The New Republic - Details Behind Blanche Lincoln's Push To Regulate Derivatives

[TomCADem]

Interesting story about how Blanche Lincoln went from trying to sell-out for a bi-partisan bill, to aggressively pushing to strip derivative dealing from banks.

http://www.npr.org/templates/story/story.php?storyId=126128639&ft=1&f=1057

The reason the recent developments are so remarkable is that all reforms tend to weaken as they get closer to passage, as legislators hash out compromises with powerful interests in order to secure a deal. Bizarrely, financial reform appears to be headed in the opposite direction. When it comes to derivatives, at least, the bill Senator Chris Dodd moved through his Banking Committee in March was significantly tougher than the bill the House passed in December. Then, last week, Lincoln shocked Wall Street by producing an even tougher bill than that. "This thing is not a battle they'd anticipated," says one administration official. The industry had widely expected Lincoln to soften Dodd’s derivatives measure as part of a compromise with her Republican counterpart, Saxby Chambliss. (The Senate Banking and Agriculture Committees share jurisdiction over derivatives.)

What happened? For weeks, Wall Street had viewed the Dodd language as a placeholder while Lincoln and Chambliss hashed out the real details. Instead, the practical effect of the Dodd language was to create a minimum standard of toughness from which Democrats would be unwilling to retreat. As Lincoln and Chambliss bargained in March, the administration began to focus on the issue and discovered its popular resonance. "I have a clear memory of the time the House passed in December. I directly tried to engage the White house … It was pretty much a non-event, primarily because of health care," recalls Rep. Chris Van Hollen, who heads the House Democrats' campaign arm. "It's been a total transformation … a quantum leap in engagement." By the time Lincoln finally sent the administration the contours of a possible deal with Chambliss the week of March 29th, there was no way the deal could pass muster. Several days later, Michael Barr, the assistant Treasury secretary with the derivatives portfolio, told Lincoln's staff the administration would be unable to support it because it weakened the Dodd bill.

That left Lincoln with a dilemma: She'd been planning on moving the compromise through the Agriculture Committee with bipartisan support, meaning she could afford to lose a few liberal Democrats. Now that she’d be losing Republican votes to win the administration’s imprimatur, she’d have to construct a political coalition that would bring the liberals aboard. The result was the apparent lurch from what was widely expected to be the weakest derivatives bill on the Hill to what’s far and away the strongest.

That was last Tuesday. As of Thursday night, it still wasn't entirely clear whether Lincoln had calibrated correctly. The bill was so much more hawkish than anything that had come before it -- one provision could effectively ban big banks from trading derivatives outright -- that it risked repelling not just Republicans but moderate Democrats. (Ben Nelson and Max Baucus both sit on Lincoln’s Agriculture committee.) Then came Friday's Goldman revelations and suddenly Lincoln had the upper hand. "I've heard there’s been some folks on her committee pushing back a little bit," says a former Democratic Senate aide who now consults for the financial services industry. But, "you're a Democrat, it's harder to vote against something after the Goldman stuff. It puts pressure on Republicans and pressure on Democrats."