One of Wall Street’s finest slipped and told the New York Times that the financial reform bill wouldn’t affect their core business to any major degree.

Many executives spent the weekend trying to assess the impact of the legislation, which has yet to take final form. With some crucial differences between the House and Senate versions of the bill remaining, lawmakers will confer over the next few weeks and try to reach a final version before Congress’s Fourth of July recess. But Wall Street’s initial verdict seems to be that it could have been much more draconian.

“If you talk to anyone privately, there’s a sigh of relief,” said one veteran investment banker who insisted on anonymity because of the delicacy of the issue. “It’ll crimp the profit pool initially by 15 or 20 percent and increase oversight and compliance costs, but there’s no breakup of any institution or onerous new taxes.”

The reaction of the market to the legislation echoed that view. Stocks of financial institutions performed well on Friday, with shares of JPMorgan Chase and Morgan Stanley each up 5 percent.

They’re not supposed to give that away until AFTER the conference committee! Oh well.

At the most, the bill would lower profits by about 20% initially, analysts said, and that number would drop over time, as financial firms adapted to the changes, and as they found ways to get around the regulations, an inevitable occurrence.

From the earliest days of capitalism, those skilled at making money have proven creative at evading the regulators.

In the Middle Ages, when usury laws banned lenders from charging interest, savvy merchants lent in one currency and took repayment in another, thereby profiting without incurring the wrath of the Catholic Church. So much has happened over the ensuing centuries — a blur of financial ingenuity spanning the creation of stocks to the mortgage-backed investments of the present day — yet history remains unbroken: Time and again, financial innovation finds a lucrative path around regulation.

As Congress and the Obama administration now enter the endgame in an effort to temper the dangers that delivered the worst financial crisis since the Depression, experts assume that this historical narrative will hold. If anything, swift advances in technology — computerized trading strategies unleashed on a global landscape — have made it harder for watchdogs to simply recognize the risks building within markets, let alone deliver effective action.

Yet bans on high-frequency trading never materialized. Neither did the specific policies which the banking giants feared the most – limits on their size and leverage, caps on interest rates for credit card holders, a restoration of the firewall between commercial and investment banks, and and punitive taxes on financial transactions or bonuses. What we’re left with is a broader set of rules on the same financial system. And we have to trust that the regulators who got it wrong last time will, empowered with new rules, actually do their job this time. This is not by accident, but by the design of the Administration, who fully admits their role in shaping the response in a narrow way that protected bank privilege:

What that’s meant in practice is that Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformer such as former IMF economist Simon Johnson. “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,” says the senior Treasury official. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”

Jeff Merkley claims that the conferees will try to include his Merkley-Levin amendment in the conference report. But I don’t really see how that could be, given that the House has nothing like it and the Senate only has a study to impose the Volcker rule. Regulators could vote to enact or override the ban on proprietary trading, as written. The likelihood is high that will remain in place. This looks to me like the expected outcome:

If it’s not done now, said Merkley, proponents will likely have to wait until the next crisis to raise the issue.

“If we have another crisis in the next 24 months, people will be taking a second look at what we’re passing now. And if everything goes smoothly for five years, we probably won’t have any momentum until the next crisis occurs,” he said.

We have the blueprint for what the response should look like in the next crisis, which is a step forward, but we’d face the same obstacles.