Banking industry lobbyists were popping the Champaign bottles in Washington yesterday, as a greatly weakened and enfeebled financial reform bill stumbled across the finish line, coughing and wheezing all the way. It is, of course, a massive bill, which seems to leave no corner of the financial markets untouched, but I’ll give a few highlights. Derivatives will move to public exchanges and be subjected to margin requirements. Insured banks cannot use their own capital for speculative trading. The SEC is getting into the credit rating business. For me, the big one is SEC registration of hedge funds with either $100 million or $150 million in assets under management, depending how the slugfest in the conference committee works out. The bottom line: more regulation of everything bringing higher costs of doing business. The most blatant regulatory weakness were addressed, but there is a definite “closing of the barn door after the horses have bolted” flavor to it. As I write this, teams of imaginative lawyers are drawing up the incorporation documents for special purpose entities to sidestep all of this. Water is like capital: it will always flow to the least regulated, highest return corners of the globe. You might as well try to make it illegal to buy low and sell high. The more things change, the more they remain the same. And don’t run out and buy bank shares because they dodged the bullet, no matter what John Paulson says. A possible double dip recession, another leg down in the real estate market bringing a secondary banking crisis make this a much higher risk bet than it appears.