To the surprise of many, Blanche Lincoln won her Arkansas Senate runoff. She did so as a modern-day William Jennings Bryan, standing up for farmers and pushing a strong Wall Street reform proposal to help farmers and protect taxpayers. It is worth reviewing the promises made on the campaign trail and the lessons the race holds for candidates in 2010.
In a conservative state, Lincoln ran hard on her record as Agriculture Committee chair, her critical health care vote and on her strong proposal to crack down on Wall Street derivatives trading. "I am Blanche Lincoln and I grew up in an Arkansas family where I was taught to solve problems... that's why I cast the deciding vote to pass health care reform... And it's why I am taking on Wall Street with the toughest reform bill of anyone in either party ... and it's going to pass," she reassures with a nod. This is a winning message in a tight race.
The Lincoln campaign effectively used surrogates on the same message. While the financial services reform bill she talks about is still winding its way through Congress, former President Clinton touted it as a done deal in last minute ads: "In Washington everybody was betting Wall Street would beat her efforts to clean up trading practices that led our country to the brink of economic collapse, but they were wrong, she won that fight." Clinton (labeled "the President" in Lincoln ads) was a featured surrogate running on TV, radio and internet, while the actual president was relegated to radio.
But President Obama touted the Lincoln bill as well, while neglecting to mention that his administration doesn't support it. "This is President Barack Obama and I want to tell you why I support Senator Blanche Lincoln for re-election in the Democratic Primary on Tuesday, May 18th. Blanche is leading the fight to hold Wall Street accountable and make sure that Arkansas taxpayers are never again asked to bailout Wall Street bankers," said Obama.
The Obama Ads Got it Right, So Why Isn't He Supporting the Lincoln Language Now?
In the world outside Arkansas, real presidents matter more than former ones, and to the disappointment of reform groups the Obama team is not supporting Lincoln's proposal to crack down on derivatives trading. Rather than listening to the big banks and his friend Jamie Dimon, a frequent White House visitor, Obama would do well to listen to the Arkansas voters.
Reckless swaps and derivatives trading played a critical role in the financial crisis, inflating the domestic housing bubble and turning it into a global economic catastrophe. Commodities speculation has ramped up prices for farmers and consumers. Shockingly, these reckless and destructive practices are aided and abetted by taxpayer money.
Currently the five largest banks in the United States have an anti-competitive strangle-hold on 90 percent of the U.S. swaps and derivatives market worth some $300 trillion. The five banks are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup and Bank of America. As the Motley Fool explains: "Currently, banks can fund their swaps trading units with FDIC-insured deposits. Furthermore, each of the five major dealers mentioned above has access to the Federal Reserve's discount window, which allows them to borrow money for gambling in swaps at near-0% interest rates. But the whole point of FDIC insurance and the discount window is to reassure the public that their deposits are safe, and to protect banks from runs on their deposits -- not for the government to help banks finance their own casinos." It is simply beyond belief that taxpayers are being forced to back up these risky trades.
The Lincoln derivatives proposal, Sec. 716 of the Senate bill, will require the five largest banks/derivatives dealers to spin off their swaps desks into a separately capitalized affiliate - in other words to wall off the casino from old fashioned banking. The measure is geared entirely towards preventing a situation in which taxpayers would once again be liable for the bad bets of big banks. Nothing in the bill does more to protect taxpayers from future bailouts than Sec. 716 and it is strongly supported by Nobel prize-winner Joseph Stiglitz, Nouriel Roubini, Simon Johnson, Dean Baker, Robert Johnson and more.
Democrats Need to Throw Jamie Dimon Overboard
For Democrats to win in November, Obama needs to throw his friend Jamie Dimon overboard. As the head of JP Morgan Chase, Dimon has a lot to lose by being forced to form a separately capitalized affiliate to run his casino, but taxpayers have a lot to gain.
The House-Senate Conference Committee gets underway today. Since these powerful provisions are already in the bill, they will have to be stripped out or changed publicly. Public Citizen and Campaign for America's Future won a rear-guard effort to demand an open and transparent process. Democratic leaders Chris Dodd (D-Conn.) and Barney Frank (D-Mass.) are in the awkward position of needing to remove the Lincoln language and gut the reform package that they are touting as the strongest since the New Deal era in front of the cameras. They are hoping to do this gracefully and are working on a bad compromise to buy off critics.
While there is little doubt that Lincoln's challenge from the left aided in her conversion to the "toughest reform bill of either party," but in her campaign ads Lincoln pledges "not to back down." With our support, these tough reforms can be enacted making William Jennings Bryan proud. Send a message to the conferees today.