A story today by The New Republic about the financial reform efforts in Congress begins ominously:

Some two dozen executives from large corporations will be descending on Capitol Hill today to make the case against over-regulating derivatives.

Oh, no.  This financial stuff is hard enough to follow without also having to worry about a legion of Wall Street defenders assaulting our legislators.

The source of the latest angst among Chamber-of-Commerce types apparently comes from none other than Blanche Lincoln, the Democrat that lefties hate for her role in the health care reform fiasco in Congress, who now appears to be out-leftying other more liberal Senators on financial reform.

Lincoln has a new proposal to regulate derivatives, described by Andy Kroll of Mother Jones as,

…those tricky financial products, whose value is linked to the price of commodities or interest rates, used to hedge risk and also make risky gambles.

Calling for transparency in derivatives trading, something now lacking in the system, Lincoln proposes an exchange that will, if enacted, protect against another “AIG-esque collapse” because the inherent risk in such trading will not be concentrated in one place, but spread throughout the members of the clearinghouse.

Another important feature of Lincoln’s proposal, according to Kroll:

Lincoln’s bill would also call for swaps outfits [derivatives trading] to be cut out of big investment banks and essentially made into separate operations. This, of course, would prevent crippling losses on a swap desk from dragging down the rest of the firm—again, a la AIG’s Financial Products division mortally wounding the entire company.

Kroll quotes Felix Salmon, a financial journalist and blogging editor at Reuters, who is not exactly optimistic about Lincoln’s proposal suceeding:

…it’s also pretty clear that none of this is going to happen. Never mind Republican support: this is going to have a hard time even getting Democratic support. It’s all a good idea, but it’s far too radical: while it might have had more of a chance if it had been introduced during the height of the crisis, at this point the banks have got their mojo working again and will quite easily be able to ensure that the beating heart of Lincoln’s proposals is surgically excised before it even gets anywhere near a vote.

The reference to “banks” and “mojo” leads us back to today’s article in The New Republic. As the TNR article makes clear, Lincoln’s proposal rightly exempts from onerous regulation, “derivatives used in commercial activity,” such as when an airline tries to lock in future fuel prices by signing a contract today and betting prices will be higher later:

What the Lincoln bill would regulate is the use of derivatives for more speculative purposes, like a straight-up bet between two Wall Street firms on the future price of oil.

So, why would corporate leaders, who engage in the kind of derivative trading exempted by Lincoln’s bill, make a well-orchestrated appearance in Washington D.C.? TNR writer, Noam Scheiber, explains:

Big financial firms like Goldman Sachs and JP Morgan generate billions of dollars each year as derivatives dealers. But, over the past several weeks, as Democrats’ have escalated their rhetoric and explicitly targeted Wall Street, the big banks have had trouble getting their message out on Capitol Hill. All the more so thanks to Friday’s SEC complaint accusing Goldman of fraud. “The banks’ credibility, their ability to influence this, is limited,” says one derivatives industry lawyer.

And so, instead of mostly making the pitch against regulation themselves, the big derivatives dealers are counting on their corporate clients to do a lot of heavy lifting for them…

In other words, these days no one would believe anything proceeding from the mouths of bankers* who almost bankrupted the nation through, among other things, unfettered trading in derivatives, so they have to go to the bullpen for some help, namely corporate leaders who can leverage the fact that they “employ hundreds of thousands of people across the country.”

While this tactic may seem cynical, worse yet is an even more cynical argument designed to water down any final reform bill, as reported by Scheiber:

…top Wall Street executives have conveyed directly to senior White House officials in recent days, that the administration faces almost as much peril as Wall Street does if it brings a partisan bill to the Senate floor. Should that happen, the argument goes, Senate liberals like Maria Cantwell and Byron Dorgan could triumph on amendments that would move the bill well to the left of where even the administration wants it.

Let’s hope that the high-rollers on Wall Street are once again wrong about their calculations and this time their gambling failures will result not in the near-collapse of our financial system, but in legislation that will finally address their irresponsibility and profligacy, funded most recently by American taxpayers.

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*”Bankers” is a term used loosely here. Just to illustrate what’s at stake for the so-called bankers, here are some facts from Reuters.com:

Globally, the $450 trillion over-the-counter derivatives market is big business for the banks. Scaling back these operations, or forcing high-volume contracts to move to exchanges, could make trading much less profitable for dealers. Customized contracts would continue but face higher costs.

Lawmakers have sought ways to rein in the opaque world of over-the-counter derivatives after the financial instruments were blamed for exacerbating the financial crisis and prompting the U.S. government bailout of companies such as American International Group (AIG.N).

Jamie Dimon, chief executive of JPMorgan Chase & Co (JPM.N), told bank analysts on Wednesday that forcing dealers to trade derivatives on exchanges could cost his firm up to a couple of billion dollars in revenue annually.

“It will be a negative,” he said. JPMorgan has the largest derivatives exposure of the U.S. banks.

Just five banks account for 97 percent of the total $212.8 trillion worth of derivatives contracts held by U.S. commercial banks, according to a fourth-quarter survey by the Office of the Comptroller of the Currency.

FIVE (5) BLEEPING BANKS HOLD 97% OF $212.8 TRILLION WORTH OF DERIVATIVE CONTRACTS!

Can anyone say, “Too big to fail?”