Just a year ago, a reckless financial industry self-immolated and devastated the national economy. This is not exactly ancient history, and the effects continue to ripple through communities across the country.

[IMGCAP(1)]This experience should have prompted a rapid and fundamental reshaping of the U.S. financial regulatory system and a restructuring of the industry to prevent a recurrence of the practices that led to the financial collapse.

It has not.

Instead, Wall Street is acting as if the financial collapse never happened, and the big banks are leveraging their political power to dominate the policy debate in Congress. The most significant evidence of Wall Street’s power is what has been ruled off the table for discussion — exactly the most fundamental, structural reforms that should have resulted from the crisis.

One short version of the cause of the crisis is that banks and other financial institutions deemed “too big to fail— engaged in wild speculation, secure in the knowledge that they would ultimately be backstopped by federal support.

Now, thanks to a series of shotgun mergers, the banks are bigger than ever, and there is a greater combination of commercial banking and investment bank operations in single corporate entities. JP Morgan Chase, Wells Fargo and Bank of America together held a quarter of all mortgages in 2007; now they hold almost 42 percent. The same three banks held 21 percent of deposits two years ago; now they hold more than a third of all deposits.

These giant firms are too big. They should be broken up. That discussion is nowhere to be had, however. Instead, the outer edge of proposals in play would impose some modestly tougher capital standards for the “too big to fail— institutions.

Closely related to the industry concentration problem is the problem of federally insured banks being permitted to engage in risky speculative betting. This problem is worse now than it was before the crash, with investment banks (Goldman Sachs and Morgan Stanley) now registered under the Bank Holding Company Act, and with Merrill Lynch merged into Bank of America and Bear Stearns absorbed by JP Morgan Chase.

The solution is to reinstate Glass-Steagall principles (prohibiting commercial banking from combining with investment banking or insurance operations in a single corporate entity) and to prohibit banks from excessively speculative undertakings. Former Federal Reserve Chairman Paul Volcker has sounded the alarm on this issue. “I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets,— he recently told the House Financial Services Committee. But this approach is absent from the leading financial reform proposals.

Yet another problem is the proliferation of exotic financial instruments that led to massive leveraging and complicated interconnections among top firms that no one could track. The unraveling of these ties led to the downfall of American International Group. While financial derivatives are justified as helping economic players hedge against risk, it turns out they are primarily speculative tools used overwhelmingly by a small number of players. This concentration of massive speculative betting continues, with five banks owning more than four-fifths of the notional value — the total value of a leveraged position’s assets — of all outstanding derivatives in the U.S. The notional value of these banks’ derivatives exceeded $190 trillion in the first quarter of 2009.

The administration has put forward a framework to begin to regulate these instruments. However, what is not being asked is, What is the social utility of these instruments, and how does that utility measure against the risks that they pose to the financial system? In light of recent experience, some exotic instruments — such as “naked— credit default swaps, in which neither contracting party has an interest in the underlying transaction or event allegedly being insured — should be prohibited altogether. And new exotic instruments should have to obtain pre-approval from regulators, after demonstrating that they do not pose excessive dangers to the financial system.

Of the leading proposals that are under consideration, creation of a Consumer Financial Protection Agency is the most important. Wall Street’s go-go years earlier this decade were fueled by a housing bubble and deceptive lending practices. A strong consumer protection agency not only would have protected consumers, but would have helped stabilize the financial system. Yet the Financial Services Roundtable has openly announced its intention to “kill— the Obama administration’s proposed consumer protection agency. Financial Services Chairman Barney Frank (D-Mass.) has dropped one of the important elements of the proposed agency — the authority to order financial institutions to offer “plain vanilla— products, so consumers would always have the option of avoiding tricky products. But despite the chairman’s effort to compromise, industry opposition continues apace.

Had there not been a once-in-a-century financial crash, and had not trillions of dollars of public money been conjured to prop up the failing financial sector, the financial regulatory proposals now under discussion would seem a modest and important step forward. But Wall Street did crash. And we are suffering from the worst recession in 70 years. And the public has doled out trillions of dollars of supports for the banks. In this light, the regulations proposed for Wall Street appear woefully short of what is needed. Not out of a sense of retribution, but in an effort to prevent the next crisis.

There is still time for the policy discussion to shift back in the direction of proportionate regulatory restraints on Wall Street. A broad public interest coalition, Americans for Financial Reform, is aiming to do just that. The fate of the Consumer Financial Protection Agency will be an early indicator of whether public interest forces have amassed enough power to offset Wall Street’s legions of lobbyists and turn the tide to achieve fundamental reform.

Robert Weissman is president of Public Citizen. Public Citizen is a member of Americans for Financial Reform.