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St. Louis Fed President Supports Lincoln's Derivatives Overhaul

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St. Louis Federal Reserve President James Bullard supports the strong derivatives reform authored by Sen. Blanche Lincoln, D-Ark., according to a Senate source who recently spoke with Bullard.

Bullard is currently in Hong Kong and will not return to the United States until Friday. He is the third Fed President to endorse Lincoln's tough crackdown on derivatives-- which has emerged as the most important Wall Street reform still on the table for 2010. Kansas City Fed President Thomas Hoenig and Dallas Fed President Richard Fisher have also endorsed the plan. Several key economists, including Nobel laureate Joseph Stiglitz, Nouriel Roubini, Simon Johnson and Jane D'Arista have also offered support for the provision.

Lincoln's proposal, known on Capitol Hill as Section 716, would end taxpayer subsidies for derivatives dealing by forcing commercial banks to spin off their derivatives operations into independently capitalized subsidiaries. By ending taxpayer subsidies, the massive speculative market in derivatives would shrink, making the global economy less beholden to Wall Street gambling. Derivatives were at the center of the 2008 financial meltdown, forcing the bailout of AIG and several other major financial institutions.