Hold the applause. The president would like us to celebrate his "Wall Street reform," but the legislation is misnamed. Barack Obama did not set out as president to reform Wall Street in fundamental ways but to restore it. Judging by the largest banks’ booming stock prices and executive bonuses, he appears to have succeeded. The leading bankers expressed relief when they saw the reform package Congress cobbled together on June 25. Wall Street, loathed by citizens everywhere, dodged the bullet in Washington.

Congress followed Obama’s path and rejected the sterner measures that promised to actually change things. As with healthcare reform, the White House, joined by the Treasury and the Federal Reserve, spent much of its energy opposing more aggressive ideas or bargaining small-bore compromises. The president kept a low profile, saving himself for the victory celebration.

Despite the defeat of real reform, progressives should not despair—the future looks much brighter than the headlines suggest. Yes, Congress choked on the hard questions. But assuming the Dems pull together last-minute wavering votes, it will be a stronger bill than either the White House or the bankers had intended, thanks to public anger, popular mobilization and nimble pressure from reformers.

This is not the end of reform; it’s the beginning of a promising struggle to cut the financial sector down to tolerable dimensions and reduced power. The forces of reform demonstrated that they have the strength and especially the ideas to win this fight—just not this year.

Mainly, the legislation gives government regulators explicit authority to take tougher measures to curb Wall Street’s dangerous behavior, but only if the Fed and Treasury decide it’s a good idea. Don’t hold your breath. These same agencies failed massively to confront the rampant recklessness that led to collapse (many of them claimed not to have seen the trouble coming).

Once again, the risk-taking is assigned to unwitting citizens and the economy. Washington saved big-dog bankers from failure, but it has not saved the rest of us from the bankers. Some reformers want to make the best of mixed results. The Consumer Federation of America says the banks "won a few battles; they lost the war." I would say it is the other way around: reform won some battles but lost the war.

Some valuable improvements, like the Consumer Financial Protection Agency, can lead to tougher rules, but even such worthy accomplishments were diluted in the fine print. The supposedly "independent" consumer agency is to be a "bureau" within the Federal Reserve, where hostile central bankers can find ways to smother the infant in its crib.

The improved controls on dangerous derivatives were likewise weakened in last-minute deal-making that gave bankers much of what they wanted—a free hand to keep the casino open for the gamblers. Bottom line: key elements of financial abuse that contributed to the breakdown have not been eliminated. And taxpayers are still on the hook for bailing out "too big to fail" banks.

Yet despite disappointing results, the losing issues revealed reasons for optimism. Think of this as Round One. We witnessed a surprisingly strong preview of Round Two in the aggressive reforms pushed by some Democratic senators. These proposals could someday—maybe sooner than we imagine—constitute the platform for authentic reordering of the banking system.

In the trenches the legislative battle was Democrats against Democrats (Republican senators were united in opposing everything). These roll calls made visible the deeply conflicted purposes of the party—the awkward straddle Democrats have maintained for three decades. Is it the party of working people or the party of big money? Democrats have for some time wanted to be both, but this year’s action exposed the contradiction more starkly and put the two sides into repeated collision.

Senator Byron Dorgan’s amendment would have outlawed the exotic "naked" credit default swaps, which let bankers and others bet on assets they do not own (like buying fire insurance on your neighbor’s house, then lighting the match). Other Democrats decided to table Dorgan’s measure rather than choose between Wall Street and public anger at Wall Street. Dorgan’s issue lost big, thirty-eight to fifty-seven, but it won among Dems, thirty-six to eighteen.

Senator Sheldon Whitehouse’s amendment on usury would have repealed the federal pre-emption that prevents states from enacting their own limits on consumer interest rates. Whitehouse got thirty-three Democrats for, twenty-one against. Roughly speaking, these roll calls joined old liberals and younger, newer senators against the party’s center-right establishment, which is typically closer to financial patrons.

Senator Sherrod Brown’s amendment followed the same pattern but on a far more fundamental issue—forcing the largest, most dominant banks to get smaller, breaking up concentrated financial power. Brown won among Democrats—thirty yes, twenty-seven no—though not enough to overcome Republican naysayers. Still, the Ohio senator came away remarkably optimistic about eventually winning.

"We got a majority of Democrats on the floor but almost nobody on the banking committee," Brown said. "It reminded me that this institution was built to protect the status quo—to protect the powerful against the people. In this chamber, we all sing with an upper-class accent, so to speak."

Yet Brown sees the path by which breaking up the banks will be forced back before Congress. "In the long term, we are going to win this issue," he said. "I can’t say what the long term is, but the business community is eventually going to be for it." That’s because the legislation implicitly awards privileged status to the very largest financial institutions, which means the disadvantages of "too big to fail" will fall upon smaller banks and other corporations. That, Brown thinks, will build the support among them for decisive reform. "The biggest banks get a built-in advantage because capital markets understand, or believe, that these big banks will never be allowed to fail," the senator explained. "Therefore, they get a lower interest rate when raising capital—seventy basis points or so—and therefore businesses naturally want to deal with them. So these big banks will get bigger and bigger."

The logic did not persuade this time around. "The argument against my amendment, implicitly, was, It’s a radical thing to break up the banks—we can’t go that far," Brown says. "The explicit argument was, We can’t do that because it would disarm the country in global finance. That doesn’t make any sense. You don’t need $50 billion banks to get economies of scale."

Brown’s spirit of confident optimism is the model for sustaining reform politics. As he sees it, liberal advocates can win if they do the hard work of explaining and recruiting not just among kindred spirits but among normally conservative business interests and ordinary apolitical citizens who don’t call themselves liberal or progressive. Both groups are deeply angered and feeling threatened by the swelling concentration of Wall Street power. "It will not take another financial crisis to get back to breaking up the banks," Brown predicted.

A similar strategy is being taken up by labor and citizen reform groups, especially those outside the Beltway, like National People’s Action. They intend to aim direct action at banks and focus on people’s concrete grievances. That starts with the foreclosure crisis, which Washington has shamefully neglected.

Instead of congratulating Democrats for enacting timid measures, we should show them what we have in mind for Round Two.