Updated
So reports the Wall Street Journal. The Chris Dodd compromise I mentioned this morning is being dropped from financial reform as Democratic leadership in the Senate scrambles to line up final votes on amendments and a cloture motion this afternoon.
As Jay suggested the other day, there’s a political angle. Senator Blanche Lincoln, facing a primary challenge from Bill Halter, is widely speculated to have introduced biting derivatives language last month at least in part to shore up her left flank — she hopes her crusade against Wall Street will endear her to the primary crowd. Tuesday night, as Arkansas Democrats sent Lincoln and Halter to a June 8 runoff, financial reform architect Dodd floated a compromise that would essentially let the most controversial portion of Lincoln’s derivatives plan die a slow death.
Now, with Lincoln’s political fate still up in the air, Dodd has dropped the plan. Why? The Senate leadership needs 60 votes to move forward. Republicans are beginning to buck after a few weeks of detente, and some Democratic Senators feel their pet causes are getting short shrift. But it’s NOT Ben Nelson this time. Byron Dorgan was incensed his amendment banning “naked” derivative swaps, basically a financial bet for betting’s sake, couldn’t get a full vote — it was tabled last night. Maria Cantwell’s (and John McCain’s!) amendment reinstating the Glass-Steagall division between simple commercial banking and financial exploits hasn’t gotten an up-or-down on the floor — it’s opposed by bankers and the Obama administration alike. Tom Harkin’s effort to limit bank ATM fees was turned away as well. Others have merely had their measures bumped down the road; Sam Brownback’s auto-dealer exemption from consumer finance regulation and Jeff Merkley’s expansion on the Volcker rule will be taken up after debate is formally closed.
Reid’s tight schedule and Dodd’s careful stewardship of the process have allowed them to avoid votes on measures they fear might jeopardize the final product. But stripping Lincoln’s derivatives has proved politically unfeasible at every turn. An outspoken Lincoln revolt, fueled by primary insecurity, would have threatened to sink the Senate bill at the 11th hour.
There’s still time left before the Senate legislation is finalized, plus the likelihood of a conference report to go through and House and Senate votes after that, but the survival of Lincoln’s fully in tact derivatives plan is surprising to say the least.
CliffsNotes version of the policy: Her proposal would steer trading of derivatives through regulated clearinghouses and exchanges, in theory increasing price transparency and liability for financial sector bets — those measures enjoy broad support from the main architects of the bill. But her plan would also force banks to separate or spin off their derivatives trading desks from other operations altogether, a proposal that has met resistance not just from Wall Street and Republicans, but from Senator Dodd, the FDIC’s Sheila Bair, Fed Chair Ben Bernanke, and even White House adviser and champion of the financial left Paul Volcker. (They worry spun off derivatives would be harder to regulate.)
CliffsNotes version of the politics: Lincoln faced a labor-backed primary challenge from her left in the form of Arkansas Lt. Gov. Bill Halter last night. Both candidates failed to reach the 50 percent of the vote required to avoid a runoff, the remaining votes being eaten up by D.C. Morrison, a very conservative Democrat who surprised observers by winning 13 percent of the vote. Lincoln and Halter now head to a June 8 tiebreaker, and the former’s championing of tough financial reform remains key to her continuing campaign.
As for the financial reform package as a whole, there are still a lot of moving parts. There aren’t 60 confirmed aye votes yet, but we should know more by the end of the day. As they say, stay tuned.
UPDATE 1: A procedural motion to move forward on financial reform failed 57-42 Wednesday. Democratic Senators Maria Cantwell and Russ Feingold voted no — presumably for the reasons described above — while Republican Senators Olympia Snowe and Susan Collins voted yes. All other Republicans were in opposition. Majority Leader Reid voted no so he could immediately file to bring the motion up again. Arlen Specter was the one Senator not voting.
It looks like Reid will still have the votes to pass the bill in the end, but Cantwell and Feingold are holding out for consideration of more amendments. Make no mistake though, Democrats will publicly keep their guns trained on Republican opposition.
UPDATE 2: Feingold’s statement:
Feingold Statement on Voting ‘No’ on Ending Debate on the Financial Regulatory Reform Bill
Wednesday, May 19, 2010
“After thirty years of giving in to the wishes of Wall Street lobbyists, Congress needs to finally enact tough reforms to prevent Wall Street from driving our economy into the ditch again. We need to eliminate the risk posed to our economy by ‘too big to fail’ financial firms and to reinstate the protective firewalls between Main Street banks and Wall Street firms. Unfortunately, these key reforms are not included in the bill. The test for this legislation is a simple one – whether it will prevent another financial crisis. As the bill stands, it fails that test. Ending debate on the bill is finishing before the job is done.”