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A lot of people seem very invested in telling the story that Blanche Lincoln’s unseen derivatives reform package is scaring Wall Street to death. First of all we don’t know exactly WHY it’s scaring them. The reasons we assume why it is, because spinning off derivative trading desks will eat into the profits that big banks make off of the swaps market, is certainly plausible – Jamie Dimon’s screaming today that it’ll cost JP Morgan $2 billion, which they can afford, by the by – are unclear. One thing we appear to know is that the bill wouldn’t even statutorily put derivatives on exchanges. She gives up the discretion for that to the Commodity Futures Trading Commission:
Meanwhile, Senator Blanche Lincoln, the Arkansas Democrat who is chairwoman of the Senate Agriculture Committee, plans to offer her derivatives legislation on Thursday. Her proposed amendment to the financial regulatory bill in the Senate would give the Commodity Futures Trading Commission the power to determine which trades would go through an exchange, but it would also require real-time reporting of all trades to the public.
The current CTFC head would probably crack down, but future chairs may not be as stingy with the banking sector. And I’m curious why Lincoln describes this effort as a bid for transparency when trades may not even have to go through exchanges.
I think most people want to see these bets on securities, the most distilled form of gambling we have in the financial markets, either opened up or ended entirely. But consider the timeline here. Lincoln leaks to Politico that her bill will take on the big bad banks. This is a day after her primary opponent launches a campaign to tie Lincoln to those very banks. Everyone goes off of Politico, without having seen actual language, that the Lincoln bill is tough. Chris Van Hollen starts blabbing to the world that derivatives trading will be a partisan wedge issue. All of a sudden. And the context is that national Democrats and the White House have backed Lincoln against Bill Halter.
Meanwhile, nobody has asked Blanche Lincoln if she’ll support the underlying bill, and the kind of things necessary to really protect the taxpayer. Has she made a statement on whether she favors defined capital and leverage requirements for the large financial firms? Does she favor Sherrod Brown’s amendment to cap the size of the largest banks? Does she support the resolution authority in the bill?
Moreover, according to observers on Capitol Hill, this won’t even make the final bill, in all likelihood. It’s an effort to change the subject and maybe force a confrontation for political purposes, but that has little to do with policy. In fact, it’s entirely possible that this strong effort on derivatives represents a poison pill that would actually kill the bill entirely.
Whether you believe Lincoln’s internal polling or the more independent polling, she’s going to have a fight in May. That this derivatives legislation popped up so fortuitously, putting her to the left of the White House, should give some pause. I don’t think we have any clue what the real story is here.
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Lincoln has shown herself to be a hardcore corporatist, so I’ll take what she says as meaningless PR until she proves otherwise.
The real story here is that the Corporate Stoogie one in Chief doesn’t want to lose his favourite little Blanchie-Wanchie.
There’s only one thing that I think is really bad about the bill, and that’s the sharp increase in the qualifications for angel investors and regulation of venture capital firms. Fewer angels and VCs means fewer new companies, fewer new jobs, and much lower economic growth.
Isn’t it obvious? Lincoln (D?) Wal-Mart is trying to have it both ways. Her re-election hopes are dying on the vine because of a total lack of populist appeal but she can’t risk p*ssing off her financial backers, (corporations), so she tries something that she thinks will appease both her patrons and her constituents.
Smoke and mirrors is the phrase that comes to mind
Wish I had a clue as to what Halter would really do as sitting Senator in this situation.
It is pretty amazing that it seems like someone in Lincoln office told someone at Politico that Lincoln was doing a super awesome job and without any way to verify people treat it like gospel.
I don’t know…seems to me like Politico has a well established history of treating press releases as “news”.
Maybe her real goal was to goad Collins into opposing it. If that was her goal, she succeeded.
Major financial backers like Jackson Stephens of Little Rock?
Google up Jackson Stephens and Monsanto.
Also, Jackson Stephens and Systematics Spy scandal.
Or, Jackson Stephens and the Rose law firm.
The financial sector is being blackmailed by Blanche for re-election money.
Who wins by proposing it: Blanche
Who wins if it fails: The Financial Sector.
Who has the power to make it fail: Blanche
Who wants the financial sector to sink million in a tough re-election campaign: Blanche.
Who wins if it passes: The people (Oh, they are $o important).
Blanche’s strategy, propose it, have the financial sector freak out can bribe her, Blanche re-considers her support after her re-election, saying there are other priorities, and the senate leadership all agree, the bill sinks without a trace, and they go and have a drink together.
But, but, but — if it’s in Politico, isn’t it gospel?
I don’t know – this doesn’t sound like a plan Lincoln would come up with. She’s always been pretty overt in her corporate whorishness, nothing very subtle at all. To me, this has Rahmbo and Chicago politics written all over it – create an appearance of a populist hero to undercut a primary challenge from the left while simultaneously slipping a poison pill into complex legislation her financial backers want killed. That’s the kind of stab-you-in-the-back politics Chicago is known for.
OTOH, we don’t really know what’s in the Committee work product yet. I’ll be looking forward to seeing the end legislation, but whatever is in it, Lincoln gets no credit from me. One good act in a long career of selling out to special interests.
Exactly the scenario I envision.
That’s why she must be defeated. The others only understand losing.
Remember how NO ONE would talk about the war, because Rahm forbade it, if they were running for election in 2006, until Ned Lamont changed the conversation in August? That’s what a Halter win will do for financial reform. Corporate Democrats will find their populist voice, just like Blanche has pretended to do here.
The Dodd Senate bill requires the most-active swaps to be traded on systems that show prices beforehand and can sell or transfer open positions if a party to the transaction defaults, creating a de facto exchange trading for standardized swaps. But hedge funds counter that their bread and butter – bilaterally negotiated swaps – need to be able to be done off exchanges – ignoring the way credit default swaps failed as all parties with gains tried to collect while refusing to pay on those “hedge swaps” that they had losses on.
Dodd improves the OTC derivatives market structure by allowing regulators to monitor positions and prices, with trades that aren’t sent to clearinghouses would facing higher capital charges and to be required to be reported to trade repositories.
Blanche Lincoln adds a bank requirement that they end all operations that trade in complex derivatives, or swaps, or they will lose access to Federal Reserve lending or FDIC insurance of deposit account.
I rather like the addition to the Dodd limited regulation of shifting the instruments to regulated exchanges.
The poison pill – if any – is corporate buying of Senators under the excuse that there must be exceptions to derivative rules for certain firms that only use derivatives to hedge against market fluctuations – those exceptions could be narrow, or could destroy the effect of regulation.
Conservative Sen. Ben Nelson of Nebraska, said he was concerned the bill’s regulations might reach too broadly. He said he had not decided how he would vote.
There is not much new coming from Ben.
Give me a break. Lincoln was about to cut a deal with Saxby Chambliss on derivatives when the WH swooped in and said no we want you to take a hard line on this. It screams of a political ploy.
http://dyn.politico.com/printstory.cfm?uuid=F9C10AB6-18FE-70B2-A84732B866E8CC50
Maybe Blanche is part of the corporate Democrat women’s caucus and got help from DiFi, who, you’ll remember, proposed national health insurance rate regulation, the language for which was long hidden and just, somehow, never quite made it into the final bill or reconciliation. *Sigh* and she tried SO hard….
I doubt that there is any blackmailing of the banksters going on here and I doubt that types like Lincoln have any worries about getting their piles of bank money. Perhaps I have become too cynical, but I think that the proposal, Lincoln’s sponsorship of it, and its preordained and ultimately futile history in the Senate have been pre-cleared with the bankers, the White House, the DNC, Treasury, and the Fed.
I suspect that we will see a lot of rightist pseudo-Dems suddenly sponsoring much needed, popular, sensible-sounding legislation in the runup to the elections. Colorado’s Bennet had his fake call for the Public Option. Now it is Lincoln’s turn.
But none of this “legislation” is really serious. It is just meant to confuse the narrative and diffuse voter anger.
This is kabuki on top of kabuki. Who cares if Lincoln supports the underlying bill? The underlying bill is crap. The really dangerous derivatives can’t be exchanged traded because there is no market for them and hence no way to price them. They are in essence one of a kind bilateral contracts. The only derivatives affected are those which are already enviseaged for exchange trading. And just to be clear on how far the fix is in on these things, exchanges like ICE are owned and controlled by the banks which also happen to hold most of these types of derivatives.
Yves Smith took a look, and sounds rather tepid as well.
But what I really swung back by her site for was this look at another of Rahm Emanuel’s connects. And her posts on Magnetar and the CDO/CDS aspect of the debacle lately have been just stellar, along with the ProPublica report.
She will be on with Dylan Ratigan tomorrow, we’ll see how she smokes and reflects.
I haven’t heard a good argument for why we need these particular complex derivatives at all. The world was fine without them until ten years ago. Is it because we’re “stuck” with them, or do they serve any real economic benefit.