Updated at 4:05 p.m. on May 4.
On the campaign trail, Arkansas Sen. Blanche Lincoln touts her role in pushing for tough new rules on trading financial derivatives, pointing to her bill as an example of what she can accomplish as chairman of the Agriculture Committee.
But in the final two weeks of her Democratic primary contest with Lt. Gov. Bill Halter, Lincoln faces the possibility that this gambit could come back to her haunt her -- if, as expected, her derivatives bill is dismantled before Congress passes financial regulatory reform legislation.
Senate leaders hope to vote on the financial reform plan by May 14, four days before the primary, and both the Obama administration and leading banks want to drop key provisions of Lincoln's rules, which they claim would disrupt derivatives markets.
One close watcher of Arkansas politics said that Halter will surely pounce if Lincoln fails to preserve her derivative bill after bragging about it on the stump. "The Halter campaign has continually argued that Lincoln has failed to deliver after [12 years] in Washington," said Blake Rutherford, a media and political blogger based in Little Rock. "I don't think most Arkansans understand what derivatives are, but they understand when you promise something and it doesn't happen."
Laura Chapin, a spokeswoman for Halter, said that Lincoln had a pattern of failing to deliver in Washington and wouldn't be able to evade responsibility for her votes on behalf of big business and the wealthy. She said that Lincoln had received campaign contributions from Wall Street bankers at Goldman Sachs and that her derivatives proposal would not erase the perception Arkansans have that she has sided with banks in Washington.
A spokeswoman for the Lincoln campaign said that it was premature to assume that Lincoln's derivatives plan would be gutted, and that in any case a final decision was likely to be made after May 18. "Why is Bill Halter predicting the demise of Senator Lincoln's Wall Street reform provision, while his top backers, including the AFL-CIO, AFSCME, CWA, SEIU, and MoveOn.org, have called on senators to support the provision and fight attempts to weaken it?" asked Katie Laning Niebaum.
Lincoln was already one of the most endangered Democratic incumbents in the Senate, running in a Republican-leaning state and posting approval ratings below 50 percent. Then Halter entered the primary, running to Lincoln's left, fueled by $2 million in contributions from labor unions and out-of-state liberal advocacy groups such as MoveOn.org. Lincoln, one of the most conservative Democrats in the Senate, angered unions by (at one time) opposing "card check" legislation to streamline union organizing, and MoveOn by opposing climate change legislation and the public option on health care reform.
She started the primary race in January almost 20 percentage points ahead of Halter, a businessman who made his fortune in California and elsewhere before returning to the state he grew up in and winning the lieutenant governor's race in 2006. But Halter closed the gap to 8 points as of last week, and polls indicate that 15 percent or more of voters are undecided, a group that Rutherford points out usually votes against incumbents. "If the undecideds turn out, then Halter will win," he said.
Halter has tried to paint the moderate Lincoln as a pawn of moneyed interests, publicizing contributions she received from Wall Street banks. It is widely believed that Lincoln was partly seeking to defend against such attacks with her derivatives bill, which was a rude surprise to bank lobbyists when it was unveiled last month because it was much tougher than expected. It also served Lincoln well in her effort to remind Arkansas voters that she is the first Senate committee chairman from the state in 40 years and that it is chairmen that can get things done in Washington.
Which is fine, unless her bill doesn't get done. Lincoln's approach would go further than other proposals to establish public exchanges for trading in derivatives, which are privately traded securities that are effectively bets on whether some other asset will rise or drop in value. Lincoln wants to break the near-monopoly that the five largest banks have on derivatives trading, depriving them of an estimated $25 billion a year in revenue.
The Treasury Department hasn't publicly weighed in on her proposal, but privately Treasury officials have sided with critics who warn that in the short term this would cut off access to derivatives for many businesses that use them to hedge financial positions, and it could also destabilize those five large banks, which use derivatives trading for legitimate hedging as well as seeking speculative profits.
It is widely expected that the Lincoln rules will be removed or significantly watered down, either before the Senate votes or when the Senate bill is reconciled with the House. If it happens sooner, that might be a factor in the primary contest.
Max Brantley, a political reporter for the Arkansas Times, says that Lincoln has recently tried to tie Halter to corporate malfeasance, referring to him in campaign literature as "Dollar Bill" for sitting on the board of a small company that outsourced 58 jobs to India. Brantley doubts that the election will turn on the last-minute changes in Washington legislation so much as the depth of anti-incumbent feeling in the state.