Wall Street is really miffed that their whims aren’t being attended to immediately and without discussion.

Wall Street executives say language in the Senate financial reform bill dealing with derivatives is like a horror movie slasher — repeatedly left for dead, only to rise again and again.

The move to force banks to spin off their derivatives desks could slice 20 percent off Wall Street profits by some estimates. Now, some executives say that if the language survives, there will almost certainly be consequences in terms of Wall Street support for Democrats in the midterms and President Barack Obama’s reelection campaign.

Already, contributions to Republicans have picked up this year as financial firms are souring on Obama.

The contributions have slid from Democrats to Republicans even as the bank execs remain confident that the derivatives title in question will get excised after Blanche Lincoln’s primary run-off on June 8. In other words, it’s not that Democrats aren’t doing the bidding of Wall Street, it’s that they’re not doing it fast enough that’s causing the problem. And also Democrats are mean to them in public, even while being generous in private.

This is the state of the nation circa 2010: the concerns of the finance lobby must be attended to quickly, lest you draw their wrath and the title of “socialist.” It’s an extreme version of industry capture.

I mean, on the left side of the spectrum wonks and activists are actually united on this one. Daniel Gross calls it “Reform Without Punishment,” and he’s right. We have a largely tame bill which may have ramifications during and after the next financial crisis, but practically none before that point, because it does little to alter the role of the financial economy in the 21st century, which basically created the conditions that led us down this road in the first place. The same regulators who either missed or intentionally ignored the financial meltdown the last time are given the keys to the car again, with a bit more information and encouragement to keep a watch on things. But the structure of Wall Street remains largely unchanged, and if the derivatives title is significantly weakened, as everyone expects, you can change “largely” to “completely”.

That’s not a peculiar viewpoint; here’s Matt Yglesias and Ezra Klein saying basically the same thing. Even those satisfied with the bill, because it provides oversight to shadow banking, admit that the problems of leverage and bank size and risky trading with depositor money went pretty much unaddressed. Given the state of our Congress and the political influence of the banks, I’m surprised we got what we did out of this, provided it survives (here’s a great rundown). But the types of policies that could really have constrained Wall Street, mandated less risky options, and contained the most dangerous activities to a place outside of the larger economy – those basically did not see the light of day. Inside this discussion are some good ideas of what could have been done. The same with the aforementioned Daniel Gross’ take:

Consider what’s not in the bill. Earlier this year, President Obama came out in favor of the Volcker rule, which would have prohibited regulated banks from engaging in the enormously profitable (but risky) business of proprietary trading. That would have punished the large investment banks. It is not part of this legislation. There’s been some discussion of a Tobin tax, the idea of levying a tax on financial transactions such as currency, stock, and derivative trades. That would raise revenue and provide disincentives for the socially useless algorithmic trading that creates risk for all investors. That would have punished many financial institutions. It is not part of the legislation. The House version of financial reform called for a $150 billion fund to be raised, largely by taxing big financial institutions, that would help wind down failed institutions. That would have exacted a significant (and, to my mind, justified) cost on big investment banks. It is not part of the Senate legislation. If health-care reform is any guide, the dynamics of Capitol Hill suggest that most House-Senate disputes are likely to be resolved in favor of the Senate.

Progressives nonetheless voted for this bill because the steps forward it takes are legitimate. And there’s reason to believe that the magic potion of Wall Street, which basically manifests itself in corporate contributions, has begun to wear off. The fact that they had to deny a vote to the Merkley-Levin amendment suggests it either had majority support or those who would have voted against it didn’t want that fact getting back to their constituents. That’s at least a recognition of the power of some force other than Wall Street, a rare recognition indeed. I think Simon Johnson takes the right conclusion from this:

Most importantly, everyone who wants to rein in the largest banks now has a much clearer idea of what to push for, what to campaign on, and for what purpose to raise money. This is the completely reasonable and responsible ask:

1. The Volcker Rule, as specifically proposed in the Merkley-Levin amendment
2. Constraints on the size and leverage of our largest banks, as proposed by the Brown-Kaufman amendment

When the mainstream consensus shifts in favor of these measures, or their functional equivalents, we will have finally begun the long process of reining in the dangerous economic and political power of our largest banks.

We learned during this months-long debate that the progressive space for economics and finance is perilously narrow. The institutional players either don’t know how to pitch this to their audiences, have been bought off from the beginning, or don’t view it as a problem. That’s unfortunate, but a newer class of activists have engaged with this problem, and now they have a coherent critique. It has not yet been successful, but it sets up very well for campaigns in the future.

David Dayen

David Dayen