Brian Beutler at Talking Points Memo:
One of the most far-reaching pieces of the Senate’s Wall Street reform bill has powerful enemies. The White House doesn’t like it. FDIC chief Sheila Bair doesn’t like it. Obama adviser Paul Volcker–the patron saint of financial reform–doesn’t like it. And neither do a number of key Democrats, including Banking Committee Chairman Chris Dodd. All of them say that a controversial proposal to force financial firms to spin off their derivative-trading desks into separate entities goes too far.
But they may have gotten themselves stuck with it–at least for now. With their assent, the plan was authored by Sen. Blanche Lincoln (D-AR), who designed it to guard her left flank against a somewhat formidable primary challenge, and has been boasting of it on populist grounds for weeks. And that according to Republican and Democratic Senate sources, has led Democrats to quietly agree to postpone any changes they decide to make to her proposal until after this Tuesday’s election has passed, to avoid embarrassing her in front of voters.
“I got a pretty good idea that it won’t be dealt with before Tuesday,” Sen. Bob Corker (R-TN) said last night, in response to a question from TPMDC.
Democrats will hold a special caucus meeting this afternoon, where they could make a final decision on how to proceed.
Josh Marshall at Talking Points Memo:
Blanche Lincoln’s plan to force banks to spin off their derivatives desks has garnered enemies all around in Washington. And it seems all but certain to get defanged or revised in some major way. But Lincoln’s been flogging it like crazy back home in Arkansas as an example of her populist cred. Indeed, it seems pretty likely that that’s the reason she — quite unexpectedly — came forward with such an uncharacteristically left-populist leaning proposal in the first place. But Senate Dems and the White House don’t want to trip her up in her primary on Tuesday. So it seems they’re delaying any changes until after the election is over.
Daniel Foster at The Corner:
One option being discussed is to punt the spin-off question to conference committee, where it can quietly be stripped.
Annie Lowrey at The Washington Independent:
Democrats reportedly want to weaken or strike Lincoln’s provision to force banks to spin off their derivatives desks. Everyone from Sen. Chris Dodd (D-Conn.), who wrote the bill, to Sheila Bair, the head of the Federal Deposit Insurance Co., to the White House, to the banks themselves oppose the measure. Bair and the White House contend that it would actually make derivatives riskier, by allowing banks to move their derivatives tradings operations into subcompanies that might not face strong enough scrutiny. The banks dislike the measure because it promises to undercut their profits. But Lincoln has touted it as demonstrating her populist cred.
The two-term Arkansas senator is facing a challenge from the left on May 18, from Arkansas Lt. Gov. Bill Halter, backed by many of the state’s unions. As of last week, a Mason-Dixon poll showed Lincoln with 44 percent support and Halter with 32 percent. Lincoln needs a majority to avoid an early-June runoff.
Therefore, Democrats will not alter Lincoln’s derivatives language — likely by taking out the derivatives spin-out provision and adding some window-dressing to bolster oversight — until next week. Democrats say the earliest the final vote on the bill will happen is on Wednesday, though that seems optimistic.
Mike Konczal at Rortybomb:
The Chambliss amendment to severely weaken derivatives reform was beaten yesterday, which made me optimistic that they could get derivatives out the door relatively unscathed. But now this. So the question is, in order, will they drop Section 106, which spins out swap dealers from commercial banks, will they drop the new fiduciary requirements, will they weaken clearing requirements by expanding end-users and will they mess with the definition of what constitutes an exchange and/or clearing?
So the only reason that Blanche Lincoln’s very strong (some/all would say strong to the point of making the situation worse!) derivatives language is still in the financial regulatory bill is to trick lefties into voting for her in next Tuesday’s primary, after which they’ll just take it out. Savvy! On a bill of great national importance! So please, if you live in Arkansas, just vote against Blanche Lincoln, because this rope-a-dope cutesy shit from the Democrats is getting pretty annoying.