Derivatives trading reform transformed into a uniquely populist issue

It was three weeks ago when Blanche Lincoln (D-AR), the moderate Democratic chairman of the Senate Agriculture Committee, released her proposal to regulate derivative trading. Regulating derivatives is a mild way of describing this proposal. It effectively bans banks from participating in derivative trading altogether. Judd Gregg has described it as left as you can go on the issue of derivatives. Coming from a Southern Democrat, such a liberal economic proposal is extremely unusual. It is less unusual when you consider she is facing a runoff against the liberal Bill Halter.

Ok, so Blanche Lincoln is facing pressure when it comes to derivatives. So what then, is Chuck Grassley (R-IA) doing in voting for it? Chuck Grassley is an extremely conservative senator who did not even support the motion to begin debate on the financial reform bill. He has seen his approval ratings crash as a result of health care negotiations with Max Baucus (D-MT). On a similar note, Scott Brown ended up voting for a strengthened bill, even though he did not support the weakened one. Even in the House, moderates such as Mike Castle (R-DE) who did not vote for the weaker financial reform bill, are publicly considering supporting the more liberal version.

The reason so many Republicans are signing on to the derivative trading ban and to the larger financial reform bill is that they are scared. They know they have been trashing a popular president's agenda for almost two years now and it will eventually catch up with them. Something as shady as derivative trading is a good area to side with the Democrats on, as it is a uniquely non-partisan issue. Expect to see many GOP backers when the bill comes up for final consideration. This is only if Dodd does not go through with plans to scrap the ban.