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Lincoln Wins -- What's it Mean for FinReg?

June 8, 2010 - by Donny Shaw

Moderate Democrat Sen. Blanche Lincoln [AR] survived a tough run-off primary election Tuesday night against her challenger for the left, Arkansas Lt. Governor Bill Halter. Lincoln’s victory tonight means that she will be on the ballot in the November general against Republican challenger Rep. John Boozman [R, AR-3].

So, what are the implication here for life under the dome, particularly with financial reform about to go into conferece committe on Thursday?

Lincoln is the Chairwoman of the Senate Agriculture Committee, and for historical reasons her committee holds jurisdiction over the financial derivatives market. Recently, Lincoln has been using her position as Ag Committee Chair to push for a strong derivatives title in the pending financial reform bill that, among other things, would force banks to “spin off” their derivatives trading desks into separate entities that wouldn’t have access to discount government funds through the Fed and the FDIC. You can read Lincoln’s language in the bill at the following link — Sec. 716. Prohibition Against Federal Government Bailouts for Swap Entities.

Most political observers believe that Lincoln has only been pushing her tough derivatives title in order to boost her credibility with voters in the Democratic primary, and that she would back off her support for it after tonight. But given the two possible outcomes tonight — a Lincoln win or a Lincoln loss — I would say that tonight’s results are good for financial reform advocates who want to see the Lincoln derivatives language signed into law.

Why? Because in the current political climate, with anti-DC, anti-incumbent sentiment running at record high levels, anything that looks like political opportunism is poisonous. Heading into November, Lincoln needs to shore up the left by showing that she is a true Democrat, and she needs to shore up the center by showing that she is principled. The rest of the Democrats now have more reason to support Lincoln’s derivatives language too. If they want to have her around in the Senate next year, they should help her walk away from financial reform able to say that she fought harder than anyone else in Congress to rein in the derivatives market, and she won. I just don’t think there is much of a constituency in Arkansas these days for letting big Wall St. banks get federal backing for high-risk derivatives bets.

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