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Without one Republican vote, the House passed a deeply flawed bill that attempts to control the excesses of the financial services industry - while also letting them escalate many of the same crazy practices that led to this crisis. The Republicans, of course, thought the bill was too stringent.

The good news is that authorization for the Consumer Financial Protection Agency is included, and now the fight moves to the Senate:

Dec. 11 (Bloomberg) -- The U.S. House voted to tighten rules for derivatives and create powers to break apart healthy financial firms that threaten the economy in legislation passed today over objections of Wall Street and Republicans.

Lawmakers voted 223-202 to set up a Consumer Financial Protection Agency, expand oversight of hedge funds and build a $150 billion industry fund the government would use to take apart failed systemically risky firms. The House failed to add language letting bankruptcy judges reset mortgage terms, known as a “cram-down.” The focus now shifts to the Senate, where lawmakers lack a schedule for action on a bill.

“We are sending a clear message to Wall Street: The party is over,” House Speaker Nancy Pelosi said at a news conference after the vote.

The measure is central to lawmakers’ effort to end rescues of firms deemed too big to fail, which led to bailouts of New York-based American International Group Inc. and Citigroup Inc. The banking industry and the nation’s biggest business lobby fought to scale back the legislation. Republicans called the bill a permanent government bailout and 27 Democrats joined to vote against the measure.

“The free market, particularly when it’s in an innovative phase, works best with a fairly defined set of rules, and that’s what we’ve done,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat who offered the legislation, said today at the news conference.

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I saw Bill Maher offer Matt Taibbi some pushback last night about his Rolling Stone piece on Goldman Sachs. Maher wasn't willing to believe that Goldman has been uniquely positioned to profit from the breakdown of the financial system and the various bubbles created. Maher offered the predictable "why just Goldman" response, and Taibbi decided to talk about the many Goldman officials in high positions in the government. He could have just pointed to this story that leaped from Zero Hedge to the New York Times yesterday.

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets [...]

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

They literally place their super-fast computers physically close to the machines that govern NYSE trades, to get the jump on competitors and make enough pennies off of the brief ups and downs of stocks to rake in mounds of cash. And in some cases, investors can buy access to buy and sell order information on certain exchanges that can be used to make these quick orders. When Chuck Schumer is calling for an investigation of Wall Street, you know something has gone horribly wrong.

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I've been following this for a while, and it's encouraging news if the commodities regulators follow through. These guys have been driving up the cost of oil with the same sort of shady tactics used in the financial markets. Good for the Obama administration if they take this aggressive approach:

WASHINGTON — Reacting to the violent swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering new restrictions on “speculative” traders in markets for oil, natural gas and other energy products.

The move is a big departure from the hands-off approach to market regulation of the last two decades. It also highlights a broader shift toward tougher government oversight under President Obama.

Since Mr. Obama took office, the Justice Department has stepped up antitrust enforcement activities, abandoning many legal doctrines adopted by the Bush administration.

The Obama administration is also proposing an overhaul of financial regulation that would include tougher capital requirements for big banks, tighter regulation of hedge funds and a new consumer protection agency with broad power to regulate credit cards, mortgages and other consumer lending.

In the case of oil and gas trading, regulators made it clear that they were willing to move, without waiting for Congress to act on Mr. Obama’s overhaul, invoking their existing powers.

I'm not too optimistic about this improving matters. How can you ever foresee every potential conflict when they're all in bed with each other? Break these "too big to fail" companies up and make them smaller, that's what I say!

Senior administration officials are considering the creation of a single agency to regulate the banking industry, replacing a patchwork of agencies that failed to prevent banks from falling into the worst financial crisis since the Great Depression, sources said.

The agency would be a key element in the administration's sweeping overhaul of financial regulation, which officials hope to unveil in coming weeks, including the creation of a new authority to police risks to the financial system as well as a new agency to protect consumers, according to three people familiar with the matter. Most of the proposals would require legislation.

"The president is committed to signing a regulatory reform package by the end of the year, and officials at the White House and the Treasury Department are continuing work with Congress on the final phases of a proposal, but there is no final proposal in place and any announcement will not be for a couple of weeks," said White House deputy spokesman Jennifer R. Psaki.

Senior officials have reached agreement on aspects of the plan, according to a person familiar with the discussions.

They favor vesting the Federal Reserve with new powers as a systemic risk regulator, with broad responsibility for detecting threats to the financial system. The powers would include oversight of previously unregulated markets, such as the derivatives trade, and of market participants such as hedge funds.

Officials also favor the creation of a new agency to enforce laws protecting consumers of financial products such as mortgages and credit cards.

And they want to merge the Securities and Exchange Commission and the Commodity Futures Trading Commission, which share responsibility for protecting investors from fraud.

Other aspects of the plan remain under discussion, sources said, speaking on condition of anonymity because they were not authorized to disclose details.

Among these ideas is the creation of a single agency to regulate banks. The new regulator would assume responsibility for the safety and soundness of banks, currently divided among the Fed and three other agencies: the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. The OCC and the OTS would probably disappear, while the Fed and the FDIC would retain other responsibilities.

Under the current system, banks can choose their regulator. Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis.

Gee, ya think?

The nice thing about having the Democrats in charge is, you actually do get some much-needed regulation instead of idiotic blather about the self-healing properties of the Almighty Free Market:

In response to the worst economic downturn since the Great Depression, Geithner outlined a six-part framework that would result in the most significant new regulation of the financial system since the broad changes made during that crisis more than 70 years ago.

"We have an opportunity we have not had in generations to put in place a stronger and more resilient system," Geithner said.

The key elements of the Obama administration's proposals are:

• Give a single government entity, possibly the Federal Reserve, the power and authority to oversee the entire economy for signs of "systemic risk."

• Establish a government mechanism to seize and dismantle large institutions whose failure threatens the nation's financial stability.

• Enact tougher requirements for the amount of money and assets financial institutions need to have on hand so they can withstand economic troubles.

• Require large private investment funds to register with the Securities and Exchange Commission.

• Set up a new, comprehensive framework of regulation of the complex financial instruments known as derivatives, including a central clearinghouse for trades in that market.

• Develop new, stronger requirements for money market funds so increased withdrawals won't threaten the broader financial system.

"What we need is better, smarter, tougher regulation," Geithner said.