By Simon Johnson

By now you have probably realized – correctly – that “financial reform” has turned into a victory lap for Wall Street.

When they saved the big banks, with massive unconditional support (both explicit and implicit) over a year ago, top administration officials promised they would be back later to fix the underlying problems. This they – and Congress – manifestly have failed to do.

Our banking structure remains unchanged, the rules will be tweaked at the margins, and the incentive and belief system that lies behind reckless risk-taking has only become more dangerous. (The back story, if you can still stomach it, is in 13 Bankers).

There is only one small chance for any sensible progress remaining – and you are about to see this crushed in conference by the supporters of unfettered big banks.

Senator Blanche Lincoln’s proposal with regard to derivatives has much to commend it. A fiduciary duty for swaps dealers vis-à-vis customers would be entirely appropriate – in fact long overdue.

Real time price reporting should also help regulators at least begin to understand what is driving market dynamics, for example around the May 6 “flash crash” – a point that Senator Ted Kaufman has also been making most forcefully.

Legal authority against market manipulation would be greatly strengthened and there would be more protection for whistleblowers. And the kind of transaction that Goldman entered into with Greece – a swap transaction with the goal of reducing measured debt levels, effectively deceiving current and future investors, would become more clearly illegal. All of this is entirely reasonable and responsible – and completely opposed by the most powerful people on Wall Street.

Of course, most of the anti-Lincoln fire has been directed against the idea that “swaps desks” would be “pushed out” to subsidiaries – i.e., the big broker-dealers could still engage in these transactions, but they would need to hold a great deal more capital against their exposures, thus making the activities significantly less profitable.

It is striking that while Treasury argues that increasing capital is the way to go with regard to financial reform, they are adamantly opposed to what would amount to more reasonable capital levels at the heart of the derivatives business.

This is beyond disappointing.

No doubt the administration feels good about what it has “achieved” on financial reform. The public aura of mutual congratulation will last for about three weeks.

But outside of the inner White House-Capitol Hill bubble, it is very hard to find anyone well-informed about the financial system who thinks that anything substantial has changed or that risks will be better managed as we head into the next cycle.

“Business as usual” is the abiding legacy of the Obama administration with regard to the systemic risks posed by this financial system. Treasury and White House let us down repeatedly and completely in the last 18 months on financial sector issues – just as they did (as decision-making bodies and as some of the same individuals) at the end of the 1990s.

At one point in early 1998, Larry Summers called Brooksley Born – the last person who really tried to rein in the dangers posed by derivatives (and it was a much lower level of danger then compared with now). Summers reportedly said, “I have thirteen bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since World War II.”

We now seem to have come full circle to exactly the same people saying exactly the same things – no doubt top people in the administration are now calling Senator Lincoln and impressing upon her a version of the same point made by Summers to Born.

The 13 bankers have won, completely. Here we go again.