Unfortunately, that’s not an isolated instance of the Fed falling down on the job of protecting consumers from predatory bank practices. The Fed has a long history of being under the control of free-market advocates—most notoriously the laissez-faire proponent Alan Greenspan—for whom the very idea of consumer regulation is anathema.

A good example came in 1999, when the General Accounting Office issued a report calling upon the Fed to improve its oversight of fair lending practices because minorities were being disproportionately steered toward subprime loans. Greenspan’s response, appended to the report, was a lengthy, polite, and very emphatic “no.” A year later, Federal Reserve governor Ed Gramlich tried in vain to get Greenspan to take action against predatory lending.

The Fed’s recent lackadaisical performance in writing credit card regulations demonstrates that this is more than just a Greenspan-era problem. The Fed is far too captured by the people it regulates to be an effective guardian of consumer interests. Unfortunately, Dodd’s bill perpetuates regulatory capture by providing an escape clause, just in case the new CFPB turns out to actually do something that rubs the banks the wrong way.

His proposal would create a new “systemic-risk council” with representatives from the Fed, the Treasury, and other government agencies. As its name implies, its job would be to detect looming financial risks—hopefully with greater efficiency than a similarly named outfit within the Securities and Exchange Commission that failed to do anything of the kind.

This systemic-risk council would do more than protect society from out-of-control bankers. Under the Dodd bill, it would protect out-of-control bankers from the CFPB. The Fed’s consumer-protection watchdogs can be overridden by a two-thirds vote of the systemic-risk council.

That’s ridiculous. If the CFPB were to have any independence from the people it regulates, it must be independent from the rest of the regulatory apparatus, which is excessively captured by the banking industry as it is. Placing it under the Fed is one nail in the coffin; this “council override” provision is the coup de grace. The CFPB is already feeble under the Dodd bill, as it would have no authority over financial institutions with less than $10 billion in assets. But I guess feeble just ain’t feeble enough for Congress. It has to be completely emasculated.

So, what’s the bottom line? It’s a bill that would certainly be an improvement over the status quo, but only because the status quo is abysmal. And there’s certainly a good chance that its beneficial proposals will be eroded or deleted before this bill reaches the president’s desk, if it ever does. There are certainly plenty of Democrats who are prone to persuasion by financial-services lobbyists that this weak bill needs further dilution.

The irony is that this legislation is being proposed at the same time that a spate of histories of the financial crisis, and the Lehman Brothers bankruptcy examiner's report, are shining a fresh light on the events of 2008. Congress played a major role in the crisis by failing to reign in the big banks, and it looks like an encore is the works. Barnum always loved an encore.