If Blanche Lincoln’s tough derivatives provision was just a gimmick to ward off her primary challenger from the left and if the plan all along was to gut the provision once she made it through the primary, then Lincoln and Dodd and whoever else hatched this plan are now in an exquisite squeeze.Even the best-laid plans can succumb to the political whirlwind. Since her derivatives proposal was introduced the broader political environment has become even more toxic for Wall Street. Lincoln isn’t out of the woods yet back home, having been forced into a runoff last night. Hoping to thread the needle, Dodd made his move yesterday to water down the provision, but was met with howls from more progressive senators already threatening to abandon the overall bill as too weak.
So a short time ago, Dodd withdrew his effort to water it down — at least for now. There will be other opportunities to get rid of the provision in its current form, something Dodd, the Senate leadership, the White House and Wall Street would all like to see happen. But the way things are moving, they are no longer in the driver’s here. Each time they’ve come to an exit ramp on derivatives regulation, the politics of financial reform have blocked their way. So at this point you have to think all bets are off. No one quite knows where this is headed.