Oh dear God, I hate admitting it when anyone over at the Corner is right about something but... AAAAAAAARRRRRRRRGGGGGHHHH... Nicole Gelinas is right:

The financial system's failures made themselves obvious starting in 2007 in part because legislators and regulators thought that they could conjure up on command not only wisdom and competence but omniscience.

In the years leading up to the financial crisis, regulators allowed financial firms such as AIG to create derivatives that evaded the old-fashioned limits on borrowing and trading. The people in charge figured that the financial guys had figured out every angle and made these things perfectly safe.

Regulators, too, allowed banks to borrow far more than old-fashioned rules would have allowed on mortgage-related securities and other instruments rated AAA — because competent people had determined that such securities could never fail.

Finally, regulators allowed people to buy houses with no money down — even though we learned in the 1920s that it's not a good idea to let people borrow limitlessly to speculate that the price of something will continue to rise.

The lesson to be learned here is that we need borrowing and trading rules that apply to everyone and everything for those times when bankers, regulators, and tens of millions of ordinary Americans aren't right.

The bill offers no evidence that anyone in Congress has learned this lesson.

The essential problem with the financial reform package the Democrats have put together is that it relies far too much on the discrepancy of regulators and not enough on hard law. So instead of breaking up banks whose assets exceed a certain level of GDP, we have merely given regulators the ability to break up banks if and when they pose grave risks to the economy. As anyone who has followed the wacky hijinks of our government during the Bush years knows, regulators often suck, especially when they're sleeping with the people they're supposed to be regulating.

So here's how it's going to play out: At some point in the future, we will have a Republican president who will appoint Levi Johnston to head up the SEC or Treasury or the Fed. Levi will have all kinds of powers at his disposal, whether it's breaking up big banks, raising interest rates to curtail asset bubbles or enforcing strict leverage requirements. But instead of utilizing any of the vast powers at his disposal, Levi smokes dope and pleasures himself while watching porn all day long. Five days after taking office, the economy crashes again and Levi is trotted out in front of the cameras to tell us that "nobody could have predicted" this sort of thing would ever happen.

This is the sort of thing that happens when you put your faith in the competence of regulators rather than creating hard law. A real financial reform package would have held the banks to strict leverage requirements, would have forced them to stop prop trading if they wanted to retain access to the Fed's discount window and would have broken up the largest financial institutions. Instead we have a large complex nightmare that is riddled with loopholes that will allow the banks to behave just as irresponsibly as they've done in the past.

So take comfort, America. The only thing now saving us from another financial crisis is the wisdom and competence of Federal Reserve Chairman Levi Johnston. Huzzah!