The Corner

Democrats: Tough on Wall Street (Until Tuesday)

Just about the only piece of the Dodd financial reform bill that could put a real hurtin’ on Wall Street profits — and thus the only part that could be called, with any justice, “tough on Wall Street”, an appellation the Democrats are desperate for — is Blanche Lincoln’s (D., Ark.) derivatives language.

In addition to clearing and exchange requirements (more or less good things, with some drawbacks), the Lincoln proposal would effectively force big financial houses like JP Morgan and Goldman to spin off their derivative swap desks, by prohibiting them from receiving FDIC insurance or access to the Federal Reserve discount window if they don’t.

As Brian Beutler at TPM reports, the provision is unpopular with just about everyone to the right of Bernie Sanders:

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.

But, Beutler says, an amendment that would weaken the Lincoln language has been fended off, and Democrats will likely put off any further attempts to change it until after Tuesday — the day of Lincoln’s Arkansas primary:

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 being discussed is to punt the spin-off question to conference committee, where it can quietly be stripped.

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