Earlier this year, former Sen. Evan Bayh (D-IN), who left Congress ostensibly to engage in nobler pursuits and avoid the rancid bipartisanship of Washington, promptly became a lobbyist, signed on as a Fox News commentator, and joined an anti-regulatory road show sponsored by the right-wing U.S. Chamber of Commerce. Alongside former George W. Bush chief of staff Andy Card, Bayh promulgated debunked right-wing nonsense about the cost that regulation has on economic growth and job creation.

Not to be outdone, Bayh’s former colleague, Sen. Blanche Lincoln (D-AR) — who was defeated by Sen. John Boozman (R-AR) — has joined the notoriously right-wing National Federation of Independent Business (NFIB), and is engaging in a similar dissemination of misleading conservative economics:

The nation’s leading small-business organization, the National Federation of Independent Business (NFIB), today launched a new campaign targeting the increasing number of regulations handed down by the Obama administration that are hampering small business’ ability to create jobs and economic growth. The multi-year effort aims to give voice to America’s small businesses, which create two-thirds of the net new jobs in the U.S. each year. Former U.S. Senator and Small Businesses for Sensible Regulations chairwoman Blanche Lincoln joined NFIB President and CEO Dan Danner to announce the coalition in Washington.

As the Huffington Post’s Sam Stein and Zach Carter reported, while the NFIB purports to speak for small business, it “is run mostly by and for Republicans“:

Of the 11 lobbyists currently employed by the NFIB, nine are former staffers for Republican lawmakers (one is a former Democratic staffer and another is an academic with ties to JPMorgan Chase and the New York Federal Reserve). The organization endorsed 319 politicians in the 2010 elections, 310 of them Republicans. And 93 percent of the $745,051 that the NFIB deployed in campaign contributions went to GOP candidates. The group’s independent arm spent an additional $1 million, all of it on behalf of Republicans.

In a statement, Lincoln attacked government regulations that she claims “are causing uncertainty and ultimately harming small businesses and their ability to create jobs,” citing “a report conducted for the Small Business Administration’s office of advocacy last year, government regulations currently cost the U.S. economy $1.75 trillion a year, or more than 12 percent of our national GDP.”

But as Wake Forest Professor Sidney Shapiro wrote, that study is complete bunk. “That study is popular with anti-regulation advocates, but never stood up to scrutiny,” he wrote, noting that it contains “serious methodological problems.” The Congressional Research Service came to the same conclusion.

John Irons of the Economic Policy Institute found that the study Lincoln is citing “contains basic conceptual mistakes and relies on extraordinarily poor data.” “Its results should neither be used as a valid measure of the economic costs of regulation nor as a guide for policy,” he said. However, Lincoln evidently feels fine helping right-wing organizations lie about the effect regulation is having on the economy.

Last month, as the Senate was gridlocked by a Republican filibuster of a bill to extend much-needed unemployment benefits to millions of out-of-work Americans, Sen. Ben Nelson (D-NE) stood with the GOP against the extension. Nelson claimed that his concerns about the deficit overrode his support for the extension; he voted against the bill that finally passed 60-40.

Later that week, Nelson came out in support of an extension — “for now” — of the Bush tax cuts for the wealthiest Americans, which adds many billions more to the deficit than the unemployment insurance extension. In fact, extending the Bush tax cuts for one year alone would add $115 billion to the deficit, compared to the “relatively tiny budgetary cost of $33 billion” for the extension of UI benefits.

Today, though, Ben Nelson provided further evidence that he is a deficit peacock — someone who claims to be concerned about the deficit but isn’t actually interested in taking serious steps toward a balanced budget. Before the final vote on the states’ aid bill that passed today, Sen. Jim DeMint (R-SC) offered two amendments that would, in effect, permanently extend the Bush tax cuts. David Dayen has the results:

Before passing the state fiscal aid bill, Democrats actually gave Jim DeMint two votes on tax rates. He wanted to add massively to the deficit – literally trillions of dollars – by freezing in place the tax rates on individuals and “small businesses” that we have now, and which make us one of the most lightly-taxed industrialized nations on the planet. And look at this: Democrats rejected the measure entirely. On both votes, only Ben Nelson [and Sen. Blanche Lincoln (AR)] crossed the aisle to vote with all Republicans [except deficit hawk George Voinovich (OH)]

Nelson and Lincoln (who also claims to be concerned about deficits) apparently don’t mind spending $3.1 trillion over the next ten years to pursue ineffective tax cuts for the wealthy. Perhaps they should have listened to their colleague, Sen. Max Baucus (D-MT), who said of DeMint’s proposal, “that’s not serious. Is that a stunt? Yes, it’s a stunt. Is it a gimmick? Yes, it’s a gimmick. Is it serious? No, it’s not serious.”

DeMint is particularly “not serious” when it comes to paying for his extraordinarily expensive amendments. Both came “with instructions to offset as necessary through spending reduction,” Senate-speak for “we’ll worry about the cost later.”

– Charlie Eisenhood

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.

When she’s not looking to weaken capital requirements for the benefit of her state’s biggest bank, Sen. Blanche Lincoln (D-AR) has been doing good work on financial regulatory reform, as she authored a title on derivatives reform that is stronger than its House counterpart, and would help bring transparency to this currently opaque market.

Lincoln’s title is worthwhile because it forces almost all derivatives trades onto public exchanges (like the stock exchange) and through clearinghouses (which ensure that each party in a trade has collateral should the trade go sour). These steps help both investors and regulators see what is happening, driving down prices and making it easier to police financial shenanigans.

But Lincoln’s bill also includes what’s known as Section 716, which would require banks to place their derivatives trading desks in separately capitalized entities, divorced completely from the banks’ federally insured deposits. House Financial Services Chairman Barney Frank (D-MA), who is also chairing the ongoing financial reform conference committee, had initially expressed opposition to the measure, saying that it “goes too far,” but he is now saying that Lincoln’s goal of getting derivatives away from traditional banking “will happen”:

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.

The financial services industry is fighting the spin-off provision tooth and nail, and it’s really no surprise considering that “selling over-the-counter derivatives is among the most lucrative businesses for the largest financial companies.” In fact, U.S. banks held derivatives with a notional value of $212.8 trillion in the fourth quarter of last year. JP Morgan, Citigroup, Bank of America, Goldman Sachs, and Morgan Stanley hold 97 percent of that amount. BusinessWeek estimated that JP Morgan and Citigroup have the most to lose from Lincoln’s provision:

JPMorgan had 98 percent of its $142 billion in current value derivatives holdings inside its bank in the first quarter of this year while Citigroup had 89 percent of $112 billion, the records show…Morgan Stanley and Goldman Sachs Group Inc., each of which entered the commercial banking business in 2008 in the midst of the financial crisis, would be less affected. Morgan Stanley kept just over 1 percent of its $86 billion in derivatives holdings in its bank in the first quarter, and Goldman Sachs Group’s held 32 percent of its $104 billion.

As Kansas City Federal Reserve President Thomas Hoenig and Dallas Federal Reserve President Richard Fisher wrote, that kind of risky trading “should be placed in a separate entity that does not have access to government backstops. These entities should be required to place their own funds at risk.” And it’s looking more and more like such a division could actually become the law of the land.

As part of the financial regulatory reform effort currently being hashed out in conference committee, banks will be required to hold more capital against losses. This is a key reform, as one of the big problems prior to the financial meltdown was that banks and other financial firms (like insurance giant AIG) were way overleveraged and didn’t have adequate capital on hand when the housing bubble burst.

The legislation before the conference committee applies more stringent capital standards to banks with more than $10 billion in assets. However, Sen. Blanche Lincoln (D-AR) wants to boost the threshold to $15 billion, conveniently exempting the biggest bank in her home state — which also just happens to be owned by one of her biggest campaign contributors:

The bank, Arvest Bank Group Inc., of Bentonville, Ark., is predominantly owned by the Walton family, of Wal-Mart Stores Inc. fame, perhaps the most influential family in the state and one of the richest in the U.S. Under Ms. Lincoln’s proposed change, Arvest would be excused from a provision that could require banks to raise more capital, in Arvest’s case about $115 million…Ms. Lincoln “believes the threshold should be high enough to ensure no bank in Arkansas is subject to these new rules on existing capital, which would hinder their ability to generate lending for consumers and businesses at a time when access to credit is already difficult to come by,” said Ms. Lincoln’s spokeswoman, Marni Goldberg.

This is, unfortunately, not the only case of lawmakers pushing to exempt financial firms in their home state from the new financial rules of the road. Sen. Scott Brown (R-MA), for instance, is pushing for an exemption to the Volcker rule — which prohibits banks from trading for their own benefit with federally insured dollars — for Massachusetts based State Street Corp.

These sorts of exemptions are problematic, even putting aside the politics of crafting special deals for powerful entities in a state, because they create pressure for lawmakers to raise the exemptions even higher and set up opportunities for regulatory arbitrage (banks moving activities to unregulated parts of the market.) “Once you open up the door just a crack, Wall Street shoves the door open and runs right through it,” said Frank Partnoy, a professor of law at the University of San Diego and a former trader at Morgan Stanley.

As former Federal Reserve Chair Paul Volcker has said, “the problem with making the exceptions with plausible cases by individual institutions is once you begin, you can never stop. And if you make enough exceptions, you no longer have a rule.” Capital requirements need to be stronger across the board if financial reform is to result in a more stable, safer financial system, and Lincoln’s home state bank doesn’t need special treatment.