The foxes guarding our much-raided chickens have handed us a gamy egg in exchange for stealing the coop.

I guess I should be real impressed the Obama administration has drawn a line in the sand and told seven banks they couldn't pay their executives kings' ransoms out of the bailout kitty. It's an emotional issue, after all. Why should already-rich, overpaid crooks who got us in the meltdown jam profit with taxpayer money? As current affair, it's like episodic TV and freeway driving: There are good guys, bad guys, dumb folk and bang-up excitement. Maybe even a little blood and some broken glass.

Meanwhile, though, efforts to plug up the crumbling dike that is the derivatives market with safe-and-sane regulations are fading away slowly under cover of the bankers' salary smokescreen.

There's been a big push by Democrats in Congress, reform advocates and the Obama administration to bring federal regulation to these deals. At the very least, advocates wants these contracts to go through clearinghouses or be traded on exchanges in order to make their terms public.

...But there are exemptions. In an effort to protect companies like airlines and manufacturers that use derivatives to hedge against things like price fluctuations and currency exchange rates, these so-called end-users would not be required to make public the terms of their contracts. Rather, they would continue to operate in the dark.

But (Agriculture Committee Chairman Collin) Peterson on Wednesday amended the bill to extend the exemption to big banks and financial institutions, as long as their contracts were with these end-users... Peterson's amendment "fatally weakens the bill," said Barbara Roper, director of investor protection at the Consumer Federation of America. [Source: HuffPo]

Since Peterson is a committee chair in the Hope and Change Congress, you may have guessed already that he's a Democrat, and evidently one of many who didn't get the Blackberry tweek about that big push by the party to re-regulate.

Regulation was dropped from derivatives late in the Clinton era, when this relatively new "financial instrument" began picking up steam as an upper-level investment money-maker. From the same hothouse that gave us the oily, treacherous "junk bonds" in the '80s, derivatives are basically side-bets on how investments will perform, or not perform, as the case may be.

Here's what I would do to game the set-up: If I had an investment that was a mediocre performer, I'd bet on it doing badly, sell it off at its premium price - pocketing the sale price and my side-bet that it would take a sell-off hit. That kind of gaming almost crashed Wall Street itself in 1910, so our bright forebears outlawed "bucket shop" wagering... until the Commodity Futures Modernization Act of 2000. Today, the dice-roll is a little more sophisticated - a lay bet that a stock will lose is paid off with a "credit swap", a form of insurance not called such because, of course, insurance is regulated. Because such swaps are unregulated, nobody has bothered to actually fund the "policy", and over the past eight years, all this gaming tore a hole in worldwide investment markets estimated to be in the trillions of dollars.

Since the other shoe hasn't fallen on all this debt, banks are sitting on their earnings and starving small businesses that live on short-term loans. Nevertheless, the investment industry wants the wide-open, crapshoot system back, and our Congress is more than willing to do just that:

Representative Barney Frank's central role in drafting new regulations for the US financial industry has dramatically boosted his power as a political fund-raiser, helping him increase campaign contributions by almost a third more than at this point in the last election cycle.

As chairman of the House Financial Services Committee, Frank was a major player in the $700 billion Wall Street rescue package last year, and is now the point person working on legislation proposed by the Obama administration to prevent another economic crisis like the one that plunged the nation into a recession.

Frank's place in the thick of economic policy making has made him the focal point for a variety of executives, unions, advocacy groups, and individual supporters who have poured $1.2 million into his campaign account since January. That is 32 percent more than the $907,000 he raised during the same three quarters of his 2007-2008 reelection campaign.

Hmm. Could that 'splain why he's been such a laggard in tightening up regulation of derivatives markets? He's even been lauded on conservative blogs for this "pragmatic approach" to regulation.

On the West Coast, in the '90s, the Russian mob had a pragmatic approach to gasoline it sold to convenience stores - by mixing the fuel with water!

Frank is a perennial favorite of what passes for the progressive media these days, taking his slobbery hound-dog Baahs-tin persona to the mike stand every time we need a no-nonsense, urban perspective. Wonderful! It's like watching William Bendix gargle with hippie jug wine.

The "regulations" bill made it out of committee this week, so we'll see. Timothy Geithner seems to like it. That's never a good sign.