Evidently, Democrats' "Hope and Change" revolution can't make its omelettes without laying a few eggs.

The Treasury Department's wish list for overhauling the country's financial system - which we now recognize as profoundly flawed enough to trigger a seemingly endless meltdown - stuffs a silk pillow with down feathers and the softest foam rubber, to gently tap money and banking sectors that deserve a relentless ass-kicking.

Example: Derivatives, those financial instruments that operate as little more than side-bets on the market, will get more "vigilance" from regulators, according to the new plan. There's some talk of "more stringent" regulations, although these hairy little beasts called derivatives are all-but unregulated now. We can thank Clinton's moneychangers for that, and some of them, including Gary Gensler, are back in business at the same old stand in the Obama White House:

These instruments, specifically credit default swaps, increased risk throughout the global financial system, eventually bringing down AIG, the world's largest insurance conglomerate. George Soros, economist Alan Blinder and many others now name the failure to regulate credit default swaps as one of the prime causes of the collapse.

But in 1998 powerful voices close to the Clinton administration--Robert Rubin, Larry Summers and Alan Greenspan--argued that the derivatives market was just fine. They had allies among the Wall Street banks who were making money hand over fist in the unregulated, over-the-counter market.

Gensler, now Commodity Futures Trading Commission chairman, testified before lawmakers this month on behalf of the plan, and since he was a primary force behind keeping derivatives unregulated nine years ago, we can be sure any restrictions now will be as binding as overcooked fettuchine. Here's one big clue:

Obama's plan didn't say if the SEC or the CFTC should regulate derivatives or how oversight might be divided.

If you don't know who the cop will be, who cares about the rules they'll enforce? And, oh boy, the Securities and Exchange Commission. Damnation! - do we feel safer or what? Just recall its sterling performance patrolling Bernie Madoff's squandering business model.

One thing Obama's plan does in a way of innovation, if you can call it that: The Fed will be the he-bull, the Grand Poo-Bah, the "here" where all bucks stop, as far as future financial stuff in this country is concerned. The White House would:

• Give the Federal Reserve power to oversee almost any financial institution in the U.S., including firms' foreign affiliates.
• Give the Fed more power over payments and settlement systems.
• Allow the Fed to oversee any commercial company that owns a banking charter.
• Give the federal government power to take over and wind down a large financial company.

Why don't we just hand Ben Bernanke the Keys to the Kingdom and have done with it? Wait! I hear a phone ringing. Let me answer that. Hello. What?... Oh... OK... We've just handed Ben Bernanke the Keys to the Kingdom and are done with it!

The plan places enormous trust in the judgment of the Federal Reserve -- trust that critics say has not really been borne out by its actions during the Internet and housing bubbles. Firms will have to put up a little more capital, and deal with a little more oversight, but once the financial crisis is over, it will, in all likelihood, be back to business as usual, (New York Times columnist Joe) Nocera suggests.

The regulatory structure erected by Roosevelt during the Great Depression -- including the creation of the Securities and Exchange Commission, the establishment of serious banking oversight, the guaranteeing of bank deposits and the passage of the Glass-Steagall Act, which separated banking from investment banking -- lasted six decades before they started to crumble in the 1990s. [New York Times] 

Economists much smarter than me have noted the dramatic economic downturn that shook this country beginning in mid-September isn't over. Conditions aren't even getting better - they're just getting worse slower than they had been up to now. Be thankful for small favors.

Many of us feel we're outside looking in, that the same sharpies whose smarty-pants financial instruments accumulated so much toxic debt and wasted so much money are the annointed "experts" assigned to repair the tottering structure now. They are returning the banking industry and markets to the pre-Sept. 15 status quo. They want to keep the gravy train chugging along, without repairing rotten tracks that caused the catastrophe.

Earlier this week, right here at TPM Cafe, John Hempdon defended the practice of "naked short selling", in which traders sell shares they neither own nor have "borrowed" - as in regular short sells. Who bears the loss of "fail to deliver", when the nonexistent stocks can't be repurchased at profit, you may ask.

Consider who bears this loss? There is 18% discount for buying the common over the preferred. To anyone who swaps preferred for common there is an 18% profit. As this is a 20 billion deal this profit is 18% of 20 billion or $3.6 billion...

...As half of the loss is born by Citigroup who gets to issue the shares at a price that is too low. That is the loss is borne by Citigroup shareholders.

...The cost to the taxpayer - well 18% of 20 billion raised is 3.6 billion. Just over half of Citigroup is owned by the taxpayer - and more than a half of that arbitrage profit comes from the issuing company (Citigroup). The cost to the taxpayer - a neat gift to hedge fund operators - is at least a billion dollar.

Here's how it seems to us little peasants out here, breathing air less-rarified than that circulating on Wall Street: Buying and selling something we don't own is called fraud. In your world, it's "profit" or "loss". Nothing better sums up the detachment of our money elite than that. And by "detachment", I mean the margin to which the high-flying traders and bankers are unconnected to the realities of the rest of us - the ones without jobs, without homes, yet still paying with our tax dollars for the mess they made.

We're the slag of the meltdown.