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Critics of Congress’ financial reform proposals complain that lawmakers are shooting first and asking questions later.

After all, Congress doesn’t yet know what caused the problem it’s trying to solve; the Financial Crisis Inquiry Commission that’s analyzing the 2008 Wall Street meltdown won’t finish its report until December.

We disagree. Lawmakers already have a clear picture of the system’s weaknesses. Companies can become so big and interconnected that the entire financial system would be damaged if they failed. Complex securities are so opaque, investors can’t judge their risk — or the health of the banks that hold them.

And when asset manias sweep the industry, lenders extend credit with too little assurance that it can be repaid.

These shortcomings were apparent back when real estate values were surging in the early to mid-2000s, yet the prevailing assumption by regulators was that the market was fundamentally self-correcting. We know better now.

On Thursday, the Senate passed a bill (S 3217) that would set important new regulatory boundaries for financial companies. It’s missing a few pieces, but it’s still a significant improvement over current law.

One of the Senate bill’s biggest contributions would be the creation of a new agency designed to protect consumers of financial products. Existing regulators’ prime responsibility is to monitor the safety and soundness of banks, and they’ve proved that they can perform that task while remaining indifferent to how banks treat their customers.

The mounting toll of failed subprime and non-traditional mortgages is testament to the need for regulators who aren’t indifferent to consumer safety or the damage that predatory products can eventually inflict on the financial system.

The Senate measure also includes several provisions to avoid future bailouts. It calls for new rules to deter large, interconnected institutions from posing a risk to the entire financial system. It would require companies that place riskier bets to keep more capital in reserve. It would mandate that more types of derivatives be traded through clearinghouses and on public exchanges instead of private deals, reducing the risk of default and making those investments more transparent.

And it would eliminate the oligopoly enjoyed by ratings agencies, while also preventing them from being hand-picked by the companies whose securities they judge.

Granted, these steps may make credit and capital more expensive and less available to some borrowers. But those who raise this red flag ignore the debacle caused when credit flowed too easily. Bear Stearns borrowed 33 times what it held in assets, a ridiculously large exposure that hastened its collapse after the housing bubble burst.

The Senate bill’s biggest deficiency is the lingering risk that industry will still count on Washington to mitigate the consequences of a large institution’s failure. Although the bill bars the government from bailing out shareholders or management, it should make clear that regulators won’t have the discretion to protect creditors either.

Even more important is for House and Senate negotiators to resist pressure to carve out more exemptions from the new rules on consumer protection, capital reserves and derivatives as they finalize the bill.

The burden the rules impose is more than offset by the protection they should provide the next time an asset bubble bursts.

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