As the Wall Street meltdown continues, private-sector financial institutions have no choice but to swallow the market’s harsh verdict on the past decade’s financial engineering. Stunned global investors won’t give financial firms any more money, forcing the firms into bankruptcy if they’re not lucky, or into the arms of Uncle Sam or of much bigger companies, if they are. But as the House Financial Services Committee proved on Tuesday, the public sector somehow feels it can continue to ignore reality—at least for a little longer. The committee, chaired by Massachusetts Rep. Barney Frank, took steps to gut a modest reform...