According to the Washington Post, the Senate Agriculture Committee is beginning to work on legislation regulating the vast marketplace in over-the-counter derivatives, which played a large role in the economic crisis, particularly in bringing AIG to the brink of collapse. Committee Chairman Blanche Lincoln (D-AR) said that she expects whatever the committee passes to be incorporated into Senate Banking Committee Chairman Chris Dodd’s (D-CT) larger financial regulatory reform effort.

Lincoln’s step up to the plate has already boosted the spirits of the financial services industry, as “they expect that legislation headed up by Lincoln could be more favorable to the financial industry than the language currently in Dodd’s bill.” And there might be reason for their optimism (and concern for those who want a tightly regulated derivatives market), as last month, Lincoln gave a speech on derivatives reform at the U.S. Chamber of Commerce, in which she said that “I don’t believe in over-reaching or regulation for regulation’s sake. We must be surgical in how we regulate.”

As the Roosevelt Institute’s Mike Konczal explained, the key to judging derivatives regulation is to determine how much trading is required to go onto public exchanges and how much will be mandated to go through clearinghouses. An exchange adds light to the marketplace by making trading information public, instead of the current setup in which derivatives deals can be made between two parties without any reporting. This should both drive down prices and give investigators a much clearer path to follow if shenanigans occur. A clearinghouse, meanwhile, acts as an intermediary between two parties in a derivatives trade, ensuring that each side has adequate capital on hand to make the deal and that each side lives up to its obligations.

During her speech at the Chamber, Lincoln said that “all swaps — both standardized and customized — should be reported,” while “clearing will be mandatory for ‘some standardized and highly liquid‘ swaps.” So the effectiveness of her legislation will largely revolve around what does and does not fall into the “some standardized” category.

As Commodity Futures Trading Commission Chairman Gary Gensler has said, the more trading that occurs in clearinghouses and on exchanges, the better. Gensler likened these to traffic lights that, while necessarily slowing down traffic, are critical to a safe system:

Do yellow and red lights slow down traffic? Do street lamps bring sunshine on otherwise dark and dangerous roads? Absolutely. Could we run a high volume transport network safely without them? Absolutely not. Traffic lights may add costs for all network users, but can anyone imagine a traffic system without safety regulation? Of course not.

To get a sense of how systemically risky the derivatives market can be, consider this statistic: “Since the 1980s, the notional value of the market has ballooned from less than $1 trillion to approximately $300 trillion in the United States – that’s $20 in derivatives for every dollar of goods and services produced in the American economy.” And more than 97 percent of this total is held by five mega-banks. This is a wild amount of money — and risk — so Lincoln’s bill needs to shed sufficient light on it if her legislation is making its way into Dodd’s bill.

Last week, Senate Republicans, led by Sen. Tom Coburn (R-OK), blocked an extension of unemployment benefits, claiming that they objected to granting the extension without offsetting it with a spending cut elsewhere. Last month, Sen. Jim Bunning (R-KY) and a handful of his Republican allies did the same thing, with Bunning telling Democrats who wanted to pass an extension by unanimous consent “tough sh*t.”

But it wasn’t only unemployment benefits that expired: the same package that the Republicans blocked also included extenders for the National Flood Insurance Program (NFIP). And the critical nature of NFIP was brought into the spotlight this week, as many northeastern states have been battered with record amounts of rainfall, which has led to widespread flooding.

Flooding in Rhode Island was the worst it’s been in 100 years, with some rivers “several feet above all-time records.” Boston saw its wettest March since record keeping began in 1872, while “bridges and highways have washed out from Maine to Connecticut and sewage systems have been overwhelmed to the point that families were asked to stop flushing toilets.” National Guard troops have been mobilized to aid residents in both Rhode Island and Massachusetts.

According to the Property Casualty Insurers Association of America, there are 5.5 million flood insurance policy holders in flood plains, and as of this week, homeowners were rendered unable to renew their policies. If any of those homeowners were victims of the current flooding, they will “face complications” filing claims. As Blain Rethmeier, spokesman for the American Insurance Association, put it, “it’s unfortunate that the NFIP has fallen victim to the political process”:

Ultimately the people who will suffer the most are property owners who need new coverage or who need to renew their flood insurance policies. One can only hope that Mother Nature is kind until April 12. Otherwise, there’s not much people can do.

According to Roll Call, Republicans hope to blame the expiration on Democrats when they come back from the current recess, since House Democrats objected to the spending offsets that the Senate had agreed to. But Republicans have made it clear that they fully endorse obstructing these extension packages. After all, Sen. Jon Kyl (R-AZ) said this week that “we didn’t give [Bunning] as much help as we probably should have.” “It took an act of courage like Sen. Bunning’s to perhaps jolt people,” Kyl said.