Coming out of the Great Depression, a series of reforms were initiated to regulate banks...you know, the kinds of institutions we're all familiar with where we deposit our money for savings/checking accounts. This included things like the ability of the federal government to take banks into "receivership" if they appeared to be failing and insure the money that we placed in them against losses.
Over the years, financial institutions developed that went way beyond those activities and were therefore not subject to those regulations. During the financial crisis of 2008 - we heard about some of them. They were companies like Lehman Brothers and AIG. As we watched Lehman collapse and AIG near-collapse, we started to learn the meaning of "too big to fail." Because these corporations were so large and international in scope, the entire globe was threatened with financial collapse.
A lot of liberals wanted the Obama administration to take these companies into receivership in order to stabilize them and punish the managers whose practices led us to the brink. But as Paul Krugman noted, the administration's position was that the Great Depression Era regulation of banks did not provide the federal government with that authority. The significant portions of Dodd/Frank were designed to remedy that.
When it comes to the current controversy over the provision cromnibus eliminated from Dodd/Frank, Paul Krugman basically agrees with both me and Matt Taibbi - it did not touch this critical portion of Wall Street reform.
Now, this isn’t the death of financial reform. In fact, I’d argue that regulating insured banks is something of a sideshow, since the 2008 crisis was brought on mainly by uninsured institutions like Lehman Brothers and A.I.G. The really important parts of reform involve consumer protection and the enhanced ability of regulators both to police the actions of “systemically important” financial institutions (which needn’t be conventional banks) and to take such institutions into receivership at times of crisis.Making this distinction is critical because we need to effectively pick our battles as they emerge. As I've pointed out previously, the passage of cromnibus takes away the Republican leverage of holding us hostage to potential government shut-downs for at least the next nine months. That weakens Wall Street's ability to further erode these critical elements of reform. So let's keep our eye on that prize.