I like everyone here was upset with Senator Lincoln's constant weakening of HCR, but I have to give her some credit on her derivatives piece in the current Wall Street reform.
This bill is a piece of shit. If the stated goal was to prevent the events of 2008, it fails miserably. Many very good amendments were ignored. Looking through it, I can only conclude that Lincoln was the only one to slip some teeth into the bill.
I'm not saying she should keep her job, but at very least she may have done one last valiant act.
Why is this bill a piece of shit?
Because the underlying problems in our markets isn't addressed. The CDO's (collateralized debt obligations) that exploded in the fall of 2008, are only one piece of the over the counter derivatives business. They were also the most successful investment instrument over the past decade. So what does this mean?
Well, if one product does really well in a grocery store, what happens? Other companies put out a similar product. We all know about CDO's and CDS's (credit default swaps), because they blew up in our faces. Before that happened, it wouldn't have been a known quality. The OTC derivative market occurs in the shadows, so there is no stock ticker telling us who is buying and selling these things.
So if there is another popular OTC that explodes, what will occur under the new bill?
The answer isn't that different than what happened before. Institutions with these new toxic derivatives will have their books called into question. Their stock value will drop. When they can no longer pay the other parties connected to the derivative, the disease will spread. One after another large financial institutions will pull each other into oblivion.
Congress will not let that happen, regardless of what is being said. The Fed will end up the line yet again. But there is one bright spot.
If Lincoln's portion survives (which neither the White House or Senate leadership wants), banks might not be drawn into that whirlpool.
Lincoln's contribution basically says that banks that deal in derivatives must spin off that business or at least keep it on separate books. This would in theory create a wall between depositors and derivative trading. They wouldn't be able to call a derivative an asset among many. They would have to claim the derivatives separately.
If this next meltdown occurs, this might prevent the Fed from having to cover bank deposits of millions of customers. Even if the bank get wound down, hopefully the separate books will keep the seed leverage to cover regular deposit accounts.
Don't get me wrong, Lincoln's piece is not the best idea brought up, but it may be the best idea to actually make it into the bill. I have no illusions of the progressive movement coming to her aide in the upcoming primary, but it doesn't mean the progressive movement can't come to the aide of her derivatives amendment. There is a good chance that when the bill emerges from back room discussions, this amendment might not be there.