Several bloggers have beaten me to this, but the latest proposal regarding the so-called consumer protection agency for financial products is just another example of Congress succumbing to the bank lobby.

Rather than set up an independent agency, or even put it under the auspices of the Treasury, as Senate Banking Committee Chairman Chris Dodd earlier proposed, he would now put it under the Federal Reserve because of opposition from Republicans and even some fellow Democrats.

But as Calculated Risk points out, the Fed is already in charge of consumer protection, however unofficially, and as Yves Smith notes, it has failed miserably in that duty.

Even after subprime lending started to backfire, former Fed Chairman Alan Greenspan blocked colleagues' efforts to regulate it, and insisted to the Wall Street Journal that he didn't think the Fed should have done anything to stop it.  

In fact, he was a fan of the practice as recently as 2005. "Innovation has brought about a multitude of new products, such as subprime loans," Greenspan told a conference on consumer finance in April of that year.

In the speech he also noted that securitization helped manage the risks such loans posed. "By reducing the risk of making long-term, fixed-rate loans and ensuring liquidity for mortgage lenders," the former Fed chief said, "the secondary market helped stimulate widespread competition in the mortgage business."

And Greenspan characterized all this as a sign that the financial industry was "competitive, innovative and resilient."

So what makes those who oppose a freestanding agency believe the Fed will do anything differently going forward?

Oh sure, its apologists will argue that Ben Bernanke, unlike his predecessor, has seen the light on the need for closer bank supervision.

Sorry, but nothing will change unless regulators as well as bankers are held responsible for their mistakes. And we've seen nothing of the sort in Washington, from the bank bailouts to proposals to oversee derivatives.

Dodd himself has proposed stripping the Fed of its bank supervisory powers because its regulatory failures demonstrated that it was too close to the banking industry to police it adequately. And he initially insisted that an independent agency was required to give teeth to any rules protecting consumers from predatory lending, and with it, help restrain risk. But now Dodd's willing to have the Fed oversee consumer protection because of opposition to his original proposal. And I imagine that he will do the same for bank supervision.

So goes financial "reform" in the nation's capital.