And now, fix Wall Street

When the U.S. Senate returns April 9 from the spring recess that begins this weekend, item No. 1 on its agenda will be reforming the American financial system. It's about time.

It's been two years since Wall Street brought the economy to its knees and ushered in a recession that still hasn't ended on most other streets. The House passed a financial reform bill in December. The Senate, occupied since then by the debate over health care reform, now takes up another potentially divisive issue.

Republicans are expected to offer hundreds of amendments to the bill that Senate Banking Chairman Chris Dodd, D-Conn., passed out of his committee this month. The GOP may not like parts of the bill, but it is clear that some form of financial reform will pass this year. Some Republicans may be brave enough to campaign as a friend of Wall Street, but not all of them.

The question is how strong the final bill will be. Wall Street banks and related industries are spending $1.4 million a day lobbying Congress on the issue. They complain that it will drive up the cost of credit, impose burdensome regulations and stifle the ingenuity of the marketplace.

If venality and greed were crimes, many of the people making these arguments would be in prison. If you packaged their credibility into securities, they'd be rated as junk bonds.

Treasury Secretary Tim Geithner took the argument for reform into the mouth of the beast on Thursday in a speech to the American Enterprise Institute, the neo-conservative think tank. He argued that there is broad consensus in favor of most aspects of the financial regulation proposals.

"There is no serious case against fundamental reform of consumer protection laws and enforcement, against oversight of derivatives markets, against strong constraints on risk taking of the largest institutions, better tools for unwinding failing institutions," Mr.

Geithner said. "The issues left, however, are important. Principally they are about consumer protection and 'too big to fail.'"

Those two issues will dominate the Senate debate when it begins next month. Mr. Dodd's bill creates a new watchdog agency within the Federal Reserve to be called the Consumer Financial Protection Bureau. The bureau will write rules for consumer financial products — mortgages, credit cards, payday lenders and the like.

It's a good idea, but the House version of the bill has a better idea: a stand-alone Consumer Financial Protection Agency. Republicans oppose that idea; why they should be on the side of predatory lenders is a mystery only their campaign treasurers can unlock.

As to the second sticking point Mr. Geithner identified — the "too big to fail" provisions — that, too, will need some work. Mr. Dodd's bill creates an interagency bureau to monitor systemic risks to the financial system created by megabanks like Goldman Sachs, Citigroup and JPMorgan Chase.

The Obama administration has insisted that financial reform instead must contain some version of the so-called "Volcker Rule" proposed by former Fed Chairman Paul Volcker. The rule would limit banks from speculative trading unrelated to essential bank services.

Reason: Those banks are underpinned by the Federal Reserve and the Federal Deposit Insurance Corp. By speculating with what were, in effect, government-backed securities, they crashed the economy and had to be bailed out by taxpayers.

Anybody want to go through that again?

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