Blanche Lincoln’s proposal to trade derivatives on a public exchange is being called a “surprise” and “contrary to most expectations”.
I can’t see why it’s surprising that a Senator from a rural, poor state, who happens to be in the re-election fight of her life, would want to stick it to bankers and fat-cats. Hating bankers is a staple of rural populism, and the harder Blanche kicks Wall Street ass, the better she’ll do back home. The asses she needs to kiss belong to Wal-Mart and Tyson, not JP Morgan and Goldman-Sachs.
Of course, thanks to Blanche, derivatives may be saddled with the same system of regulation that currently haunts the stock market. That institution has become socialist nightmare, where it’s impossible for anyone to make a cent because of the straitjacket of government oversight.
Tim O
I’m sure those rural folk are just clambering to jump into the derivatives market with all of their disposable cash from their high paying Walmart employment contract. How thoughtful of you Blanche!
colby
I think some of the surprise comes from the fact that, so far, Lincoln’s response to the fight of her life has been to run to the RIGHT. But then, anti-banker populism doesn’t break down on Left-Right lines quite as easily as other issues. It seems like EVERYONE thinks they’re anti-banker…
ThatLeftTurnInABQ
@Tim O:
I think you are missing the sarcasm in mistermix’s post. This is good news. Blanche has come out in support of a tougher approach to regulating derivatives than what Wall St. wants. Given how she rolled over for Big Insurance during the HCR debate, a lot of folks (myself included) expected the opposite from her, and given her postition on the Ag. committee, getting her on-board with regulation of derivatives is a big win for reformers.
Sentient Puddle
If anything, the only real surprise here is that derivatives are regulated by the freakin’ agriculture committee.
(Yes, I get why that’s the case in historical terms.)
ThatLeftTurnInABQ
@Sentient Puddle:
The Senate is desperately in need of reform, including the committee structure. Insofar as the Senate has any say in policy, we are running a 21st Cen. nation using a 19th Cen infrastructure, and not in a good way either. Either that, or force those bastards to use a horse and buggy to commute to work every day, ban them from airports and any other form of modern transit (e.g. the DC Metro), and give them circa 1900 medical care.
Ed Drone
@ThatLeftTurnInABQ:
AND 19th C. paychecks.
Ed
liberal
Problem is that, IIRC, Yves Smith at nakedcapitalism.com has shown that at least for CDS, exchanges won’t work, even if the proposals are certainly well-intended.
EconWatcher
I hate to sound naive. But it’s also possible she knows her goose is cooked in the election (which it seems to be), and wants to do the right thing on the way out. Just sayin’.
The Moar You Know
@liberal: The problem is not how they are handled; the problem is that they exist at all.
Remember, a “derivative” is simply a method of insuring a financial asset that is so risky that a regular insurance company won’t touch it at any price.
Proceed from there to figure out how they ought to be
handledbanned.ThatLeftTurnInABQ
@liberal:
IIRC, credit default swaps are no more or less than insurance contracts in disguise, which means they shouldn’t be lumped in with other derivatives. Treat them as insurance contracts in all respects, and regulate them accordingly. The big problem is unwinding the swaps that have already been written. IIRC most of those have fairly short terms, on the order of several years or less. Does that mean we can ban the issuance of new credit default swaps outside of a regulated insurance framework and simply let the existing set of CDS’s age until they expire? Or does that not work from a legal standpoint – i.e. is it impossible to write legislation that bans new contracts while grandfathering in the old ones?
rootless-e
@EconWatcher: wow. that’s generosity of spirit taken to a height.
catclub
@EconWatcher: #8
You might be naive indeed. If Lincoln knows she will lose, she will maneuver for the next job – which might be as lobbyist for big banks and insurance Co’s. So the doing the right thing mode remains puzzling.
I think that she is trying to win by appearing populist, rather than doing the right thing.
Perhaps the Shadow knows.
Montysano
The fact that there’s controversy over whether a multi-trillion dollar shadow banking industry should be transparent and subject to regulation is just a sign of how enslaved we are to these fuckers. Polish the guillotines.
EconWatcher
This blog is so full of world-weary, hardboiled, cynical souls….
David in NY
There’s a view that Blanche is doing the usual, trying to appear a populist, while leaving loopholes that will allow business as usual to continue. In this case, she has many exceptions to the class of those who are regulated (banks are, many other entities are not) and the administration at least thinks that this will deprive the legislation of real force.
Sentient Puddle
@ThatLeftTurnInABQ: I absolutely agree that the Senate needs reform, but this sort of reform is basically common sense. They need to realize that derivatives these days have moved way the hell beyond agriculture futures, and kick the authority off to…banking, I guess (that committee still doesn’t feel like a perfect fit, though).
A simple matter of acknowledging that we’re no longer in the 1750’s, really.
Bob L
@EconWatcher: More likely a little of both; it easy to do ideas you want that a popular with you voters.
Considering the Blue Dogs and the Republicans come mainly from the banker hating rural parts of the country this banking reform may stand a chance of being effective.
liberal
@The Moar You Know:
I agree with that. In fact, IIRC, Y.S. does too. The only reason she doesn’t think they should be eliminated immediately is that it would somehow wreak havoc with the ones already in existence, doing further damage. Instead, she favors getting them out of existence in a planned fashion.
liberal
@ThatLeftTurnInABQ:
First, as it appears you might already know, they’re not really insurance contracts. They appear to be, but they require far less in terms of capital behind the “insurance,” and related things. (E.g., real insurance, you have to have an insurable interest.)
Second, it’s not clear to me that “true” insurance in the financial world hasn’t been abused, also. Here’s commenter ruetheday at nakedcapitalism:. Note he refers to non-CDS guarantees:
liberal
@Montysano:
Um…what if we prefer lampposts?
Tim O
@ThatLeftTurnInABQ: I stand corrected after reading the article more closely. Thanks.
(Go Halter!)
TeeJay in AR
This was a surprising move on her part. The derivatives she was interested in were things like corn futures, that farmers use as a hedge against a bad crop. The banks and it, was assumed, farmers wanted less government interference in this area. That a conservative Senator from a farm state facing re-election says she’s willing to take on both banks and farmers is surprising.
This may well come back to bite her in the general election, but her primary opponent has been gaining ground from the left, and Sen. Lincoln has never been one who plans more than 10 minutes ahead politically.
Jimmm
The surprise is that she might actually think first about the people in her state, rather than the big companies that she will likely hit up for a job after she loses reelection in November.
DougJ
I agree, punching bankers is good politics.
Martin
Actually, you can make a FUCKTON of money in the derivatives market if you know what you’re doing, and you can do it with relatively little capital. I’ve turned $5,000 investments into $100K in weeks (I’ve also turned $5,000 in $0 in equally short periods). Can’t do that on the stock market.
But for those using derivatives as a hedge (and they are very good in that role, used properly) then the regulation won’t change much. Its only the speculators that will get hit, and well, fuck them (and I say that as someone who is in that category, albeit very small scale).
So yeah, the regulation is LONG overdue. And the dynamic here is very interesting having followed health care. Unlike that fight, the Democrats are moving left everytime the GOP goes after them. If the Dems are smart about this (stop laughing) they stand to win big here because the broader public is entirely on their side.
Linkmeister
As an aside, I want to applaud mistermix for his spelling accuracy. If I had a buck for every time I’ve seen a restraining coat spelled “straightjacket” I’d be a wealthy wealthy man.
Hal
The only Blanche I care about is Blanche Devereaux.