Joe Nocera, not exactly a flaming lefty commentator but a pretty down-the-middle business pundit, has a very good column today talking about the Wall Street reform bill and its failings. I think he gets one thing factually wrong, but otherwise it’s well worth reading.

First, the misstep. In talking about the changes to the credit rating agencies, Nocera says:

Ratings agencies are understaffed and underpaid. The best rating agency employees quickly gravitate to Wall Street. And the agencies have a long history of getting it wrong. Enron, WorldCom, Penn Central — the ratings agencies always seem to be a day late and a dollar short. Yet since the 1970s, the ratings agencies have been imbued with a special government status — Nationally Recognized Statistical Rating Organizations, they’re called — and a whole body of regulation has been written that revolves around ratings. Mutual funds, to cite one example, can hold only securities that have the highest investment-grade ratings.

The solution should be obvious, shouldn’t it? Just get rid of that special government status — and stop writing regulations that revolve around ratings. Believe it or not, S.& P. is in favor of such a solution. So why isn’t it in the bill? Because all those money market and pension funds much prefer the crutch provided by the ratings — that way, if anything goes wrong they can simply say “It was the rating agency’s fault.” And they’re the ones Congress listened to.

I’m pretty sure this is exactly what the LeMieux-Cantwell amendment, which passed 61-38, would do. And not only is that in the Senate bill, but it was basically cribbed from the House bill (although the House language is even stronger), which means it’s staying. Some have raised the red flag that Al Franken’s overhaul of the issuer-pays model would come into conflict with the LeMieux amendment, because Franken’s calls for NRSRO-approved rating agencies to be in line for getting assigned products to rate by a new SEC-housed agency. But whatever new process created could satisfy both amendments, and writing the NRSRO out of key regulations is an important step.

Now, though Nocera may be off on that point, the overall thrust of his article is quite correct. Nocera, like many reformers, is a structuralist, believing that the very structure of Wall Street is at issue, not the way it gets regulated. And therefore, he would naturally look at what passed the Senate and say that it comes up far short.

In the first place, there is nothing even remotely radical about anything in these bills. Nobody is suggesting setting up a new Securities and Exchange Commission, which reshaped Wall Street regulation when it was formed in 1934. Nobody is talking about breaking up banks the way they did in the 1930s with the passage of the Glass-Steagall Act. Nobody is even talking about a wholesale revamping of a regulatory system that so clearly failed in this crisis. “They are trying to attack the symptoms, instead of the basic issues,” said Christopher Whalen, managing director of the Institutional Risk Analyst. There is something oh-so-reasonable about these bills, as if Congress was worried that they might do something that would — heaven forbid! — upset the banking industry.

Credit derivatives? Banks will still be able to trade them, and peddle the most dangerous ones without using an open exchange. Credit rating agencies? Their wings are barely clipped (see above -ed.). The consumer agency? It has potential, but it’s not nearly as strong as it should be. Too big to fail? Under the new regime, the banks will remain as big, and as interconnected, as ever. And just because the country is going to have a systemic risk council — consisting of the Treasury secretary and the top financial regulators — doesn’t mean the bills do anything to reduce systemic risk. They don’t.

Even if you like the final product bill, I don’t know how you can argue with Nocera’s analysis. You might say that better regulation and enforcement will prevent the worst excesses, and resolution authority will be some killer app that will force the banks to pay for their own future bailouts. But you can’t say these bills change Wall Street. And as Nocera writes, “If a giant bank like Citigroup, with tentacles all over the world, most out of reach of United States regulators, were to become insolvent, you don’t think the Treasury Department would rush to bail it out? I do.”

Even the parts which reformers find most promising get skewered by Nocera. The Volcker rule, he says, won’t hold, because the difference between proprietary trading and trading for a client is blurry enough that banks could re-classify all their trading to reflect the latter perspective. And he agrees with the received wisdom that the Lincoln proposal to wall off the swaps trading desks from the rest of the bank doesn’t have a chance in hell of passing.

In the best passage in the article, Nocera quotes Simon Johnson, who says “When they say this is the greatest reform package since the 1930s, that is literally true. But that tells you nothing. There haven’t been any reforms since the 1930s.”

And don’t expect any help from abroad on this front, either. In addition to voting for Hooverism today, the G-20 economies set aside plans for a universal bank tax, a “Tobin tax” (named after Nobel economist James Tobin) that would have financed future bailouts. It was the countries whose banks didn’t require any emergency funding – Canada, Brazil, and Japan – who nixed it. This really doesn’t bode well for the new Basel III international rules on capital requirements and liquidity, to be set next year. Ministers already are warning that the timeline will have to get pushed back.

Several finance ministers signaled that a lengthy phase-in for Basel III beyond 2012 was now inevitable.

(Financial Stability Board Chairman Mario) Draghi, who overseas implementation of the G20′s financial reform pledges, said Basel was not expected to take full effect by that deadline.

“The key thing is to start the implementation in 2012. Then we will kind of find out what are the most appropriate transition times,” Draghi said.

While in one sense it’s correct that instituting higher capital and leverage requirements now would constrict the amount of money for lending, you can see the finance lobby getting this pushed off year by year.

While it’s good to hear economists and pundits varying their consensus on too big to fail and Wall Street’s worst practices, that doesn’t mean those with the power will be willing to use it to legitimate ends – ending TBTF and reining in those practices. At least, not in the near future.