There’s been quite a lot of drama this week surrounding Blanche Lincoln’s swaps desk spin-off, known as “Section 716.” Ultimately, I don’t think it will amount to anything — Lincoln doesn’t have the support of a majority of either the House or Senate Dems on the conference committee (certainly not the Senate Dems), so yeah, I still think it will be stripped out. The fact that Lincoln is floating compromises just shows that she's the one who needs a deal.
For example, contrary to popular belief, Lincoln isn't proposing that banks spin-off all their derivatives dealing — just their swaps dealers. So going through with Lincoln's compromise would arbitrarily bifurcate the regulatory regime for derivatives (again), instead of finally creating a coherent and consistent regulatory regime for derivatives. And for what? Lincoln's compromise wouldn't accomplish any of her stated goals, nor would it make the financial system any safer, as I've explained. No, this is all about Lincoln saving face, and progressives fulfilling their desire to "stand up to Wall Street" on something. Creating an arbitrarily bifurcated regulatory regime has long-term consequences, and it's absolutely not worth doing just so Blanche Lincoln can save face.
Okay, now back to my vacation.