Yup.

Sen. Chris Dodd’s fin-reg bill would make the sovereign-debt bubble worse. The bill would ban FDIC-insured banks and affiliates from some trading activities and would beef up capital rules for such activities at “non-banks” (like AIG). But it would carve out an important exception. Trading activities in

obligations of the United States or any agency of the United States,… obligations [of] the Government National Mortgage Association, the Federal National Mortgage Association [Fannie Mae], or the Federal Home Loan Mortgage Corporation…, and obligations of any State or any political subdivision of a State

would be exempt. (A “political subdivision” of a state is a city, town, or public authority, like my beleaguered MTA.)

It’s no mystery why the feds want to exempt nearly all government debt from new constraints. If banks can only use government debt as fodder for their short-term trading profits, they’ll demand more such debt, the government figures, keeping rates low and enabling more government borrowing.

The exemptions pose a big risk to banks, ”non-banks,” and the rest of us, though. After all, the next crisis could come from all of this government debt.

Perhaps it’s something that one of the six new regulatory agencies, councils, offices, or bureaus that the Dodd bill would create — the BCFP, the FSOC, the OFL, the other OFL, the OCR, and the OMS — could look into.

– Nicole Gelinas, contributing editor to the Manhattan Institute’s City Journal, is author of After the Fall: Saving Capitalism From Wall Street — and Washington.