A couple of notes on the financial-regulation “Wall Street reform” bill currently before a House-Senate conference committee: First, and most significant, it looks like Blanche Lincoln is going to climb down from her “tough” stance on derivatives after all. CNBC’s John Carney has the analysis:

Make no mistake about what is going on here. The swaps provision is being transformed from a mandatory ban into something over which banking regulators have discretion. And the banking regulators—from Fed chair Ben Bernanke, to FDIC chief Shelia Bair, to SEC head Mary Schapiro—oppose the ban on swaps altogether. Given wiggle room, they will wiggle right past Senator Lincoln rule.

A recap for interested readers: On the night of Lincoln’s primary, Senate Banking Committee chairman Chris Dodd tried to sneak this proposal into the Senate bill as an amendment. The assumption was that Lincoln would win her primary, in which she faced a tough challenge from her left, and would no longer need to posture by pushing this particular provision. When it became clear that Lincoln would have to win a runoff to keep her seat, Dodd pulled the amendment so that Lincoln could keep campaigning as the tough-on-Wall-Street gal for a couple more weeks. Now that Lincoln has won her runoff, her derivatives title is getting watered down, just as Dodd wanted all along. It’s not surprising, and it’s probably for the best, policy-wise, but it’s also a funny joke on the voters of Arkansas, courtesy of the most ethical Congress in history.

Second, there was a funny moment during the morning session when Barney Frank unexpectedly threw his support behind an amendment offered by Republican Rep. Scott Garrett of New Jersey. Garrett’s amendment would reduce the power of the rating agencies by requiring all federal agencies to remove any references to them in all regulation. Garrett offered the following justification for the new rule:

Investors have become increasingly, and too often, solely reliant on the use of these ratings in determining the safety and soundness of any investment. This situation, like many of the other problems of this financial crisis, has in large part been created by government policy. In literally hundreds of federal and state government statutes and regulations, there are specific requirements mandating certain grades from the approved agencies. It is this formal requirement that provides an implicit stamp of approval to investors. When investors see that the government is requiring a specific grade to make a “safe investment,” it reinforces the belief that any investment attaining such a grade is “safe.” I believe the government must wean investors off being solely reliant on credit ratings and encourage them to conduct more due diligence.

Makes sense. But Garrett’s office wasn’t expecting the amendment to pass — Republican staffers on both the House and Senate sides told me last week that their Democratic counterparts told them, privately, not to expect any Republican amendments to pass. But Garrett was in for a shock when Frank interrupted him 30 seconds into his introduction of the amendment to declare that he would support it. After taking a quick voice vote, Frank declared that the ayes had prevailed. “I have some more amendments if you’d like to do them that way,” Garrett joked.