course, pro­pri­etary trad­ing wasn’t the cause of the finan­cial col­lapse, at least not the root one and that is a point many on the right are mak­ing now. But this isn’t designed to fix the prob­lem, it’s a first step down the road of reform­ing the enti­ties that cur­rently have all the power in the Amer­i­can econ­omy. There are those on the right who will moan about fright­en­ing the stock mar­ket but the mar­ket needs to be fright­ened because it is cur­rently noth­ing more than a Ponzi game played with our money. Ris­ing from the depths of last year inside of 12 months dur­ing the worst eco­nomic col­lapse since 1929 is silly. The stock mar­ket gains are largely smoke and mir­rors using money that the Fed­eral Reserve has cre­ated out of thin air. It can­not con­tinue and the longer it goes on, the worse the respond­ing fall will be.

This reg­u­la­tion will be dif­fi­cult to imple­ment as Yves at Naked Cap­i­tal­ism details. But it would be a much needed baby step down the road of reform and true recov­ery. As long as the big banks can find com­fort in explicit gov­ern­ment back­ing while remain­ing unpun­ished for poor deci­sions and risky behav­ior, they will con­tinue to act in exactly the same way they have been act­ing for 10 years. We can­not have true recov­ery until the Gold­man Sachs of the world, par­a­sites on true cre­ation of wealth, have been reined in.

More read­ing: Jesse
Per­haps there is some hope