When was it ever so necessary that a politician show that he or she can stand up to Wall Street and the financial industry? Not since 1929 and probably not even then. But Democrats and, yes, even Republicans are accusing the other party of being soft on the bankers and the other profiteers who rigged complex financial schemes that nearly brought the country to ruin.
For a day or two this week, Sen. Blanche Lincoln, our senior senator, established herself as chief scourge of the financiers who brought the nation to the precipice and then were rewarded with a rescue by the taxpayers. She introduced a bill to provide some transparency to the trading of derivatives, the mysterious instruments that were praised for years as innovations that stabilized the housing market but, in fact, were illusory substitutes for good old bank deposits. Most derivatives would have to be traded on the open market and monitored by the Commodities Futures Trading Commission. Lincoln said her bill was the toughest of all the regulatory proposals working their way through Congress.
That is debatable and, in fact, is almost certainly not true, but she offers a great improvement over the totally unregulated system that still exists nearly two years after the fall. Lincoln pushed her bill through the Committee on Agriculture, which she chairs, and briefly collared the headlines from the president and the Democratic and Republican leaders quarreling over the central regulatory proposal, which Lincoln’s party will try to push to a vote this month. Lincoln is negotiating with Sen. Christopher Dodd, chairman of the Banking Committee, and Majority Leader Harry Reid to have her derivatives bill laced into the big financial overhaul.
Lincoln’s is a pretty tough bill, which seemed to shock the friendly Republicans on her committee, who thought they were working together for what they called reasonable regulation. Lincoln suddenly produced a far more rigorous regulatory scheme than they had been talking about and ran it through. It required that major swaps go through a central clearinghouse and prohibited banks that trade derivatives from getting taxpayer rescues or participating in federal deposit insurance and some federal loan programs. The Republicans wondered what happened.
Here’s a clue: Bill Halter. Lincoln is in the fight of her life, challenged from the left in her own party primary and trailing a gaggle of nondescript Republicans in the polls. Halter, just a little deceitfully, is characterizing Lincoln as a tool of Wall Street. Like most Republicans and Democrats, she voted for the bailout of financial institutions when President George W. Bush said it was necessary to save the country, and she has taken lots of campaign cash from the captains of finance.
She had to establish her bona fides as a populist at a time when even gold-plated Republicans like Sen. Mitch McConnell and Rep. John Boehner were trying to seize the ground. It may or may not prove to be good politics, but whatever Lincoln’s impulses were, she did the right thing.
Her addition will make the good Senate financial overhaul bill an even better one, though not as good as it ought to be. Hard-eyed regulation of an industry that accounts for a third of the profits of American enterprise, which has been catastrophically missing for the dozen years since Congress scrapped the Glass-Steagall Act, is clearly needed, but even better would be some steps to bring the financial industry down to size. None of the politicians in either party or the president seem willing to do that.