Cantwell among few to seek tough bank rules

WASHINGTON - To hear Sen. Maria Cantwell talk, another economic bubble is building as the big Wall Street banks - backed by taxpayer bailouts - continue to play the high-risk derivatives markets rather than extend credit to struggling small businesses on Main Street.

The Washington state Democrat says Congress and the Obama administration are just watching it happen.

Described by some as a firebrand, Cantwell is among the most outspoken members of the Senate when it comes to calling for tough new regulations to rein in Wall Street.

She isn’t looking to pick a fight with the White House, the Federal Reserve or powerful congressional committee chairmen. But she was one of 30 senators to vote against the confirmation of Ben Bernanke as Fed chairman, she temporarily blocked the White House nominee to head the Commodity Futures Trading Commission and she’s been highly critical of Treasury Secretary Timothy Geithner and Larry Summers, the top White House economic adviser.

“We are trying to keep the focus on what needs to be done to get credit flowing and avoid another bubble,” Cantwell said in an interview. “Do I wish the White House team was more attuned to these issues? Yes.”

Cantwell also has teamed with the 2008 Republican presidential candidate, Arizona Sen. John McCain, to introduce legislation that would restore a Depression-era law that built a firewall between commercial and investment banks and might have prevented the type of financial abuses that led to the recession.

“My reason for joining this effort is simple – I want to ensure that never again will we stick the American taxpayer with another $700 billion or even larger tab to bail out the financial industry,” McCain said at a December news conference. “If big Wall Street institutions want to take part in risky transactions, fine. But we should not allow them to do that with … taxpayer money.”

Cantwell said that McCain approached her about co-authoring the legislation. Cantwell served on the Senate Commerce Committee when McCain was its chairman.

At least twice, administration officials have backed off commitments they made to her that they’d push for tough regulations, Cantwell said.

“Their economic team is not living up to what they said they would,” Cantwell said.

Though Cantwell said she was encouraged by White House support for a proposal from former Fed chairman Paul Volcker that would sharply limit the investment risks banks could take, Cantwell remains skeptical that the administration will push the “Volcker rule.”

“This isn’t about poking the White House, it’s about getting capital flowing to small businesses,” she said.

The White House defended its efforts.

“The president, along with his economic team, has proposed a sweeping financial reform package that would rein in the abuses of Wall Street by imposing real oversight and strict accountability,” Adam Abrams, a White House spokesman, said in an e-mail.

Cantwell shows no inclination to back off.

In a testy exchange with Geithner before the Senate Finance Committee on Wednesday, Cantwell demanded, “Where is the urgency, Mr. Secretary, in solving this?”

In a floor speech explaining her opposition to Bernanke’s confirmation, Cantwell said: “This is breaking my heart. I want to see a Fed chairman and a Treasury who are leading the charge for regulatory reform.”

Cantwell has focused on regulating trading in derivatives, which allow investors to make what essentially are side bets on things such as subprime home mortgages, commodities, and the prices of oil and natural gas. Traders in derivatives don’t need to have the cash to cover their bets. Some have likened it to buying insurance on your neighbor’s home expecting it to burn down or your neighbor’s car expecting it to be totaled in an accident.

The trading can have an effect not just on credit, but also on consumer costs.

In the first half of 2008, the price of natural gas nearly doubled, even though domestic production increased 8.6 percent, demand was essentially flat and inventories were at normal levels, according to Industrial Energy Consumers of America, a trade association whose members purchase large amounts of energy.

“Based on supply and demand, prices should have fallen,” the group said.

Cantwell is no stranger to such fights. After West Coast energy prices increased 500 percent in a matter of months in 2000-01, Cantwell took aim at the now defunct Enron Corp.’s trading and passed legislation giving the Securities Exchange Commission and the Federal Trade Commission more authority to rein in market manipulation.

“She has fought this battle before,” Michael Masters, president of Masters Capital Management LLC, an investment fund, said following a Capitol Hill news conference last week. “It takes guts to stand up to these banks.”

University of Maryland law professor Michael Greenberger, who as a member of the Clinton administration fought unsuccessfully for such reforms, said Cantwell continues to be “ahead of the curve. You can’t do this in a halfhearted way.”

Greenberger said Cantwell was responsible for convincing Gary Gensler, the new chairman of the Commodity Futures Trading Commission, to take a tough stance on reform even though she’d briefly put a hold on his nomination and voted against his confirmation.

“She turned Gensler around, and he has become a force for good,” Greenberger said. “He is the only person in the administration sincerely pushing for reform.”

Cantwell said she was disappointed in the regulatory reform bill the House of Representatives passed, and hasn’t been encouraged by the one the Senate Banking Committee is writing.

“The House of Representatives has passed legislation riddled with loopholes, which will not result in change,” Cantwell said.

Cantwell has been lobbying members of the Senate Agriculture Committee on regulating the derivatives market. The Agriculture Committee has jurisdiction over such trading.

If the bills that emerge from congressional committees aren’t tough enough, Cantwell vows a floor fight. She said she had support from half a dozen senators, including Democrats Dianne Feinstein of California, Tom Harkin of Iowa and Carl Levin of Michigan.

“People are going to have to ask themselves what’s better – a weak bill or no bill?” she said.

Cantwell said her constituents generally understand that there’s something wrong with the current system.

“I think people instinctively know what is going on and are feeling the pinch,” she said. “They have a keen sense of the fundamentals.”

Les Blumenthal: 202-383-0008

lblumenthal@mcclatchydc.com