I have to admit, I'm none too fond of Blanche Lincoln. But it seems as things progress she is poised at the brink of becoming somewhat of a tragic figure - though not a particularly sympathetic one.  In addition to just plain not liking her, there are several factors that make me not entirely trust this recent announcement. One, of course, is my naturally suspicious nature (Hey! what are you looking at my keys while I'm typing for?!? Huh?).

First thing that raises my suspicion is this feels like a clumsy media set up. I woke this morning to the Huffington Post telling me 'ole Blanch was opposing Obama again! "Again?" thinks I, "When was the first time?" And I'm quite sure I typed such into a comment somewhere. The crux of her offense:

Sen. Blanche Lincoln (D-Ark.) said on Tuesday that her bipartisan Wall Street reform negotiations will continue, despite strong signals from the White House that exemptions in the bill for end users of derivatives are not up for discussion. End users are farmers, airlines, dairy producers or other companies that use derivatives as an integral part of their business, [...] Banks are seeking exemptions for end users, however, as a loophole to keep the derivatives market in the dark, as it is currently. Brokers and swaps dealers have been pressuring end users to lobby Congress for an exemption.

Then, hours later ... U-Turn! Josh Marshal proclaims, Blache Lincoln turns populist! While Greg Sergent observes that primaries have consequences and  "Lincoln is now tilting to the left on financial reg reform, possibly earning props from progressive groups". The Politico story causing all the hubbub dropped within hours the HuffPo one. A casual observer might think she made a full 180 in less than 12 hours. In fact, the opposite seems to be true (my emphasis):

Under Lincoln's proposal, manufacturers, agriculture companies and commodities producers would not be covered by this clearing requirement.

The merits of the exemptions and such are a different topic (that commodities thing bugs me), but it should be noted this announcement seems to conflict with Obama's desires. At least it represents a serious stand-down from the "all derivatives on an exchange" position. Push-back from the WH (or lack thereof) should be telling IMO.

Media nonsense aside, her statement itself kind of bugs me. Right off the bat, it bugs me because she proclaims her proposal's priority is to  "avoid future bailouts". Good Lord.  That's like saying your priority is to "avoid future rebuilding of New Orleans". There are many ways to fulfill this priority, some better than others. If one lets the city get flooded again and simply prohibits rebuilding, I'd argue it's not such a good plan. What we most desperately need is a serious plan to forestall another crash. In my opinion, I'm not sure we should explicitly remove any tool from the economic policy makers' toolbox, this hardly seems the problem. If we're worried about the misuse of tools, the most important thing is to realign the interest of policy implementers and regulators with the interest of the American people. I certainly hope this enters the political discussion at some point.

Another thing that bugs me is how absurdly broad the claims made are.

"It will include strong mandatory trading and clearing requirements as well as real-time price reporting that will bring 100 percent transparency and accountability to Wall Street. My bill will vigorously reform unregulated markets, close all loopholes, and protect jobs on Main Street," Lincoln said in a statement to POLITICO.

Ummmm. Really? Goodness, I was just hoping to catch a couple dozen of the worst loopholes and you got 'em ALL? Go GIRL!

Politico describes it as much like the house plan with less exemptions (which of course tend to reproduce like tribbles) with some sort of a plan to force the spin-off of derivatives. It's tough to discuss that part until we see what she really came up with. I have my suspicions, but I'd rather wait than speculate.

But this part, I think deserves a bit of deeper thought and was the point originally sparking this post:

Under Lincoln's plan, any "major swap dealer" would be barred from getting Federal Deposit Insurance Corporation backing, or funds from the Federal Reserve. That means that even if the big banks spin off their derivatives operations to separate subsidiaries -- as would be expected under Lincoln's bill -- those new commercial units would be allowed to fail if their derivatives trades go bad.

Implicit in Lincoln's announcement about trying to "avoid future bailouts" is that this proposal would prevent a situation such as TARP. I simply don't see how this is even possible without declaring TARP unconstitutional. TARP was it's own legislation which pretty much self-created the bailout. Having a provision as described would likely limit actions such as the first AIG bailout, but there simply is no way that a piece of legislation can prevent a future congress from passing another TARP type bill. Kind of misleading.

Might it be a good provision? Maybe. If such a bill had been in place when the economy collapsed in 2008, would it have prevented the TARP bailouts? I don't see how.