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Lincoln's "No Bailout for Derivatives" Proposal Gaining Steam -- Read it Here

June 10, 2010 - by Donny Shaw

Sen. Blanche Lincoln’s [D, AR] surprise primary win Tuesday has breathed new life into her financial reform provision to ban banks from getting government assistance for their derivatives and swap trading activities.

The provision, known as Sec. 716, is going to be at the center of the financial reform conference committee that starts today (live feed). It has generally been talked about as forcing banks to “spin off” their derivatives trading activities into separate entities, but that description makes it sound more aggressive than it actually is. This isn’t a “break up the banks” provision. The new derivatives entity would still be an affiliate under the same parent company as the bank they were spun off from.

The real effect of Sec. 716 would be to put a firewall between regular commercial banking activities and risky derivatives trading, with banks continuing to have access to government assistance via FDIC insurance and the Fed’s discount window on the commercial banking side, but without access to any government assistance for derivatives activities. The idea is to make sure taxpayers aren’t liable for banks’ risky derivatives trades when they go bad.

Here’s a link to the provision within the context of the broader bill. This is where the fight between reform advocates and the bank lobby will be taking place in the conference committee, so I’m excerpting the complete text of the provision below for you to read for yourself. I’d love to get your thoughts in the comments — does this seem to tough right now on the still-recovering banks, or do you support the bank on federal assistance for derivatives?


(a) Prohibition on Federal Assistance- Notwithstanding any other provision of law (including regulations), no Federal assistance may be provided to any swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity.

(b) Definitions- In this section:

(1) FEDERAL ASSISTANCE- The term ‘Federal assistance’ means the use of any funds, including advances from any Federal Reserve credit facility, discount window, or pursuant to the third undesignated paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 343) (relating to emergency lending authority), Federal Deposit Insurance Corporation insurance, or guarantees for the purpose of—

(A) making any loan to, or purchasing any stock, equity interest, or debt obligation of, any swaps entity;

(B) purchasing the assets of any swaps entity;

(C ) guaranteeing any loan or debt issuance of any swaps entity; or

(D) entering into any assistance arrangement (including tax breaks), loss sharing, or profit sharing with any swaps entity.

(2) SWAPS ENTITY- The term ‘swaps entity’ means any swap dealer, security-based swap dealer, major swap participant, major security-based swap participant, swap execution facility, designated contract market, national securities exchange, central counterparty, clearing house, clearing agency, or derivatives clearing organization that is registered under—

(A) the Commodity Exchange Act (7 U.S.C. 1 et seq.);

(B) the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); or

(C ) any other Federal or State law (including regulations).

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  • Chris51 06/30/2010 11:06pm

    The Senate needs to be held accountable for their incompetence and lack of integrity. Shame on them for not coming up with a 100% solution for all Americans who are forced to survive on their UI.

    President Obama can’t sign a bill, if Congress doesn’t get it to him. President Obama’s discussed the economy, and the need to help the displaced unemployed with UI Extentions on Monday and Tuesday. CSPAN.ORG

    As of today, we have 9.7% unemployed, 55% of the workforce have taken reduced work hours, pay-cuts, unpaid leave, forced to switch to part-time, and BP Oil Corporation’s IRRESPONSIBLENESS is adding to LOST JOBS and LOST LIVES.
    1.2 million who will lose their Unemployment Insurance if Republicans get their way.

    The GOP have no vested interest in hearing or helping jobless people. The only communication Republicans hear is $$$$$. That’s why they listen to and only support Oil Companies, Insurance Companies, Banks, Big Corporations, and Wall Street

  • Comm_reply
    Chris51 07/01/2010 9:57am

    Corporations have increased their cash reserves to $1.84 TRILLION, THE HIGHEST FIGURE IN HISTORY! Big business and the banks, after an unprecedented bailout by the public treasury, are hoarding the funds (Americans pay this back on their IRS tax bill). BIG CORPORATIONS EXECUTIVES ARE MAKING BIG BONUSES AND GETTING SALARY INCREASES FOR SHOWING HUGE PROFITS. The cash reserves of major corporations have jumped 26 percent in one year, the largest percentage increase in nearly 60 years. The cash reserves of working people, and particularly the unemployed, have not been so fortunate.

    REPUBLICANS bloc, the SENATE vote and defeat sevaral proposed extension of unemployment benefits for unemployed workers. Many of these same Senators rushed through a $700 BILLION bailout of Wall Street in 2008 in a matter of days, cannot bring itself to support even the most meager subsistence for the unemployed workers who are the victims, not the perpetrators, of the economic crisis.

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