There's a nasty current running beneath Wall Street's so-far constructive financial reforms. Two key players responsible for many of the positive results are now butting heads: New York State Attorney General Eliot Spitzer and Rep. Michael Oxley (R-Ohio).

The problem started several months ago when Spitzer pressed his case against major Wall Street firms like Merrill Lynch(NYSE: MER). Oxley felt Spitzer was overstepping his bounds, preferring instead for the SEC to handle matters. The problem was, Congress and the SEC had years to enact reforms and failed miserably.

Spitzer was able to get Merrill to pay $100 million and make the company -- and ultimately the rest of the Street -- sever connections between stock analysts and investment-banking units. Oxley actually said, "Grandstanding by ambitious and publicity-hungry political officials will not lead to healthy and responsible securities markets."

That was in May of last year. Not coincidentally, the sweeping Sarbanes-Oxley Act passed two months later. It, too, has been constructive, directing the SEC to enact rules requiring auditor independence, more and better disclosure, and much more.

Now, Spitzer wants to expand state laws and go beyond Sarbanes-Oxley. Last week, he proposed to make securities fraud a felony in New York, increased penalties for corporate misconduct, greater protection for whistleblowers, and suggested not-for-profit corporations be subject to the Sarbanes-Oxley Act.

Again accusing Spitzer of grandstanding, Oxley said, "I think it would be a major, major mistake if we were to go down that road of having the various states essentially compete to see who could be the regulator of record."

Spitzer fired back by including the words of consumer advocate Barbara Roper in his press release: "Investors benefit from a dual system of federal and state securities regulation. As recent experience has shown, aggressive state regulators enforcing strong state laws can step in to protect investors when federal regulators are either too over-burdened or reluctant to act."

Interestingly, there's growing unease among many that Oxley, Spitzer, and the rest are getting way too reform-happy. All the new regulations, along with the need to hire attorneys to interpret them ("This is going to be zero unemployment for lawyers," one told Reuters), could deter foreign firms from listing in the U.S., sending them elsewhere.

As one SEC official told Canada's Globe and Mail, "We're trying our hardest to be sensitive to those concerns."