Lincoln Wins — So What Happens to FinReg?

Last night, after falling in the polls in recent days, Sen. Blanche Lincoln (D-Ark.) managed to eke out a win in her primary runoff against Lt. Gov. Bill Halter. Lincoln is a conferee on the committee to merge the House and Senate versions of the financial regulatory reform bill, and had Halter won, her popular-on-Main-Street, loathed-on-Wall-Street derivatives reform proposal, Washington poobahs presumed, would have been dropped immediately. The question is: Has Lincoln’s win saved the swaps-desk spin-off?

There is no knowing for sure, of course. The bill is complex, the likelihood of loopholes high and the lobbying to drop or keep even esoteric provisions will be fierce. (One person’s seemingly innocuous auto-dealers exemption is another person’s billion dollars.)

But I find it hard to believe that the Lincoln win will change what always seemed inevitable. Neither Wall Street nor the White House nor Barney Frank nor many Democrats really wanted the derivatives proposal in the bill. Now, it will be most useful in that Democrats have it as a trading chip — possibly to be exchanged for a stronger Volcker Rule.

Josh Green at The Atlantic has a good comment on the politicking there:

It doesn’t seem like a stretch to conclude that Lincoln eeked [sic] out a win by convincing just enough voters that she was a Wall Street scourge. If her signature provision goes down in flames, she’ll look toothless and weak, and almost certainly lose her seat. The bank lobby and the Obama administration (both oppose the Lincoln provision) may simply prove too strong and do the deed anyway. But their task got a whole lot harder. The markup conference will now get a lot more attention. That could be tough for Lincoln. But it will be especially tough for Democrats who wanted to kill her provision without suffering any political damage.

My sense is that the derivatives spin-off proposal is difficult enough to explain to voters — well, difficult enough to explain to anyone — that it will not become a rallying point for reformers. People pushing hardest for reform — such as consumer advocates — are already honing in on other measures. Moreover, progressive members of the Senate have themselves described it as ill-constructed. And it will be hard for Republicans to castigate Lincoln for not winning the provision since none of them supported it either.