WASHINGTON — To hear Sen. Maria Cantwell talk, another economic bubble is building as Wall Street banks — backed by taxpayer bailouts — continue to play the high-risk derivatives markets rather than extend credit to struggling businesses on Main Street.
Cantwell says that Congress and the Obama administration are just watching it happen. The Washington state Democrat is among the most outspoken members of the Senate when it comes to calling for tough new regulations to rein in Wall Street.
She's not looking to pick a fight with the White House, the Federal Reserve or powerful congressional committee chairmen. She was, however, one of 30 senators to vote against the confirmation of Ben Bernanke to a second term as Fed chairman; she temporarily blocked the appointment of 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 has also teamed with the 2008 Republican presidential candidate, Arizona Sen. John McCain, to introduce legislation that would restore a Depression-era law that erected a firewall between commercial and investment banks and that could 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 McCain approached her about co-authoring the legislation. Cantwell was on the Senate Commerce Committee when McCain was the chairman.
White House officials have, at least twice, backed off commitments they made to her that they'd push for tougher regulations, Cantwell said.
"Their economic team is not living up to what they said they would," Cantwell said.
Though Cantwell said she's encouraged by White House support for a proposal from former Fed chairman Paul Volcker that would sharply limit the investment risks banks could take, she remains skeptical that the administration will take a leadership role in pushing 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 has focused on regulating the currently unregulated trading in derivatives. Derivatives allow investors to make what amount to side bets on, for example, subprime home mortgages, food commodities and oil or 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 and expecting it to burn down, or on your neighbor's car and expecting it to be totaled in an accident.
Such trading can have an impact 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 these fights. After West Coast energy prices increased 500 percent in a matter of months in 2000 and 2001, Cantwell passed legislation that gave the Securities Exchange Commission and the Federal Trade Commission more authority to rein in market manipulation.
"She has fought this battle before," Michael Masters, the president of Masters Capital Management LLC, an investment fund, said following a Capitol Hill press conference recently. "It takes guts to stand up to these banks."
Michael Greenberger, a University of Maryland law professor who as a member of the Clinton administration unsuccessfully fought for tougher rules, 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 chairman of the CFTC, to take a harder stance even though she'd briefly held up 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 passed by the House of Representatives and hasn't been encouraged by the bill 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 derivates market. The panel has jurisdiction over such trading.
If the bills emerging from committees aren't tough enough, Cantwell vowed 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.
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