Nearly a year and a half since Lehman, there are now two surprising reasons Wall Street should fear what ultimately comes out of the financial regulation debate.

The first is that it's still happening. It hasn't died. People still care, and for politicians, the anti-bank attitude resonates with the public. That this issue has sustained itself, that Goldman Sachs (GS) is still losing money due to public opinion (see the victory of Morgan Stanley (MS) in conducting the Citigroup (C) share sales, presumably because the government didn't want to give another gift to the squid). So that alone is a surprise.

The second development is the real potential for anti-bank sentiment on the right. It's well-known that Republicans can't oppose financial regulation as easily as they were able to oppose healthcare, but vigorous pro-regulation fervor hasn't been in the cards from the right.

And yet here is Arnold Kling in the National Review sounding a lot like Simon Johnson in favor of breaking up big banks.

Here's the nut of the argument:

It is the political economy that most concerns me. Freddie Mac (FRE) and Fannie Mae (FNM) represent everything that is wrong with the politics of big banks. They acquired lobbying prowess, their decisions were distorted by political concerns, and they were bailed out at taxpayer expense. All of these developments seem to be inevitable with large financial institutions, and all are deeply troubling to those who value economic freedom. Unless there are tremendous advantages of efficiency or systemic stability from having large banks, their adverse effect on the political economy justifies breaking them up.

Remember, the big story was not that Fannie and Freddie got bailed out (they were, in fact, government sponsored entities), but that every Wall Street firm besides Lehman turned out to be a GSE. That's why the traditional conservative attack, which tends to focus exclusively on Fannie and Freddie is so ridiculous.

More broadly, it's why John Boehner, the head of the Republicans in Congress is an utter fool for telling bankers to fight those "punks" in Congress who want to regulate the banks.

While his base (tea) parties in the street, raging against big government, here he is promoting the DC-Wall Street status quo. He should be realizing that the revolutionary zeal of the right could be channeled into reform.

What the Republicans should be doing is outflanking the Democrats, slamming the Dodd bill as a gigantic sellout that only takes baby steps.