A weekend in Omaha makes it hard to feel optimistic about regulatory reform.

Senators are scheduled to start debate this week on legislation that would rein in the runaway risk of the financial system. Sen. Chris Dodd, chairman of the Senate banking committee, has introduced legislation that aims to clarify regulators’ duties and prevent future taxpayer bailouts.

But the concepts behind the Dodd bill, such as creating a council of regulators to watch for risk and having the biggest banks overseen by a single regulator such as the Federal Reserve, were savaged this weekend at the Berkshire Hathaway annual shareholders meeting by Berkshire vice chairman Charlie Munger.

Munger said dedicating a single regulatory agency to policing the activities at big banks is “insane” because it would replicate a regulatory structure that “utterly failed us” – Washington’s egregiously unsuccessful oversight of the failed mortgage giants Fannie Mae and Freddie Mac.

Munger called the banks at the center of the crisis “superleveraged and supergreedy,” but saved his harshest criticism for the failure of regulators, legislators and accountants to play their watchdog roles with even the least vigor.

Likening banks to a tiger and the regulators to the tiger keeper at the zoo, Munger said it’s absurd to expect the banks to behave better without serious discipline. He added that he sees the backlash against Goldman Sachs (GS) as understandable – people are “furious about investment banks” – but ultimately counterproductive. Berkshire owns $5 billion of Goldman preferred stock.

“It’s insane to blame the tiger when the idiot tiger keeper caused the problem,” he told reporters Sunday. “The solution isn’t to beat the tiger to death.”

Munger made clear that he believes the solution is to take away the businesses that allow the banks to act most irresponsibly – their derivatives and proprietary trading operations. A proposal by Sen. Blanche Lincoln, D-Ark., would have the banks spin off their derivatives arms if they want to keep Federal Reserve funding. Without mentioning that proposal, Munger made clear he would like to separate the banks from their lucrative derivatives businesses, because it would be all too easy for the big derivatives-dealing banks to get into trouble and have to be bailed out again.

“It’s crazy to give the government’s fountain pen to anyone and say do whatever you want,” he said.

But the Lincoln proposal has been strongly opposed by the banks and their lobbyists, and recently there have been signs that it is unlikely to make it into law. Federal Deposit Insurance Corp. chairman Sheila Bair sent a letter to the Senate opposing plans to force derivatives out of banks, and Sen. Mark Warner, D-Va., called the Lincoln plan “draconian.”

Of course, draconian action is precisely what Munger says is needed here, to rid the system of the “crazy leverage” created by the $280 trillion of derivatives held by JPMorgan Chase, Bank of America, Goldman, Citi and Morgan Stanley. He likens those massive, unregulated exposures to an explosion waiting to happen. Referring to derivatives, he added, “We’d be better off without the whole kaboodle.”