Senate Democrats Chris Dodd (CT) and Blanche Lincoln (AR) say they are close to a deal on adding regulations to the derivatives market. This is seen as one of two major stumbling blocks that Republicans are citing in their opposition to the financial reform bill. Senator Harry Reid may have a ‘test vote’ today to see if all 41 Republican senators will remain united. Pressure is growing to pass financial reforms after the staff of Sen. Car Levin (D-MI) released emails from top executives at Goldman Sachs from as early as 2007. These emails point to an arrogant attitude the executives had concerning the housing bubble, in which they bragged about how they would still make money by ‘shorting’ mortgage-backed securities, making money when those securities fail. Tomorrow, several Goldman Sachs executives, including CEO Lloyd Blankfein, will appear to testify on Capitol Hill.

Goldman Sachs defends itself by charging that the SEC allegations, and probably the release of these emails, are purely political. The timing of the alleged wrong-doing by Goldman Sachs comes as the Senate takes up the issue of financial reform. President Obama and key Democrats have been very aggressive the past two weeks in criticizing Wall Street, hoping to play on public anger. The same day the SEC went public with it’s allegations, the White House purchased the keywords “Goldman Sachs” and “SEC”, directing Google search engine users to their webpage promoting passage of the Democrat reform bill. Now, the release of these private emails seems well-timed to coincide also with the pending votes this week.

The derivatives market is the single largest market now. With little to no oversight, it has ballooned in the past 20 years from just a few trillion dollars to somewhere between $450-$700 Trillion dollars in size. These side-bets on stocks, currencies and other market trends and products are very popular with hedge fund traders and every other sector of the financial industry has jumped onboard. They are seen by many as the dark-side of speculation on Wall Street and other global exchanges.

Republicans have voiced opposition to the Democrat financial reform bills due to the lack of any regulations on the derivatives markets, as well as provisions in both the House and Senate versions to allow for further bailouts of banks and financial firms. Today’s test vote in the Senate will show if the Republican threat of a filibuster is a solid one. President Obama is calling for a bill to be passed and ready for his signing by this coming Memorial Day.