Even as labor is being scolded by the White House for spending $10 million on the Arkansas Senate primary, it has gone relatively unnoticed that the primary could end up costing Wall Street one thousand times as much money (literally).
Blanche Lincoln's derivatives language in the Wall Street reform bill forces banks to spin off their derivative trading sections. If it becomes law, it will cost Wall Street banks billions and billions of dollars:
Goldman Sachs could lose up to 41 percent of its earnings if Congress approves tighter regulation of the derivatives market, according to an analysis by Bernstein Research. That's equivalent to wiping away $3.9 billion in Goldman's earnings this year if the stricter regulations were in effect for the entire 12 months, according to a subsequent analysis of the numbers by DealBook using Bernstein's 2010 earnings-per-share estimates.
Other major banks, including Citigroup, Morgan Stanley, JPMorgan Chase and Bank of America, would also withstand cuts of billions of dollars in their earnings if the derivatives rules currently being considered by the Senate are put in place.
Those estimates are only over the course of one year, too. Over the course of a decade, Lincoln's language could end up costing Wall Street over ONE HUNDRED BILLION DOLLARS (insert Dr. Evil laugh here). That would make this primary challenge one of the most successful attacks on corporate power in the United States ever conducted.
Even if the language is dropped, it seems as though that will only happen in exchange for increased tightness in the Volcker rule:
But those who believe the provision will be removed still think Democrats will find other ways to keep portions of it alive-possibly by tightening language in the Volcker rule in the bill, which places some restrictions on banks' proprietary trading.
"It is definitely going to be changed and in effect it is going to be dropped, but they will want to do it in a way that will preserve it as much as possible," said Joseph Engelhard, a senior vice president at Capital Alpha Partners LLC. "We are expecting Barney Frank to recommend changes to the Volcker rule language which would make the prohibition on proprietary trading more specific."
Even that will still cost banks a lot of profits--way more than $10 million.
Further, this entire effort to strengthen bank regulations could also end up saving the country a lot of money, in the form of avoiding, or significantly lessening the effects of, a future recession.
No, we didn't win in Arkansas last night. That is an undeniable fact. However, the $10 million could still prove to have a tremendous ROI, even apart from the real progressive power it built. If $10 million in arkansas ends up costing $100 billion in profits, and thus loosening their stranglehold over our democracy, then I say good deal.
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