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Political Games With Senate Banking Bill

Anthony Randazzo
May 16, 2010, 3:42am

The Senate continues to debate amendments to the financial services bill this week. With more and more signs pointing to enough votes for the bill, the Democrats have been able to take a bit longer than once thought in passing the bill. While it is encouraging that Senate leadership didn't force the bill through in one week, the amendments haven't exactly made the bill much better. And Senators are playing political games with the amendments, rather than actually considering the real causes of the crisis and addressing them (should we have expected different?).

For instance, Politico comments on Sen. Lincoln's based-outside-reality-or-reason suggestion to slice derivative trading off of banks completely:

The Obama administration doesn’t love it. Senate Democrats aren’t wild about it, either. Even respected financial watchdogs like Paul Volcker oppose it.

But a controversial proposal by Sen. Blanche Lincoln (D-Ark.) that would force investment banks to spin off their derivatives businesses appears to enjoy a quirky protected status until Tuesday — primary election day in Arkansas, when Democrats decide if Lincoln can go for a third term.

Trying to shore up her left flank, Lincoln went further than the White House, the House and the Senate Banking Committee to crack down on derivatives, the complex financial instruments at the heart of the 2008 economic crisis.

And Lincoln’s in no mood to compromise just days before her May 18 primary. So Democratic leaders have held back from going too far to force changes in her bill and risk embarrassing Lincoln ahead of the vote, according to multiple Senate aides and industry officials familiar with the negotiations.

Then there is the already passed amendment to fix overly government supported ratings agencies by... increasing government support. This is just an example of the many ways the Senate bill doesn't address the real issues that caused the crisis. While the Senate bill is getting better on the too-big-to-fail formula, it remains a continued failure in other causes.

I wrote an article about this earlier this month: Congress Didn't Learn Anything from the Financial Crisis


Anthony Randazzo is Director of Economic Research


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