Today, the conference committee that is reconciling the House and Senate versions of financial regulatory reform is supposed to deal with one of the most contentious aspects of the legislation: reform of the derivatives market. The Senate’s text, which is being used as the base for negotiations, includes a strong derivatives title authored by Sen. Blanche Lincoln (D-AR) that would force almost all derivatives trades onto public exchanges (like the stock exchange) and through clearinghouses (which ensure that each party in a trade has adequate collateral should the trade go bad).

Lincoln’s bill also includes Section 716, which is a provision requiring banks to place their derivatives trading desks into a separately capitalized entity. It has drawn the scorn of the financial services industry, but would help protect taxpayers by ensuring that risky derivatives trading is divorced from money that is federally insured (like a bank’s deposits).

In the last few days, some House Democrats have expressed hesitation about Section 716, with one, Rep. Mike McMahon (D-NY), saying that “it would be impossible for me to vote for a bill that contains that provision.” Lincoln has, thus far, been standing tall against pressure to back down, and yesterday received some support from one of the few Republicans who voted for financial reform — Sen. Chuck Grassley (R-IA):

“I heard there was some compromise or some backing down on Blanche Lincoln’s part, and I hope she doesn’t back down,” Grassley said. “I voted for it in the Ag Committee, and it’s one of the main reasons I voted for it on the floor of the Senate.”

And while much has been made of the Democrats who are reluctant to support Lincoln, there are also House Democrats who are pushing for Section 716 to remain in the final bill. Reps. Bart Stupak (D-MI), Jackie Speier (D-CA) and Rose DeLauro (D-CT) penned a letter to the financial reform conferees telling them to “preserve the strong Senate language”:

The Senate bill includes important provisions that remove the ongoing Federal subsidy to the derivatives businesses of the five large banks that dominate this market. This language will help ensure that taxpayers are not supporting this risky activity with deposit insurance or other benefits. It will increase transparency and safety by making sure that derivatives market making activities are separately capitalized. As a result, it will also redirect bank capital towards lending and investment in Main Street, rather than empty speculation.

Rep. Barney Frank (D-MA) said earlier this week that “the essence of what Senator Lincoln wanted to do on pushing derivatives out of the banks will happen, and certainly they will be totally insulated from any insured deposits.” It seems this is one of the few ideas recently capable of garnering bipartisan support.

Today, Senate Democrats expect to hold yet another vote on their tax extenders package — which extends unemployment benefits and various tax credits — and by all accounts they will not be able to drum up enough votes to invoke cloture. During this process, the bill has been whittled from $200 billion to $100 billion, and gone from being deficit-funded to almost entirely paid for (with the exception of the unemployment insurance). “I’ve never been involved in anything that’s been revised so often and in so many different ways,” said Sen. Max Baucus (D-MT).

And still, Republicans — along with Sen. Ben Nelson (D-NE) — are going to filibuster it. Minority Leader Mitch McConnell (R-KY) “dismissed” the latest proposal, calling it the “deficit extenders bill.”

This refusal to move legislation that would help the unemployed and boost the economy comes just after the Federal Reserve warned in its latest statement that the economy is still exceedingly weak:

Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months.

The extenders package includes aid to state governments to help pay for Medicaid that, if not passed, could result in 200,000 jobs lost alone, as states cut their budgets to make up the difference. Vital health and service programs will also be on the chopping block should Congress not act to help the states.

In addition, on Friday 1.2 million people will have lost their unemployment benefits, resulting in a drop in demand in the economy and untold amounts of misery for families who were expecting their benefits to continue, only to see their safety net pulled out from under them. For every dollar spent on unemployment compensation, $1.60 is added to our economy’s output.

There are currently 15 millions Americans unemployed, and almost half of them have been out of work for at least six months (and maybe much longer), which is a post-World War II record. There are nearly five workers actively searching for work for every job available, compared to 1.5 per job opening before the recession began.

And yet, deficit hysteria and obstruction (after all, a majority of Senators support the extenders bill) are preventing meaningful attempts to address these problems from going through. Which isn’t to let the Fed off the hook entirely either. As David Leonhardt pointed out yesterday, the Fed acknowledges that it could be doing more to boost employment — it just simply isn’t going to do it.

I’ve been long lamenting the lack of perspective from which the debate over the currently expired estate tax has been suffering. Conservatives pushing a tax cut worth tens of billions of dollars to the very richest 0.2 percent of households in the country have been presenting their proposal as a “reasonable compromise,” even though it is the most conservative idea on the table short of full repeal. Progressives, meanwhile, seemed to be resigned to reinstating the estate tax at the 2009 level, which still costs billions compared to the budget baseline.

Well, Sens. Bernie Sanders (I-VT), Tom Harkin (D-IA) and Sheldon Whitehouse (D-RI) have finally rectified the situation, proposing a progressive estate tax:

According to a letter they were circulating, the measure would impose a 10 percent “billionaire’s surtax” on the value of inheritances worth more than $500 million per spouse, or $1 billion per couple. That would be on top of a 55 percent rate on the value of estates above $50 million. Below $50 million but above $10 million, and the rate would be 50 percent; and between $3.5 million and $10 million, estate values would be taxed at 45 percent, same as in 2009 law that has since lapsed. Estate values below $3.5 million would go untaxed, also as in the 2009 law.

“We have an entire party that is dedicated to preventing working people, who have lost their jobs through no fault of their own as a result of this economic meltdown, from getting unemployment insurance,” said Whitehouse yesterday. “But they are completely satisfied with an oil tycoon worth $9 billion having his estate go completely tax-free to his heirs.” “At a time when we have a record-breaking $13 trillion national debt and a growing gap between the very rich and everyone else, people who inherit multi-million and billion dollar estates must not be allowed to avoid paying their fair share in estate taxes,” added Sanders.

Deficit hysteria has gripped Capitol Hill and is preventing any meaningful effort to boost job creation or bolster the social safety, while income inequality continues getting worse, so it makes sense to add some progressivity to the estate tax while still retaining the 2009 exemption. While the new proposal will definitely bump up the effective rate for those paying the tax at the highest end of the income scale (which is currently 14 percent), it’s a good way to raise revenue with exceedingly minimal impact on the wider economy.

As I’ve pointed out before, one of the lower-profile issues included in the financial reform legislation that is currently being reconciled in conference committee is corporate governance reform, which is an attempt to rein in some of the perverse corporate incentives that contributed to the financial meltdown. This is an important thing to do, as just this week the Federal Reserve announced findings that the structure of pay packages on Wall Street still incentivizes too much risk.

One of the key problems in our current corporate governance system is shareholders (who are the owners of a company) can’t get their own candidates onto the ballot for election to a company’s board of directors. Currently, during an board election, a company sends out a “proxy” (ballot) with its preferred slate of candidates and bills the cost to the company, while “dissenting shareholders [must] pay up for mailing and publicity costs, sometimes in the millions of dollars,” to send out their own, separate ballot.

A provision that would have guaranteed investors “proxy access” was included in the House version of financial reform. The Senate, however, changed the provision to limit proxy access to investors holding 5 percent of a company’s shares. The Street’s Eric Jackson has a theory as to what happened:

Why did the Senate — unprovoked by the House — decide to insert this change into its own legislation? Sources have told me that both Senators Bayh and Mark Warner insisted on this new language after strong lobbying from the Business Roundtable. Apparently, both men threatened Sen. Dodd that they would vote against the financial reform bill without this new language, which would block cloture on the bill and slow down its passing.

According to the Huffington Post, the White House also lobbied for the higher threshold.

The problem, though, is that most investors don’t come anywhere close to owning 5 percent of a company. “We’re just horrified that the Senate would try to weaken language that was similar in both bills. To set such a high threshold makes the reform totally unworkable,” said Ann Yerger of the Council of Institutional Investors. As Ryan Grim pointed out, “the biggest pension funds are more likely to hit the half-percent threshold in rare cases.”

Former SEC chairman Arthur Levitt penned an op-ed in the Wall Street Journal today calling the Senate’s version of the provision “comically useless.” “The bill, already weakened by deal-making as it emerged from the Senate, has been bled dry of nearly every meaningful protection of investors,” he wrote.

Studies have shown that both total returns and share performance are better for companies with an investor presence on their board, which makes sense, as investors have a vested interest in the entire company’s performance, not just lining the pockets of executives. It doesn’t make sense for the Senate to water down what the House has done.