Lincoln Stands Strong on Derivatives, and Vindicates Obama’s Support

David Cho reports that moderate Democrats, with the support of the Democratic leadership, are pressuring Sen. Blanche Lincoln (D-Ark.) to scale back a proposal that would force derivatives to be cleared on an exchange instead of being traded in private deals:

At the meeting among key Democrats in the office of House Speaker Nancy Pelosi (Calif.), Lincoln resisted calls for compromise, a Democratic aide briefed on the conversation said. Her refusal to strike a deal is dividing liberal Democrats supporting the proposal and moderates who want it removed. The issue is expected to be in the spotlight Thursday as the House and Senate seek to reconcile their versions of the bill.

Lincoln’s derivatives reform is a key part of the legislation; Cho calls it the “notable exception” to a bill that doesn’t attempt any structural changes to Wall Street, and liberal observers have been most positive about the proposal, despite their otherwise cool feelings towards Lincoln’s actions in the Senate. That Lincoln has held her ground against efforts to tone down the proposal is a good sign for strong financial regulation.

What’s more, it seems to vindicate President Obama’s decision to support Lincoln in the Arkansas Senate primary, where she faced a strong challenger from the left in Attorney General Bill Halter. Supporting Lincoln angered unions and progressive activists, but from the administration’s perspective, it made the most sense. “Centrist” concessions notwithstanding, Lincoln supported Obama on the stimulus package and health care reform, and her work on financial reform has provided the administration with surprisingly hawkish legislation. Granted, Halter’s challenge is what initially spurred Lincoln’s strong derivatives language, but by returning the support, the White House may have ensured continued loyalty from Lincoln, at least on financial reform.

Contra administration critics like Glenn Greenwald, a White House-supported challenge would have completely untethered Lincoln from the administration. Win or lose, Lincoln would have the rest of her term to serve out with no reason to support the administration, and every incentive to make life difficult for the White House and its liberal supporters. On the whole, it made far more sense for Obama to support Lincoln and allow her to make compromises to appease Halter supporters. Yes, it disappointed progressives activists, but it left Obama with a mostly friendly senator, instead of an embittered one.