Blanche Lincoln Derivatives Provision “Biggest Battle in Bank Reform,” Robert Reich Says
Robert Reich on financial reform:
Right now, the biggest battle in bank reform is over a provision introduced by Senator Blanche Lincoln of Arkansas that would force the giant Wall Street banks to give up their lucrative derivative trading businesses if they want the government (i.e. taxpayers) to continue insuring their commercial deposits.
That is a HUGE statement. Reich is saying that the Lincoln provision is not just one random aspect of financial reform, but is the BIGGEST issue right now. He feels it TOPS Merkley-Levin to separate commercial and investment banking and stop Goldman Sacks-style double crossing, TOPS Franken’s credit ratings agencies amendment, TOPS Jack Reed’s hedge fund amendment, and TOPS every other amendment yet to be considered.
Reich goes on to state:
Obviously, the big banks are apoplectic about Lincoln’s measure and will do almost anything to strip it from the Dodd bill. The banks have 130 registered lobbyists, countless unregistered ones, 40 former banking staffers, and at least one retired senator (Trent Lott) crawling over Capitol Hill…
Time to stop the sleazy VAMPIRE CAPITALISTS from lobbying us to death.
If derivatives were as essential to the normal practice of lending as Volcker says, you’d expect every commercial bank to be dealing in them instead of just the five giant Wall Street behemoths.
Volcker is wrong on this issue. He may be better than Alan Greenspan, but Paul Volcker ain’t no deity.
So what are Lincoln’s chances? All the big guns are aiming at her. Lobbyists are lined up against her. Republicans and many Democrats who want to do the Street’s bidding are eager to get rid of Lincoln’s measure.
Mother Jones echoes Reich on the Lincoln provision’s importance:
The most heated fight in the financial reform battle right now involves a provision blandly named Section 716. This provision, introduced by Sen. Blanche Lincoln (D-Ark.), is arguably the most aggressive of the reform bill’s crackdowns on the $600 trillion over-the-counter derivatives market, the home to the opaque yet lucrative financial products that allow big banks and gutsy traders to bet on swings in the financial market.
And here’s what Warren Buffet had to say about derivatives before the financial crisis.
The rapidly growing trade in derivatives poses a "mega-catastrophic risk" for the economy…
Mr Buffett argues that such highly complex financial instruments are time bombs and "financial weapons of mass destruction" that could harm not only their buyers and sellers, but the whole economic system.
In a sane world, we MIGHT just want to regulate these things.
But as usual, the Corporatist Establishment is now set to shred the most important derivatives provision in this bill.
Nonetheless, with Volcker in opposition, the odds are now stacked heavily against Lincoln’s provision.
Maybe we should really call it the Bill Halter provision to credit the real reason Blanche Lincoln offered it, namely her primary challenge by Halter. The Wall Street Journal practically admitted yesterday that this legislation is an act of Desperation intended to fend off the label "Bailout Blanche."
Democratic Sen. Blanche Lincoln is fighting to shake off the nickname "Bailout Blanche," bestowed by her more-liberal rival in the May 18 primary campaign. Her main weapon: a provision she wrote in the financial-overhaul bill that would trim the sails of Wall Street banks by strictly limiting their derivatives trading.
It’s hard to resist saying the Halter provision instead of the Lincoln provision, but I’ll keep the name just so we do not get confused to death.
Anyway, the Republicans are now set to KILL this good provision. It is hanging by a thin thread and is not expected to survive the coming onslaught.
Later this week, Sens. Judd Gregg (R-NH) and Saxby Chambliss (R-Ga.) are expected to offer an amendment that would do away with 716, and it’s unclear whether any new lawmakers will come to its defense—or whether the proposal will be left, like other tough provisions, on the cutting room floor.
This is despite that it earlier passed on an almost-party-line vote in committee. The one exception was none other than Chuck Grassley, who unexpectedly voted in favor.
But all that seems gone now that the corporatist establishment has taken its full TURD on the effort. The banks have been doing all they can to add as much indigestion as they can to this dump.
Not only are the usual suspects at think tanks like Heritage in favor of shredding Section 716 but huge parts of the financial establishment are too. The Fed doesn’t like it, no surprise there. But FDIC Chair Sheila Bair and former Fed Chairman Paul Volcker (you know, the one before Reagan invited in Alan Greenspan) don’t either. Volcker’s letter of opposition especially changed the game.
The people who most deserve our trust are supporting it, though. Americans for Financial Reform has penned a detailed letter of support. Two members of AFR are Center for Economic and Policy Research (CEPR) and Economic Policy Institute (EPI). The AFL-CIO is also a member.
Ask yourself, who do you trust more, CEPR, EPI, AFL-CIO and Robert Reich OR financial elites who are in power right now?
I know who I trust.
Here are comments by Americans for Financial Reform:
By quarantining highly risky swaps trading from banking altogether, federally insured deposits will not be put at risk by toxic swaps transactions. Moreover, banks will be forced to behave like banks.
Banks behaving like banks? Obviously this proposal is CRAY-ZEE.
It is now almost universally recognized that the fuse that lit the worldwide economic meltdown in the fall of 2008 was the $600 trillion, severely under-capitalized and unregulated and opaque swaps market, dominated by the world’s largest banks. Section 716 is designed to ensure that the American taxpayer is not the banker of last resort, as was true in the bank bailouts in 2008-2009, for casino-like investments marketed by large Wall Street swap dealer-banks. Section 716 is a flat ban on federal government assistance to “any swap entity,” especially in instances where that entity cannot fulfill obligations emanating from highly risky swaps transactions. Specifically, Section 716 bars “advances from any Federal Reserve credit facility, discount window…or [loan or debt guarantees by the] Federal Deposit Insurance Corporation.”
Financial weapons of mass destruction separated from normal commercial banking? Investors taking big risks having to shoulder their full burden without the government nanny state stepping in and letting them suck its teat?
How incredibly RADICAL!
Seriously, as Professors Jane D’Arista and Gerald Epstein write in the Huffington Post:
Chairman Lincoln’s provisions have the enormous value of getting the vast dealing and trading operations in derivatives out of the shadowy off-balance sheet world where they are now posted by the large bank and investment bank dealers.
Time to get derivatives out of this netherworld and into the light of day.
In the end,
to permit the ongoing domination of an opaque market by so few banks ensures that the subsidies and bailouts needed to keep these firms viable will also be ongoing. A vote against the Lincoln amendment is a vote to perpetuate Too Big to Fail.
I wrote and called my senators yesterday and told them to support both the Lincoln provision and another important amendment, the Merkley-Levin amendment. I don’t know if it will do any good by itself, but together we CAN stop these corporatist bloodsuckers.
Please write and call your senators before it’s too late!!