The repercussions of Blanche Lincoln's hotly contested primary are playing out in the Wall Street reform effort in a complex and potentially massive way. Because of Bill Halter's challenge, Lincoln proposed--and passed in her Ag committee--a very tough derivatives reform package. So tough, in fact, that it has strong opposition from the White House and from key Senate Dems. But, they can't strip it now, because it's too important for Lincoln to use in her primary, and thus the Senate is in a holding pattern.
The White House doesn't like it. FDIC chief Sheila Bair doesn't like it. Obama adviser Paul Volcker--the patron saint of financial reform--doesn't like it. And neither do a number of key Democrats, including Banking Committee Chairman Chris Dodd. All of them say that a controversial proposal to force financial firms to spin off their derivative-trading desks into separate entities goes too far.
But they may have gotten themselves stuck with it--at least for now. With their assent, the plan was authored by Sen. Blanche Lincoln (D-AR), who designed it to guard her left flank against a somewhat formidable primary challenge, and has been boasting of it on populist grounds for weeks. And that according to Republican and Democratic Senate sources, has led Democrats to quietly agree to postpone any changes they decide to make to her proposal until after this Tuesday's election has passed, to avoid embarrassing her in front of voters.
"I got a pretty good idea that it won't be dealt with before Tuesday," Sen. Bob Corker (R-TN) said last night, in response to a question from TPMDC....
One option for Democrats, though, is to leave Lincoln's title in the bill unaltered, and deal with the spin-off provision, which isn't part of the House legislation, when the two chambers meet to iron out differences between their bills. That would allow them to protect Lincoln without wasting several days of floor time.
Yesterday, the Senate defeated a Republican effort led by Chambliss to weaken the derivatives provisions, 39-59. So for now they're hanging tough in support of Lincoln and her last-ditch effort to keep her job.
So here's where it gets really interesting. As Markos wrote earlier today, it's very likely that Lincoln is going to end up in a run-off with Halter, which would happen on June 8. If this goes to a run-off, it complicates the process and makes it harder for them to weaken the bill, unless they postpone conference until after the run-off.
If Lincoln loses the primary, will the craven Dems allow the derivatives reforms to be weakened and show that they were only fighting Wall Street on this to try to keep her in office? If she wins the primary, will she keep fighting for her tough reforms to strengthen her in the general election, where she's currently in real trouble?
That all remains to be seen, but it's very possible that we'll have Bill Halter to thank for a tough Wall Street reform bill.
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