I couldn’t agree more with this editorial from the NYTimes about what needs to get done to put families and small and medium-sized businesses at the seat of economic power and political power over the big banks.

From what we hear, Mr. Dodd had just as hard a time with some of the Democrats on his committee.

What Mr. Dodd needs to do is to introduce the toughest and smartest legislation he can to revamp the financial system and protect American consumers. And he and President Obama need to twist the arms of Democratic committee members to bring the strongest possible bill to the Senate floor.

Their rallying cry couldn’t be any clearer: Whose side are you on? The banks or the American people?

The American people need a bill that strictly regulates all derivatives — the complex, and often speculative instruments that caused so much trouble here and abroad. It must establish a mechanism for downsizing too-big-to-fail banks, and create a credible procedure by which the government can seize and dismantle financial firms that pose a threat to the system. It must instruct regulators to impose safeguards, like higher capital requirements and limits on borrowing, to curtail risk-taking before it runs amok.

And any legislation worth its salt must have at its core a strong Consumer Financial Protection Agency. That agency needs to be an independent body, with broad power to police the financial system for unfair, abusive and otherwise unsound lending in mortgages, credit cards, auto loans and other forms of debt.

Lenders adamantly oppose a new agency, in part because their dodgiest offerings — like subprime mortgages of yesteryear or short-term “payday loans” — are often their most profitable.

So, we also have a layout here of what Dodd’s new bill contains. It makes some steps towards reform, but for the most part you don’t walk away feeling like the economy won’t collapse again and most of the capital in this country won’t be tied up in financial transactions and big banker pockets. Here is a point-by-point dissent/assent run down.

NYTimes lays out the bill, commentary in between:

Among the most recent provisions in the bill to emerge, according to people who have been briefed on the draft, is one that would curb Wall Street’s influence over theFederal Reserve Bank of New York. Its president would be appointed by the president of the United States, not by a board that includes representatives of member banks.

One step closer to being able to democratize, and hold accountable the regulatory system. That’s great. Of course, it’s a small step.

Another rule would ban bank officers from sitting on the New York Fed’s board, meaning that Jamie Dimon, chief executive of JPMorgan Chase, would probably have to leave the board.

Very important to turning oversight measures into ones that are enforced and serve the interest of the country rather than a few bankers.

The legislation would create a consumer protection agency within the Federal Reserve to write rules governing mortgages, credit cards and other financial products, said the people, who insisted on anonymity because the details were still in flux.

Apparently, the mission of this nested CFPA is pretty solid on consumer protection, but the Fed is not democratized or accountable or have done their job. Bad idea.

In a concession to liberals, states’ attorneys general could sue violators of those rules, and the agency would have enforcement powers over large banks, mortgage originators and servicers, and other large lenders.

I learned at the Fordham University “Breaking up the Banks: New Ideas for Limiting Bank Size” conference on Friday, that this is a very good option for watching over the banks. State AG’s, according to Zephyr Teachout, are often political and beholden to the public and often enforce rules when they are overstepped, especially by big corporations.

But in a nod to Republicans, the bill would allow a council of regulators, led by theTreasury, to overturn proposed consumer rules by a two-thirds vote. And although the consumer protection agency would have a director appointed by the president, it would be housed within the Fed, an anathema for consumer advocates.

A council is fine if they are independent and meeting regularly and actually play a role.

The bill would also reshape the regulatory role of the Fed. It would be entrusted for the first time with oversight of all of the largest and most interconnected financial companies, even if they are not banks. And it would continue to oversee the largest bank holding companies, those with $50 billion or more in assets — about 35 companies, includingBank of America, JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley.

The Fed is rightfully criticized for failing to protect American consumers, but Dodd is not addressing this concern. Bad.

But even as the details were being hammered out Sunday evening, questions remained: can Democrats tap into the vein of populist anger over the excesses of Wall Street and shepherd the bill through, 18 months after the near-collapse of the banking system almost wrecked the economy? And can they avoid getting caught up in the partisan struggle that has held back health-care reform?

We need to organize ourselves on this issue. Only if the public calls for the smart, rigorous solutions are we going to get anything serious out of Congress.

…

The bill would also reform the sprawling market for over-the-counter derivatives, making derivatives transactions more transparent. But many companies that use derivatives to hedge, or manage, commercial risk would be exempt, a source of consternation for reformers.

It’s not clear that there will be any suffcient amount of transparency. Those proposed to be exempt should not be. We need to reveal the shadow banking market for what it is and make them accountable because we see that they were able to take down the country.

The bill would allow regulators, after a study, to implement elements of a proposalPresident Obama put forward in January. Named for Paul A. Volcker, the former Federal Reserve chairman, it would prohibit deposit-taking banks from investing in or owning hedge funds or private equity funds, and from making trades unrelated to their clients’ interest, a practice known as proprietary trading.

This seems like a political concession to people like us, but it’s likely to not be used often. That’s what non-reformers expect. Bad.

The bill contains no real solution to too-big-to-fail, no real enforcement guarantees, the bad guys are off the hook, the financial system will continue to be as big and dangerous and full of risk taxpayers will likely own. Dodd made a few good steps forward and major steps backwards.