Binyamin Appelbaum of The New York Times has the smartest take I’ve seen yet on what the impending passage of financial reform means.

I’ve read news stories for three days that just haven’t really gotten at the big picture. Appelbaum does that in two-sentence lede:

Broadly speaking, there were two ways for the federal government to respond to the financial crisis: supersize regulation or downsize the financial industry.
The Obama administration chose more regulation.

Exactly. Appelbaum then follows those with two paragraphs that expand this and back up his assertion:

The financial legislation passed by the Senate last week, largely built to specifications that the administration provided last summer, vastly increases the scope and sophistication of federal regulation. It grants more resources and more authority to those charged with overseeing the industry. It is hoped that this will produce better results.

The bill does not, as some liberal Democrats and populist Republicans had advocated, require the breakup of conglomerated behemoths. It does not prohibit some of the most speculative genres of Wall Street trading. It does not reduce the vast menagerie of financial companies that compete with banks.

In other words, it’s hardly even a knuckle-rap, especially for the magnitude of the crime—and the millions of lives it’s ruined and trillions of dollars it’s cost.

This is smart analysis that lays out the power implications for the layperson whose eyes glaze at the first site of “derivatives.” The government isn’t going to chop the bad guys off at the knees. It’s going to keep them on the streets but put some extra cops on the beat.

Here Larry Summers sort of hangs himself with his own rope:

The approach embraced by President Obama largely reflected the judgments of Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, the director of the National Economic Council. They argued that the financial system was fundamentally sound, and that the problem was a lack of government.

“Our assessment was that the deepest problems seemed to be associated with failures of regulation, and that’s why strengthening regulation is the approach that we chose to take,” Mr. Summers said Friday in an interview.

This is a false choice. You can do one (regulation) and the other (knee-capping) at the same time. Indeed, you can’t effectively do one without the other. Regulation isn’t going to work if the financial industry can capture regulators via outsize political influence and the revolving door. Regulation isn’t going to work if so much of it is centered on the Federal Reserve.

There is landmark stuff in there, like the Consumer Financial Protection Agency (especially if it’s not subsumed into the Fed). But overall, the effect is one like punishing a firebug by taking away his matches—but letting him keep his blowtorch.

Good luck with that. And good for the Times and Appelbaum for showing it so clearly, as it does with this line:

The success of the legislation still depends, however, on better performance by regulators.

Head for the hills!

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.