Let there be no doubt that Chris Dodd has his own ideas about banking reform, and they don’t match up with the Administration’s or with Paul Volcker’s.

The chairman of the Senate Banking Committee warned on Tuesday that the Obama administration’s new proposals to rein in Wall Street firms ran the risk of derailing months of delicate negotiations over overhauling financial regulations.

“It’s not a movable feast,” the chairman, Christopher J. Dodd, told Paul A. Volcker, the former Federal Reserve chairman, who has become an influential outside adviser to President Obama. “It’s adding to the problems of trying to get a bill done,” he said at the end of a hearing on the proposals, after all the other committee members had already left.

Mr. Dodd, Democrat of Connecticut, added that the administration was “getting precariously close” to excessive ambition for the legislation. “I don’t want to be in a position where we end up doing nothing because we tried to do too much,” he said.

The last thing we need, surely, is “excessively” ambitious legislation to rein in the banks. Because surely they should be allowed to gamble with customer deposits, wreak havoc on the global economy, and get bailed out for their trouble. That’s just the American way.

Volcker held his own in defending the rules he set for Wall Street, to do such things as ban proprietary trading for commercial banks, and to stop them from owning hedge funds and private equity funds at the same time, along with capping the size of future firms.

In his testimony, Mr Volcker, who chairs a presidential advisory board, dismissed industry concern that it was difficult to separate proprietary trading from the buying and selling conducted on behalf of customers.

“Every banker I speak with knows very well what ‘proprietary trading’ means and implies,” he said.

“What I want to get out of the system is taxpayer support for speculative activity.”

He said that trading should be allowed if it was undertaken for customers but regulators should clamp down on any attempts to evade new rules. “There will be temptations to speculate by aggressive, highly remunerated traders,” he said.

I’m amused by this idea that the White House is complicating the financial regulatory reform by offering their own ideas. Surely these are the same people who would have said that the Administration was “complicating” health care reform by shutting down the Gang of Six negotiations (financial reform is basically going through a “Gang of Eight” process right now). Yet if Obama did that, health care reform would be complete by now.

If the White House needs to butt out and let the Senate destroy regulatory reform on its own, perhaps they could focus on what the FDIC is doing, and highlight that.

So it was a pleasant surprise to learn that the FDIC presented a cogent and tough-minded plan for securtization reform at the American Securitization Forum [...] I’ve been skeptical of various ideas to “fix” securitization, but this one would do the trick. And it will also have the effect inherent to any program to restrain profligate and irresponsible lending: it will reduce credit extension and increase costs to the industry. That’s a feature, not a bug. But many incumbents seem unable to accept that a return to healthy practices means an end to cheap credit.

In addition, this FDIC proposal supports two of my other pet theories. One is that it is possible for regulators to come up with effective reforms if they have the will. This is a cogent and well designed plan. Second is the FDIC is the only Federal banking overseer that takes regulation seriously (the SEC might have once upon a time; it might be possible for it to rebuild that skill. The Fed is beyond redemption here; it is dominated by monetary economists who not only don’t know what they don’t know, but also are unduly respectful of the wonders of financial markets. The FDIC, by contrast, is not overawed by banksters).

You can read the meat of the proposal at Yves’ site. Basically, mortgages wouldn’t be able to be securitized for 12 months, the originator has to hold at least 5% interest in the credit risk of the assets, full disclosure must be given and re-securitization of mortgages (CDOs) would essentially be disallowed.

As Yves said, this shows that financial regulatory reform is somewhat less important that having regulators who actually perform their mission. The Obama Administration is leading what John Judis has called a quiet revolution in regulatory agencies, and so the best way for them to go forward is to allow the agencies relevant to the financial industries, the ones who have the stars out of their eyes, to actually use the authority they have. Perhaps the biggest rule that Congress can make is to change the way regional Federal Reserve Boards elect their leadership, to get them out from under the thumb of the banksters. In the meantime, the FDIC is well-positioned to crack down on the financial industry with existing regulatory authority.

None of this is to say that Congress shouldn’t pass the Volcker rule; but there are other ways at the problem.