Cantwell's relentless pursuit: taming big finance

WASHINGTON - It's not hard to find members of Congress channeling voter outrage by railing against greedy bankers, credit-card ripoffs and inflexible mortgage lenders.

But crusading against "dark market" derivatives trading? Agitating about the systemic hazards of mingling commercial and investment banking? Trash talking about the Obama administration's finance team?

That would be Sen. Maria Cantwell.

The Washington Democrat is hardly a natural at populist politics (credit default swaps, anyone?). Yet Cantwell is becoming a voice to be reckoned with on Capitol Hill on a topic that has united many Americans in fury: the culprits behind the near implosion of the U.S. economy in 2008.

The Senate is hashing out a financial reform bill to prevent a repeat of the profiteering and risk taking on Wall Street that spurred the government to step in with a $700 billion rescue. President Obama has weighed in with his own ideas, including barring banks from operating hedge funds and imposing a ceiling on the size of financial firms.

Cantwell says the proposed fixes are inadequate. She believes the unregulated trading of complex securities called derivatives was a central driver behind the economic bubble.

She has introduced bills to curb such speculative trading and to allow state gambling commissions and attorneys general to oversee unregulated, or "dark market," derivatives trading. In addition, Cantwell, along with Republican Sen. John McCain of Arizona, wants to resurrect a strict separation between commercial banks and investment firms.

At the same time, Cantwell has displayed exasperation with what she sees as inadequate regulatory actions so far. She slammed Treasury Secretary Tim Geithner as an "enabler" who isn't truly reining in Wall Street's excesses.

Appearing on MSNBC in November, Cantwell stirred up a brief brouhaha when, asked why Geithner still had a job, she replied, "I don't know." Cantwell later said she hadn't meant to call for Geithner's sacking.

Then last month, Cantwell voted to deny a second term for Federal Reserve Chairman Ben Bernanke. She was one of only 11 Senate Democrats to oppose Bernanke, who, nonetheless, won reconfirmation by a 70-30 vote.

Cantwell said her insistent stance is borne out of her tangles with the energy giant Enron, whose collapse after an accounting scandal coincided with her arrival to the Senate in 2001.

She fought for the Snohomish County Public Utility District during its long court battle with Enron over $116 million in fees stemming from the company's manipulation of energy markets to inflate electricity rates. The utility settled by paying a fraction of the money Enron demanded.

She started with Enron

Enron was Cantwell's initiation into a murky corner of energy futures trading, where companies deployed hidden tactics to drive up prices. But it wasn't until several years later, Cantwell said, that she heard testimony that crystallized the enormity of the regulatory void.

Michael Greenberger, former director of the federal Commodities Futures Trading Commission, said during a Senate hearing that "there is more regulation in hamburgers than in futures" trading. Futures are a type of derivative.

That "got my attention," Cantwell said.

That the subject is bedevilingly complex may even have been a bonus. Cantwell is known on Capitol Hill for being exceptionally analytical, someone who seems stirred as much by the inequities in Medicaid financing as the plight of the uninsured.

Now Cantwell argues that the same lack of regulatory vigilance over Enron and the energy markets is endangering the economy today.

Specifically, she warns that derivatives — financial instruments commonly used to hedge against risks, such as when an airline locks in future fuel prices — have become a $600-plus-trillion wild market where traders swap securities like gamblers in casinos, except with little or no money to back up the bets.

Some economists also blame unfettered growth of derivatives trading for a major portion of the recent economic crisis.

Cantwell, in an interview in her Senate office, accused disciples of free-market advocate Alan Greenspan, the former head of the Federal Reserve, who are now in the White House of lacking sufficient regulatory zeal. That would include Larry Summers, Obama's chief economic adviser, and, to a lesser extent, Geithner.

"Some of the people who didn't think [derivative trading] was a problem are advocating a light touch in fixing it," Cantwell said with a startling jab of her finger. "These policies are going to destabilize the market."

Cantwell's efforts have drawn praise from consumer and reform advocates, including the AFL-CIO and industries with an interest in keeping fuel and other commodity prices low.

Sean Cota is president of Cota & Cota, a heating and motor fuels company in Vermont, who has testified in Congress that speculators have exploited loopholes in some derivatives trading to run up oil prices.

Cota contends that derivatives pose enormous risks to the economy — risks that he believes few lawmakers fully grasp.

Cantwell "is one of only one or two people in all of Congress who's smart enough to figure it out," he said.

Heather Booth, executive director for Americans for Financial Reform, a national coalition of unions, consumer groups and others, is lobbying Congress to adopt several reforms the group believes would help avert another economic crisis. The goals include protecting consumers against predatory mortgages and other credit products, beefing up oversight of unregulated financial markets and minimizing the chances that problems at any one firm could jeopardize the entire market.

"What's remarkable is that Sen. Cantwell has taken the lead on two of those issues," Booth said.

Adversaries push back

Not everyone is so admiring.

Peter Wallison, a fellow at the American Enterprise Institute, a conservative think tank in Washington, D.C., contends that no evidence links derivatives to the economic meltdown.

Wallison was equally critical of the Cantwell-McCain bill to restore a portion of the 1933 Glass-Steagall Act that kept commercial and investment banks separate. That provision was repealed in 1999. Wallison said none of the investment firms that failed or verged on bankruptcy during the latest economic crisis were affiliated with commercial banks.

What's more, Wallison said, commercial banks like Citibank and Washington Mutual got in trouble largely because they sold or invested in subprime mortgages and other loans. In other words, it was the banks' actions, not their structure, that led to their downfall.

Cantwell's "ideas are completely off target and don't reflect any understanding of the causes of the financial crisis," said Wallison, who as general counsel of the Treasury Department under the Reagan administration helped to lift regulations on the financial-services industry.

Persuading Cantwell's colleagues to embrace her proposals is all the more challenging because she does not sit on either of the Senate committees — banking and agriculture — that have main oversight over financial and commodities regulation. Cantwell's Finance Committee lacks direct jurisdiction over those issues.

Already, lobbyists for banks and other financial institutions are pushing back against any regulation that might interfere with their businesses and crimp their profits.

But without stronger reforms, Cantwell said, the U.S. economy remains vulnerable to another bubble. Otherwise, she said, Americans are bound to learn again that "the house of cards really is a house of cards."

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