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Reform Advocates Sometimes Come From Strange Places

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Reform advocates sometimes come from strange places. Arkansas Senator Blanche Lincoln (D. AR.) is just such a person and from a state more known for a governor blocking the school house door (Governor Orville Faubus in the late 1950's preventing black children [at that time] from entering Little Rock's Central High School).

Lincoln, the Chairwoman of the Senate Agriculture Committee "last week introduced the bill that would prevent banks from trading derivatives directly."[1]

Derivatives (credit default swaps) more commonly thought of as being complex financial security arrangements between large financial institutions (Goldman Sachs et al), their clients (large public and private investment groups, union retirement trusts, governmental structures, mortgage underwriters et al) and big insurance firms like A.I.G., (American International Group) are also instruments that farmers buy in the form of a "futures contract that would guarantee a set price for crops and thereby guard against ruinous price swings between planting and harvest".[2]

But it's the "toxic" type of derivatives (that were at the core of the financial meltdown when the housing bubble burst from the sub prime mortgage default crisis in 2008) that is the focus of Lincoln's committee with the idea of regulating all these transactions (more than "$600 trillion"[3] worth) that has Wall Street lobbyists and executives (over "1500"[4]) descending on her committee Wednesday to, in her words, "take up legislation to rein in derivatives, the complex securities at the heart of the financial crisis, the billion-dollar bank bailouts and the fraud case filed last week against Goldman Sachs."[5]

What is especially intriguing is Lincoln, and other key members of her committee notably Senator Saxby Chambliss (R. GA.), Senator Kent Conrad (D. N.D.), and Senator Charles Grassley (R. IA.) have each received thousands of dollars in "donations from people and companies in the derivatives business."[6]

However, Lincoln in particular is in the midst of a tough primary fight for her political life and most of her Arkansas constituents as well as the local small Arkansas banks (they believe mortgage speculation led to bank failures and higher FDIC insurance cost) want derivatives regulated and as she says, "The people of Arkansas never again want to have to foot the bill for what happens on Wall Street. If the banks want to be in that type of risky business, they should have to separate it off in a way that lowers systemic risk."[7]

Now one shouldn't speculate on the outcome of "real" financial reform. But if the health care "debate" (and its final legislative outcome) is any guide, can we, the American people expect "real" financial reform and regulation enacted from office holders who are beholden to big moneyed interests that bankroll their election and reelection can somehow summon the will (courage?) to enact legislation that would seriously curtail the power, influence and reduce the profits of their primary sponsors?

Ordinarily the answer to that question would be no. But the present climate for "real" financial reform is a rare circumstance. The majority of people nationwide hate the big banks and the bailouts they received. They see it as basically unfair and the banks (and their government) took advantage of them (that is an oversimplification, but one suspects is not far off the mark).

The "banksters" have aroused the bile in people and our legislators know they are playing with fire if they let the financial industry "get a pass", receive no more than a light "slap on the wrist" instead of them being taken to the "woodshed for a good thrashing."

That "woodshed thrashing" ("real" reform, regulation and accountability) should be a necessary happenstance. Too many hard working regular ordinary people got hurt (and are still hurting) from the excesses and recklessness from those that brought the "great recession". Meanwhile, the outrageous bonuses of the perpetrators who created the debacle keep on coming as if nothing really happened. That's a tough pill to swallow not only for "tea baggers" and progressives but everyone else in between.

[1] "A Finance Overhaul Fight Draws a Swarm of Lobbyists", by Edward Wyatt and Eric Lichtblau, "The New York Times", April 19, 2010.

[2] See footnote #1

[3] See footnote #1

[4] See footnote #1

[5] See footnote #1

[6] See footnote #1

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