I’ve written plenty about the potential derivatives loophole in the Senate Wall Street reform bill, which Maria Cantwell felt concerned enough about that she tried to block a cloture vote on the entire legislation (although she did give consent to waiving the Budget Act at the last minute, which also could have held up the bill). However, Cantwell’s name was not on the derivatives legislation that concerned her so. And her amendment had a co-sponsor who did not join Cantwell in protesting the vote until the concerns were met.

That Senator’s name is Blanche Lincoln. And while Maria Cantwell was trying to make sure that Lincoln’s derivatives legislation didn’t pass with a massive loophole contained in it, Lincoln happily voted with the majority to move the bill. She wouldn’t fight for her own amendment to fix her own signature piece of the legislation. And her post-passage statement makes no mention of this loophole:

“This historic legislation is about more than just changing the way Wall Street does business. It’s about helping families save for college, protecting retirees, ensuring small businesses can get loans and creating new jobs on Main Street.

“As Chairman of the Senate Agriculture Committee, I was proud to craft the bill’s strong derivatives title. My legislation brings a $600 trillion market into the light of day and ends the days of Wall Street’s backroom deals. These strong reforms will rein in the greedy behavior that nearly destroyed our economy, hurting Arkansas small businesses and costing millions of Americans their jobs.

“I will continue to stand up to Wall Street lobbyists and special interest groups to advocate for these reforms as we work to get this bill signed into law.”

Nothing about the loophole inserted into the title.

It’s very clear that Cantwell, not Lincoln, was the driving force behind the derivatives title. According to Business Week, Lincoln couldn’t even defend her own derivatives proposal at a Democratic caucus meeting, and Cantwell had to step in and bail her out. Lincoln was clearly fed the strong language, when she was planning a much weaker proposal with Saxby Chambliss (R-GA), to project an image of a populist Wall Street reformer for her suddenly tough primary challenge from Bill Halter.

The very night of the election, Chris Dodd filed an amendment to cancel out the strongest part of the title, Section 716, which would force the big banks which accept depositor insurance and cheap money from the Fed to spin off their lucrative swaps trading desks so that casino gambling activities aren’t subsidized by taxpayers. When it became clear that Lincoln would head to a runoff, Dodd withdrew his amendment.

But that doesn’t mean Section 716 will become law. Indeed, Economics of Contempt, a structured finance lawyer with a lot of back channels to the big banks, is certain it won’t (excuse the editorializing in this excerpt, focus on the certitude).

I know the banking industry is going to freak out about the fact that Blanche Lincoln’s disastrous Sec. 716 is still in the bill, but they shouldn’t sweat it. It will get stripped out in conference — everyone (save for Blanche Lincoln) recognizes that Sec. 716 simply cannot become law. Dodd knows what he’s doing.

Notice that everyone is talking about a final bill passing before July 4 – that seems like a ways off. But it’s well beyond June 8, the date of the Lincoln-Halter runoff election, when the kabuki over her derivatives title would no longer be needed. So shortly after that, the conference report will be revealed, and Section 716 will be gone. And Blanche Lincoln won’t put up a fight, because she probably doesn’t even know what Section 716 does.

The entire Lincoln derivatives issue was a charade. And this is proven by her muted response to a fight over the potential loophole, as well as the virtual certainty of weakening in conference, again without a peep from her.