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Is Lincoln Quietly Gutting Her Derivatives Plan?

June 15, 2010 - by Donny Shaw

Yesterday, Sen. Blanche Lincoln [D, AR] issued a “term sheet” that her spokesperson said sought to clarify the intent of her proposal, Sec. 716, to ban derivatives desks at bank-holding companies from accessing federal subsidies via the Fed discount window and FDIC insurance. Most discussion of the term sheet was focused on the two-year phase-in proposal and a somewhat ambiguous study that would be required, but looking it over myself, I think it may be more of a gutting than a clarification.

Since I’m on a bus and typing in my seat is pretty uncomfortable, I’m going to be lazy here and quote from an email I wrote last night to a group of friends and bloggers who are working to digest these developments:

I don’t understand how this new compromise can be considered the same provision if it is going to allow Fed Act Section 13(3) actions for swap entities. Sec. 716 as it exists right now is called “the prohibition against federal government bailouts of swap entities.” Section 13(3) of the Fed Act says that the Fed can give discount money and loans to anyone they want when they deem it is an “exigent and unusual circumstance.” Sounds like a bailout to me, and, in fact, it was used repeatedly in 2008-2009 to authorize all kinds of Fed bailout actions.

The text of Lincoln’s “term sheet” is: “New FED Section 13 (3) Broad Based Federal Assistance to Swap Entities would be ok.” And here’s a direct link to the revised 13(3):

It doesn’t fundamentally change it.. seems to just adds some broad language that can easily be skirted (esp. in a “crisis” situation), new oversight/accountability measures, and a Treasury approval requirement.

I’ll be looking at this more, but I wanted to get it out there a.s.a.p. as everything is moving very fast now with financial reform. Thoughts?

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  • deborahg6 06/15/2010 5:15am

    Why should we be surprised? Are any of these “reforms” actually out of the goodness of our legislator’s hearts and about the hard working citizens of this country? The power grab, corruption, and gushing national debt is mind blowing. Wake me up when it’s over…or at least until November gets here.

  • Chris51 06/30/2010 11:00pm

    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

  • Chris51 07/01/2010 9:51am

    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.

  • Chris51 07/03/2010 10:15pm

    Why don’t our Senators get that there is a great need?

    The job market is broken.
    The corporate executives are not going to give up their year-end profit bonus by adding jobs/payroll to their companies.

    Here are a few stories on our jobless nation:

    Job recovery hits a wall

    Job gloom at all time high

    7.9 million jobs lost- many forever

    Jobless claims spike

    Thousands at risk for losing unemployment benefits

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