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Watch the House pass a bad bill. Watch the Senate make it worse. Watch the banking industry dig its own grave. Watch supposedly smart people set up a financial disaster. Can we see President Clinton veto this mess? Veto, Clinton, veto.

Not since Congress passed the Garn-St. Germain bill in 1981 -- the one that deregulated the S&Ls and unleashed a half-a-trillion-dollar disaster, which the taxpayers of this country wound up paying for -- has there been a move to match this for pure folly.

In May, the House passed (by one vote) a bill to eliminate barriers between banks, brokerage firms and insurance companies. This sets up financial holding companies that can offer all three types of services simultaneously. The most obvious risk is that a blunder in the insurance or brokerage end of the business could bring down a bank, putting insured deposits at risk. The taxpayers, of course, then wind up with the tab.

The bill contains some requirements to mitigate this risk; each branch of a financial holding company will have to maintain a separate cushion against losses, which cannot be used to shore up the other branches. Although this provision somewhat lessens the risk, it does not eliminate it.

The purpose of this bill, long sought by the financial industry, is to legalize such mergers as the proposed Citicorp-Travelers Insurance mega-merger. Many experts believe the effect will be the emergence of nine or 10 enormous institutions after the consolidation of hundreds of insurance companies, banks and brokerage firms.

Last week -- on a straight party-line vote of 12 to 10 in the Senate Banking Committee, all the Republicans against all the Democrats -- consumer protections were stripped out of the bill.

The Senate version does not require the new holding companies to offer low-cost basic banking accounts. According to the Consumers Union, 48 million households -- almost half of American families -- keep a balance of less than $1,000 in their accounts. Banks now charge substantial fees to anyone who does not maintain a minimum balance, and banks constantly raise the minimum balance required. Consumer Reports found that minimum balances required for the average checking account increased by 40 percent between 1966 and 1994. Citibank now requires a minimum balance of $6,000 to avoid fees.

The Senate committee also voted against an amendment by Chris Dodd of Connecticut that would have required banks to get a customer's permission before giving out confidential information about the customer. The committee weakened House-version provisions to, first, ensure that customers are informed when financial products are not FDIC-insured or they are subject to risk and, second, to require some clear separation of insured-deposit activities from non-insured-deposit activities. And the Senate created more exemptions from securities laws that help guard investors.

According to a report released Friday by federal banking regulators, banks are lowering commercial lending standards, even though the risk that business borrowers will default on a loan is rising.

According to the Washington Post, "The four-year trend is causing concern among regulators that the nation's banks will be hit by a wave of sour domestic loans over the next 18 months." The Office of the Comptroller of the Currency reported: "Projecting risk over the next 12 months, credit risk is expected to further increase in all commercial portfolios. Banks are leaving themselves with fewer options to control the risks associated with commercial lending should the economy falter."

Next step: Will the economy falter? According to a report in Friday's Christian Science Monitor, to cite just one of many such warning articles: "Concern is growing in the top echelons of Wall Street and Washington that cheap exports from overseas may drive down the American economy. The R word -- recession -- is now being heard more often."

So what we have here is an increasing likelihood of recession dead ahead, banks already looking at serious trouble because of stupid lending policies and a bill that effectively further deregulates the banks and hurts consumers, making it even more likely that banks will get themselves into serious trouble. And we're telling other countries how to fix their banking systems?

Veto, veto, veto.

Fort Worth Star-Telegram

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