The Senate’s version of the Wall Street Reform and Consumer Protection Act of 2009 passed on May 20th. Today, the conferees meet to meld the Senate version with the House version. One of the big questions about the conference is whether or not it will retain Blanche Lincoln’s provision that would force large firms to spin-off their derivatives trading desks into subsidiaries. The provision is populist, but more in a poke-you-in-the-eye kind of way than anything truly substantive. Pretty much everyone opposes the measure as either silly or ineffective except the large majority of Americans who are totally game for eye-poking. I’m not convinced the measure will do any harm, though, so I could really care less whether it stays or goes, except for what its fate says about the degree to which the leaders of the Democratic Party are willing to yank people around by the balls.
The reason Blanche Lincoln is involved with Wall Street reform is that she is the chair of the Senate Agriculture Committee which has partial jurisdiction over derivatives. Derivatives were created as a kind of insurance against swings in crop prices. Lincoln surprised everyone by crafting this rather tough legislative language on derivatives trading, but she didn’t fool anyone. Everybody saw it as a cynical ploy to look anti-corporate for five seconds so she could fend off a a primary challenge from her left. Now that she has successfully done that, people are wondering whether the language will be dropped in conference.
One side says it will be dropped because it no longer serves its intended purpose, which was simply to help Lincoln win her primary. The other side says that the fact that the measure proved popular and helped her win her primary gives the measure momentum. You know what? I don’t give a shit. But I think it would be terribly cynical to drop it now, and it would harm her longshot effort to win reelection in November. But since I don’t care if she wins in November, I still don’t give a shit.
The only thing I care about is the damage that is done when the Democrats expose themselves as faux-populists. Less of that, please.
Don’t like faux-populists? Why do a lot of progressives keep insisting the president become “more populist”? Curious since I’ve never considered him populist. I don’t know enough about the amendment. I do know that the reform bill that Obama gave Congress over a year ago put them on an exchange so they are not hidden like they are now. I wish they would at least do that.
It’s hard to define populism, but you could look at it as taking working people’s side when there is a dispute between employers and employees. There’s a hazy middle ground where what helps workers in the short-term hurts them in the long-term. So, not all disputes between businesses and workers are easy to arbitrate even if you are inclined towards populism. Faux-populism is pretending to take workers side and then yanking the pro-worker provision when no one is looking. Or, faux-populism is a making a big show of bashing some corporate malfeasance and then taking no concrete action to stop that malfeasance. Politicians excel at that, especially (but by no means limited to) the Republicans.
If we are talking policy here, it matters a lot how the derivatives desks are “spun off”. The basic principle that must be in the bill is to prevent the use of other people’s money in purchasing highly speculative securities on the financial institution’s account. That means separation of ordinary bank deposits from being comingled with funds for derivative desk operations. I’m not sure that the language of the Lincoln provision goes that far.
The second item that must be prohibited is bets on risk in which one is not a party, so-called naked swaps. The principle should be that you must have a direct interest to hedge or swap.
If we are talking politics here, the Democrats have already damaged claims to a populist brand through the craven actions taken on just about every piece of legislation but the ARRA. The corporate interests who own them are jerking them around visibly; latest instance Rockefeller joining Murkowski’s amendment.
Most folks, and I am talking more about the independents I know than the progressives (a small group), are in a “plague on both your parties” mood. November will be a matter of who can turn their base out. And the Democratic leadership seems intent on lopping off more and more members of the Democratic coalition before November.
The other thing that is going on around here is increasing frustration with the pandemic of incompetence that seems to have gripped American life. One wag said it was so bad that if the US tried to get to the moon today, the astronauts would be getting off their bicycles in Moonville.
If the Dems pass a bill with the derivatives language or make a deal to trade it for a more draconian version of the so-called Volcker Rules that strongly restricts proprietary trading, I don’t see how it would not be a powerful stand against the hated banks and for main street. If they for once managed to explain the implications I think it could snatch the populist mantle away from the teabagger phonies and galvanize an angry public. Question is, will they, at long last, seize the opportunity?
My feelings about this have been made, and I stand by them. Her provision does not force banks to spin off their swap desks into “separately capitalized affiliates.” It’s just not what the text of the language says.
The 2008 debacle has made it perfectly clear that at least half the elected democrats are utterly useless, and instead of continuing the progressive momentum of 2006 and 2008, 2010 is almost certain to make Congress much more anti-progressive that it already is.
Question: Is there ANY long term plan for breaking the stranglehold that the upper class has on the middle class?
I only see two options:
Option A – Pitchforks & Torches
Mechanized infantry would quickly and brutally snuff an overt rebellion
Option B – Acceptance
Understand where you sit in the economic food chain and try to avoid becoming an economic value meal
Those with power never cede it; it is always taken, and usually at great cost. The aristocracy will not be surprised again – they learned their lesson a couple hundred years ago in France…
If they’re faux-populists they probably deserve to be damaged for it.
Chris Bowers over at Open Left disagrees with your take. He quotes an NYT money blog as claiming the language will cost the big banks dearly:
Further, some seemingly knowledgeable (and not anonymous) finance types think the cost of dropping the Lincoln language will be significant tightening of the Volker Rule that bans proprietary trading.
So frankly, my dear Boo, I don’t give a damn that you don’t give a shit unless you can come up with some substance about why this is “faux populism”. Anything that cuts the big banks down to size is real populism and real reform, far as I’m concerned. As Chris says about the “wasted” $10 million the unions and allies put into the pot, it “could still prove to have a tremendous ROI, even apart from the real progressive power it built. If $10 million in arkansas ends up costing $100 billion in profits, and thus loosening their stranglehold over our democracy, then I say good deal.” I couldn’t agree more. If the language stays, and turns out to be what Wall Street seems to fear, or if it becomes a chip to trade for the language Barney Frank wanted, I’ll take back every mean thing I’ve said about Lincoln and beg to be allowed to work on the phone banks for her in November.
In other words:
There are two components. Here’s the one most people associate with Lincoln.
This won’t really cost Goldman Sachs any money. They’ll just create another entity that isn’t FDIC-insured (and which must now be regulated by someone).
Here’s the other:
It is my understanding that it is the former provision that is objected to by the White House, not the latter. If I am wrong, please correct me. In any case, it is the open trading and real-time reporting that might cost the big banks mega profits, not the fact they can’t have those trades ‘insured’ anymore.
Section 106, mostly.
http://ag.senate.gov/site/ComLeg/Wall%20Street%20Transparency%20and%20Accountability%20Act.pdf
Right, Section 106 is the Lincoln language.
I don’t know if she wrote the following sections that set up and regulate the swaps, but it’s the later language that will cut into the banks’ profits, not Lincoln’s 106 language. Lincoln’s language just forces the banks to spin-off non-insured entities. So, yeah BofA would be smaller in one sense, I guess. The real upside, though, is it disincentives these ponzi schemes a bit. But it must also be regulated, and they won’t be regulated by the FDIC anymore.
Heh, that always was funny to me. Somehow people thought that pushing the vast majority of swaps away from banking regulators was a good idea. Either that, or they didn’t understand Lincoln’s language and got on the wagon.