More than a year after our credit system was completely frozen, the U.S. House took its first baby steps toward a reform bill last week. The results of these preliminary negotiations give the megabanks a loophole to continue their destructive practices and do nothing to solve the larger problems in our credit system.

Without serious pressure from citizens, government representatives will continue to defer to their corporate masters on all matters that affect the firms’ bottom lines. With an ever greater segment of the population unemployed or underemployed, we can longer afford to have a government of the business, for the business and by the business. The state must be the master of merchants, not the contrary.

Even a year later, credit markets are still functioning only with the help of federal government guarantees, and it is fundamental to a true recovery that we have total restructuring of the banking system. Until then, loans for small business, college education, homes and even household goods will continue to be hard to come by.

Nominal reform with loopholes will do nothing to limit rapacious operations like Goldman Sachs, which Matt Taibbi described in a scathing and profane critique as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

How has criminal license become the norm in such a vital part of our economy? The first cause of this corruption is banker pay. Large bonuses are paid yearly to bankers based on short-term performance of their individual speculative bets, made with other people’s money. It should be obvious that this sort of pay system virtually guarantees huge risk-taking. It is also totally contrary to bankers’ social function, to lend money to individuals and businesses.

Instead many banks, and especially Goldman Sachs, employ large numbers of proprietary traders to speculate with investors’ money. This has become an increasingly bigger aspect of their business, and you can see from Goldman’s most recent statements that much of its profits now come from what is at best legalized gambling, and at worst, manipulation and fraud.

The government underwrites these firms to guarantee our savings deposits. For banks to be allowed to engage in this kind of gambling amounts to criminal negligence on the part of our representatives. The Fed doesn’t guarantee Harrah’s Casino in New Orleans, and it has no obligation to guarantee the same type of operation in New York just because that firm’s managers went to Harvard.

Michael Lewis has written a brilliant exposé on the crisis and lists many ideas for preventing another, called "The End of the Financial World as We Know It." The most important component he discussed is credit default swaps, insurance contracts traded with no regulation of any kind.

When former Treasury Secretary Henry Paulson kneeled and begged Congress to bail out his former firm, Congress had no choice but to grant his request because the major banks held so many of these insurance contracts that we risked a freezing of nearly all credit, cascading into massive losses in citizens’ saving deposits.

Congress was right to prevent this from happening, but the next logical step then would have been to seize the assets of the failed banks, wipe out the shareholders completely, negotiate the debt obligations in an orderly fashion and imprison the managers guilty of fraud. Free markets cannot exist without natural consequences for risk-taking and punishment for perpetrators.

With so much at stake, what could possibly stop a complete restructuring of our credit system? Lobbying by the banks is probably the biggest obstacle. So far in 2009, the industry has poured $220 million into lobbying.

Another hindrance is a disinterested public. Because banking reform cannot be easily explained or understood, it will probably not make it through the chatter on television to grab the public’s attention, although it is vital to our way of life. Distraction from this issue by entertainment only plays into the hands of the powerful at our expense.

The most troubling is the obstacle of our insular elites. A group of Ivy League graduates manage the highest levels of U.S. government and big business. They have risen with the help of money and connections, and were educated by institutions that value only one type of intelligence: the analytical.

Analysis, the breaking down of something into its various parts, is highly valuable in the sciences yet often useless in human affairs. Since the decimation of the humanities in academics, universities have produced legions of system manager drones who know the current economic order intimately, but may lack the breadth to handle the complexity of real life.

The more dynamic form of human intelligence is that which is based on intuition and impulse. It enables one to take in a whole situation quickly and entirely, to make accurate judgments, and in rare cases unleash grand creative action in the larger mass of society.

I worry that our elites are busy tending to fading flowers and do not realize that the entire garden is in danger of frost. Preparations must be made now, while the soil is still warm and workable, so that we may enjoy the spring when it reappears.