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What happens next for Lincoln's derivatives proposal?

PH2010041803782.jpgNow that Sen. Blanche Lincoln's souped-up derivatives proposal has cleared committee and even attracted a Republican vote, Wall Street and the GOP are in much worse shape than they were a few weeks ago. Back then, there were three possible derivatives proposals on the table. One, in the Dodd bill, was considered pretty strong. But that was supposed to just be a placeholder. A compromise proposal by Sens. Judd Gregg and Jack Reed was scheduled to replace it, and that compromise was expected to be significantly watered down. And then that watered-down compromise was supposed to be further diminished by the language Lincoln worked out with Sen. Saxby Chambliss.

Then things went wrong. Gregg couldn't come to an agreement with Reed, so the first step in moderating the derivatives language fell apart. That was okay, the GOP thought, because Lincoln's committee was going to develop the language they preferred anyway. Then Lincoln bucked Chambliss and came out with the strongest derivatives language anyone has seen thus far. So now Wall Street is staring aghast as Chris Dodd's language, which was supposed to be the strongest language and was supposed to be replaced in the final bill, gets merged with Lincoln's even stronger language. The folks over at Huffpost on the Hill comment:

Let's pause to chuckle at the mess the Senate GOP made for itself: Banking Committee members Judd Gregg (R-N.H.) and Jack Reed (D-R.I.) had been in negotiations to write derivatives legislation and probably could have struck a moderate deal, but Gregg backed out, the thinking being that the fight would be easier to win in Lincoln's committee. Lincoln, instead, hit them with the toughest bill that's been debated since the crisis. They should have taken the bird in the hand.

Photo credit: Brendan Hoffman/bloomberg News Photo.

By Ezra Klein  |  April 22, 2010; 7:34 AM ET
 
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Next: Dodd: 'It's not size; we're preoccupied with size.'

Comments

Funny what the internet can do, isn't it? Blanche Lincoln has all the Democratic establishment behind her in he re-election effort, despite her obstructionism on health care. But now she has a primary challenger from the left, strongly supported by the left blogosphere, so she starts acting like what we used to call a Democrat again. . .

Posted by: SqueakyRat1 | April 22, 2010 8:39 AM | Report abuse

Is it weird that I miss George W as leader of the GOP (not as president)?

Posted by: jduptonma | April 22, 2010 9:20 AM | Report abuse

I don't think there's anything to miss about W. His administration kept a tight rope on the congressional republicans, but they were pretty disciplined throughout the healthcare debate. Up until the last couple days, the congressional Republican leadership was doing a pretty great job unifying their members in both votes and message. Now granted, I found their arguments to be infuriatingly vacuous most of the time, and their lockstep unity to be so baldly political that it drove me up the wall. Still, it's what they set out to do and it was working well for them, politically at least.

The problem they ran into is that the Dems passed healthcare and found a common focus and purpose that they'd forgotten over the Fall and Winter of '09-'10. Then the Dems took up FinReg as their followup to healthcare, which is the one major issue on which the vast majority of the country agrees. Republicans were (I think) already feeling pretty beaten by the healthcare bill and then their most margainal members realized they couldn't afford to be against reforming Wall Street, especially when several of them are already on record as being "close to a deal" and "not that far apart". That worked for healthcare, but it's been much harder to paint the differences on FinReg as philosophical. Plus, the Dems are moving the bills much faster, which isn't giving them time to unify around a message.

Still, if Congress passes FinReg by June, that leaves a lot of time until the election. Republicans could rally around opposing the Supreme Court nominee (though like with Sotomeyor that could peter out when it get down to it), or immigration reform, if the Dems bring it up as the next major issue.

We'll see, but if FinReg passes it's going to be awfully hard to ignore that these two years were a pretty damn productive time for the government.

Posted by: MosBen | April 22, 2010 10:14 AM | Report abuse

I think the ideal schedule for the Dems would be to focus on the Supreme Court nominee and getting the nuclear reduction treaty passed. Immigration is going to be a very tricky issue, especially since many conservatives will scream "It's amnesty!" even if there's a provision that reads, "No current illegal immigrant will be granted amnesty".

Posted by: MosBen | April 22, 2010 10:17 AM | Report abuse

The most intractable problem the congressional Republicans face is the fact that they've chosen to lock horns time and again with a President who is focused, committed, tenacious and a hell of a lot smarter than they are.

Posted by: bluejay31 | April 22, 2010 10:22 AM | Report abuse

Sounds like the Rs need to go back and read the essay that lost Frum his AEI job if they want to achieve their (malign, sadly) policy objectives.

Though we've not enacted derivative regulation yet...

Posted by: WarrenTerra | April 22, 2010 10:26 AM | Report abuse

With the trillions of dollars worldwide invested in derivatives; and the value of derivatives based on the value of the assets owned by the corporation that issued them; it's a wonder there hasn't been some stronger control in place before now.

Given the projected length into the future of our on-going recession (+10 years); and given the projection that this will be a "jobless recovery"; I and other economists have come to the conclusion that the "true value of derivatives" are currently overstated and about to take a big plunge.

I wonder just what kind of shock that's going to be to our fragile economy? Time for some research.

Posted by: bwshook1 | April 22, 2010 10:30 AM | Report abuse

@MosBen: On immigration, that's a tricky one. Republicans are terrified of being against immigration reform that doesn't kick out every illegal out of the US, because their base will chew them up otherwise.

At the same time, if they go for that type of bill (kick all the brown people out) they're also terrified of repercussions with minorities. Imagine the scenes of frothing white Tea Partiers screaming to the top of their lungs: "America is for Americans!", "Give me my Country back!", and "Brown people can get the hell out!".

I wonder if that's why Obama's into trying to get it in this year?

Whichever way it goes, it should make for some interesting watching!

Posted by: JERiv | April 22, 2010 10:32 AM | Report abuse

@JERiv: "Imagine the scenes of frothing white Tea Partiers screaming to the top of their lungs: 'America is for Americans!', 'Give me my Country back!', and "Brown people can get the hell out!'."

Those would be the lefties that infiltrated the tea parties to make them look like what liberals want them to look like, right?

http://www.personalliberty.com/news/liberal-group-to-infiltrate-tea-party-demonstrations-2-19719318/

@WarrenTerra: "Sounds like the Rs need to go back and read the essay that lost Frum his AEI job if they want to achieve their (malign, sadly) policy objectives"

Yes, malign. That's right. Republican politicians are evil, and actively want to do bad things because . . . they like being evil. Sigh.

BTW, Frum (according to many) lost his gig at the AEI because he didn't do any of the stuff he was getting money to do. Which will often cost you your job, no matter what your political opinions are.

http://corner.nationalreview.com/post/?q=MDk4NjA3NmU5NTI3ZDNhOGM4ODUzOWI2OTViNTg1NDM=

Posted by: Kevin_Willis | April 22, 2010 11:02 AM | Report abuse

@MosBen: "Republicans could rally around opposing the Supreme Court nominee"

Possible, but I think the best that the Republicans could hope for would be Cap and Tax going into the November elections (i.e., any energy or environmental policy whatsoever). It doesn't even have to be a policy, the EPA could just move forward and implement some for of cap and tax regulations and the Republicans will have a great campaign issue. Immigration could go either way, and FinReg isn't something the Republicans will make much headway with. They need to work to shape the legislation, rather than obstruct it (and lose).

The obstruction to HCR was politically necessary, and worked out for Republicans, even though they lost--they still managed to shape a much more conservative HCR bill. But I suspect many Republicans understand they can't do that with everything. FinReg, for example, is something people will support in some form or other, and it isn't going to serve Republicans to seem to be on the side of fat cats (who, as often as not, donate more money to the Democrats than to the Republicans, so why side with them, anyway?).

Republicans could (and should) demand reforms to Fannie Mae and Freddie Mac and some other stuff that will resonate with conservatives, but, at the end of the day, they need to vote for FinReg. It serves their political interest to get it done, because then the administration could move on to immigration or cap and trade. Which will be issues that Republicans can leverage going into the election.

Posted by: Kevin_Willis | April 22, 2010 11:11 AM | Report abuse

@bwshook1: how will the country and even the world economy move toward a real recovery when all the economic energy and corporate value are being focused into derivatives?

If the value of the derivatives were actually based on the assets of the corporation's assets there wouldn't be a problem. Besides, since derivatives don't have intrinsic value in themselves, but are simple corporate gambling on the potential of real assets, why would this hurt the real economy?

Posted by: Jaycal | April 22, 2010 11:17 AM | Report abuse

@bwshook1: how will the country and even the world economy move toward a real recovery when all the economic energy and corporate value are being focused into derivatives?

If the value of the derivatives were actually based on the corporation's assets there wouldn't be a problem. Besides, since derivatives don't have intrinsic value in themselves, but are simple corporate gambling on the potential of real assets, why would this hurt the real economy?

Posted by: Jaycal | April 22, 2010 11:18 AM | Report abuse

Right. Exactly how does reining in the gambling and cutting back on the ability of big financial houses to snooker municipalities and pension funds, losing them money and causing cutbacks that curtail consumer spending, hurt the real economy? Only if you consider Goldman Sachs to be the "real economy." No one but them believe that, which is the banksters' and the GOPers' problem.

Posted by: Mimikatz | April 22, 2010 11:39 AM | Report abuse

President Obama to speak at noon about Wall Street. Flip channels between Fox, CNN, MSNBC etc and notice how FOX covers that news. If Obama comes out with especially damning language towards GOP and Wall Street collusion, Fox will break for their "talking heads", keeping the live news from their viewers. They always do this. Check it out. Afterwards, they will discredit and twist the live news.

Posted by: blosmurph | April 22, 2010 11:49 AM | Report abuse

I hope dems add reconciliation to next year's budget so a derivatives tax (that favors derivative traders who actually own an interest in the underlying commodity, ie farmers, airlines, etc.) can be passed with 51 votes in the senate. A financial transaction tax that targets day and computer arbitrage trading would also be a candidate for reconciliation. It would cut the deficit with no taxes on most individuals (a floor of 50K or so in trade value or a certain number of free trades in a given time period and exempting retirement accounts up to some predetermined amount could be included). This industry is sucking the capital out of more productive parts of the economy.

Posted by: srw3 | April 22, 2010 12:19 PM | Report abuse

Kevin, I think you're right about environmental issues being the best political area for Republicans right now. Maybe that's why the rumors are that immigration is up next; that administration has decided that they'll have a tough time with environmental issues while immigration could go either way.

Posted by: MosBen | April 22, 2010 12:22 PM | Report abuse

With environment issue it cannot be denied that is has some juice for GOP even if Dems remain smart not to pick that fight by introducing a bill because any EPA action can be made into a political molehill. However, you have to keep in mind that as Economy heals further, potential to rake havoc on environmental issue decreases unless new employment is threatened by a policy or a new bill.

But regardless of that, passing of FinReg will for sure entrench the view that Obama Admin and Pelosi-Reid Congress achieved some concrete things. Average American will find it hard to accept 'non governance' argument there. With FinReg coming after HCR, involvement of Government argument dilutes bit (especially in perception) because people 'do want Government to get involved' in regulating Market.

With GM giving back money, AIG stock coming (with that the potential to return Fed money), employment improving, housing stabilizing; lot of right things are happening for Obama and Dems.

But despite all that GOP can take heart in the fact that Obama is maligned as a divisive force with low approval rating. All things can go right but it is still possible that Obama will not recover to his earlier healthy approval ratings soon.

In that scenario 'driving base and wage among opponents' becomes a political solution for Dems. There comes the 'immigration issue' then. If Obama Admin wants to play the Karl Rove style divisive politics; it will bring this extremely volatile issue to the floor.

On GOP side, if at all they want to accrue 'positive votes'; then coming serious on 'deficit reduction' will be the key. People do not believe that GOP will do anything seriously after the disastrous Bush years on deficits. Otherwise GOP will continue to concede that issue to Tea Party even though it is a bundle of contradiction.

Posted by: umesh409 | April 22, 2010 1:09 PM | Report abuse

I think passing FinReg will do a lot of good for Obama's approvals. First, it's just a popular issue. Especially after all the angst over bailouts, which he didn't start but did continue, this will be a sign to the public that action has been taken to avoid a repeat crash. Plus, as unmesh said, it will cement a conception of 'getting things done' in the public's perception of the president. Finally, he'll start campaigning again and touting all the achievements he's made and at least some of the public will remember why they liked him to begin with.

Will he get back to January '09 numbers? No. Not for the mid-terms, at least. But I think it's a pretty safe bet that he'll crack above 50%, with a decent change to make the mid-50s.

Posted by: MosBen | April 22, 2010 4:38 PM | Report abuse

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