While all eyes are on the Supreme Court and Obamacare, a quieter battle is being waged against the president’s other major initiative, the Dodd-Frank financial reform act.

Wall Street has already watered down or delayed most of Dodd-Frank. Now it wants to create a giant loophole, exempting its foreign branches from the law.

Yet the overseas branches of Wall Street banks are where the banks have done some of their wilder betting. Four years ago, bad bets by American International Group’s London office nearly unraveled the U.S. financial system.

One advantage of being a huge Wall Street bank is you get bailed out by the federal government when you make dumb bets. Another is you’ve been able to choose where around the world to make the dumb bets, thereby dodging U.S. regulations. It’s a win-win. Wall Street wants to keep it that way.

When the Commodity Futures Trading Commission, the main regulator of derivatives (bets on bets), recently proposed extending Dodd-Frank to the foreign branches of Wall Street banks, the banks screamed.

“If JPMorgan overseas operates under different rules than our foreign competitors,” warned Jamie Dimon, chairman and CEO of JPMorgan, Wall Street would lose financial business to the banks of nations with fewer regulations, allowing “Deutsche Bank to make the better deal.”

This is the same Jamie Dimon who chose London as the place to make highly risky derivatives trades that have lost the firm upwards of $2 billion so far ― and could leave American taxpayers holding the bag if JPMorgan’s exposure to tottering European banks gets much worse.

JPMorgan’s risky betting in London is added proof that unless the overseas operations of Wall Street banks are covered by U.S. regulations, giant banks will hide irresponsible bets overseas. Even now, no one knows how badly JPMorgan or any other Wall Street bank will be shaken if major banks in Spain or elsewhere in Europe go down.

Squadrons of Wall Street lawyers and lobbyists have been pressing all the agencies charged with implementing Dodd-Frank to go easy on the Street for fear that if regulations are too tight the big banks will be less competitive internationally. Translated: They’ll move more of their business to London and Frankfurt, where regulations are looser.

At the same time, the Street has been warning Europeans that if their financial regulations are too tight, the big banks will move more of their business to the U.S., where regulations will (they hope) be looser.

After the Basel Committee on Banking Supervision (a global financial regulatory oversight body) came up with a new set of rules in 2010 to toughen bank capital and liquidity requirements, European officials threatened to get even tougher. They approved a new system of European regulatory bodies with added powers to ban certain financial products or activities in times of market stress.

This prompted Lloyd Blankfein, CEO of Goldman Sachs, to issue ― in the words of the Financial Times ― “a clear warning that the bank could shift its operations around the world if regulatory crackdown on the industry becomes too tough.”

Blankfein told a European financial conference that tougher regulations in Europe than in the U.S. would tempt banks to search out the cheapest and least intrusive jurisdiction in which to operate.

“Operations can be moved globally and capital can be accessed globally,” he warned.

Someone should remind Dimon and Blankfein that four years ago they and their colleagues on the Street almost eviscerated the American economy, and that of much of the rest of the world. The Street’s antics required a giant taxpayer-funded bailout. Most Americans are still living with the results, as are millions of Europeans.

Wall Street can’t have it both ways ― too big to fail, and also able to make wild bets outside the United States.

If Wall Street banks demand a free rein overseas, the least we should demand is that they be broken up here ― so they’re not too big to fail anywhere.

By Robert B. Reich

Robert B. Reich, Chancellor’s Professor of Public Policy at the University of California and former U.S. Secretary of Labor, is the author of the newly released “Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix it,” a Knopf e-book original. ― Ed.

(Tribune Media Services)