Maria Cantwell was as mad as hell, and she wasn’t going to take it anymore.
The Washington state Democrat had worked for nearly a decade to increase government scrutiny of risky “dark market” derivative trades, and she felt as if she was watching her own party write new loopholes into a historic Wall Street overhaul.
“There are lots of Democrats who wanted a weak banking bill,” Cantwell said Thursday after voting for the second time to sustain a GOP-led filibuster of the sweeping measure.
Cantwell, along with Sen. Russ Feingold (D-Wis.), thwarted her colleagues’ attempt Wednesday to post a clear victory on the issue and exposed the intraparty tensions that have been brewing over the measure. Majority Leader Harry Reid (D-Nev.) was only able to overcome that filibuster on Thursday by persuading one GOP Senator — Scott Brown (Mass.) — to switch his vote.
Cantwell’s frustration had been brewing for months, and most of her ire appears to have been directed at Senate Banking Chairman Chris Dodd (D-Conn.), who had tried repeatedly to undermine the strict derivatives regulation she personally pushed Agriculture Chairman Blanche Lincoln (D-Ark.) to adopt.
“She does feel dismissed,” one Democratic Senator said.
Indeed, the issue for Cantwell stems in part from her feeling that female Senators often get sidelined by male Senators, and that the women’s expertise on issues is not respected or valued, several sources said.
“She’s frustrated by the old boys’ network,” a senior Senate Democratic aide said.
But while many Democrats said they agreed with Cantwell and admired her command of the issues regarding derivatives trading — a largely unregulated segment of Wall Street — they felt her decision to filibuster the measure was not necessarily the way to achieve her goals.
Senate Health, Education, Labor and Pensions Chairman Tom Harkin also had his amendments blocked by fellow Democrats, as well as by Republicans, but he said he felt an obligation to stand with Dodd and the party.
“While I am upset that I could not get my amendment up I just felt I had an obligation to support the chairman on the procedural motions,” the Iowa Democrat said. Asked if Cantwell had made a mistake, Harkin said: “No, not at all. As I said, I just have different responsibilities as a chairman. Quite frankly, if I were in her position, I might do the same thing.”
Similarly, Lincoln — who supported Cantwell’s push to close a potential derivatives loophole and actively tried to get an amendment up for a vote on Wednesday — said she voted against the filibuster “because I think it’s important to move the bill and I think there are still more processes down the road where we can affect the bill and make it better.”
She added, “I obviously support what she’s trying to do. I’m a co-sponsor of that amendment.”
Cantwell’s rising indignation appears to have begun more than a month ago when Dodd attempted to sideline Lincoln’s bill — which includes a controversial ban on banks selling derivatives — and force the Agriculture chairman to offer her bill as an amendment. Cantwell leapt to Lincoln’s defense during a caucus meeting, saying her Arkansas colleague was not getting the respect she deserved. Subsequently, Lincoln’s bill was largely folded into Dodd’s broader measure.
But Cantwell became particularly incensed last week when Dodd attempted again to undermine Lincoln’s derivatives language by delaying it for two years and allowing the Treasury secretary to modify it. Though it was not a surprise that Dodd disagreed with Lincoln, Cantwell said she couldn’t believe he was trying to bring up his amendment the day of Lincoln’s high-profile primary against Arkansas Lt. Gov. Bill Halter. Lincoln had used her left-leaning derivatives piece of the bill to try to shore up her bona fides with liberals back home.
“While she was gone on Tuesday, they come out to the floor and say, well, we’re going to offer an amendment that basically says let’s take the derivatives language and make it a two-year study and at the end [Treasury Secretary] Tim Geithner can decide what to do. So that’s when I came and sat on the floor and said, No, we’re not proceeding,'” she said.
She added that Reid finally intervened and Dodd pulled his amendment back.
But Cantwell’s main reason for filibustering was what she believed to be an intentional omission in Dodd’s bill. When merging Lincoln’s portion with his, Dodd left out language that would invalidate and make illegal swaps trades that do not go through clearinghouses, as required by the bill. Swaps are derivatives that can involve trades of currency or interest rate liabilities. Credit default swaps, in which investors essentially buy insurance on mortgage-backed securities, were blamed for part of the financial industry meltdown in 2008.
During the first vote to try to kill the GOP-led filibuster on Wednesday, several Senators approached the steely Cantwell to persuade her to change her vote. At one point, Reid and Dodd huddled around her desk on the Senate floor explaining that it was Republicans, not Democrats, who were blocking her amendment.
But Cantwell wasn’t buying it. After all, she told them, her swaps amendment was designed to reinsert the language Dodd took out.
After Reid walked away, Dodd stood at her desk for a few moments while she appeared to be reciting a litany of complaints. When she finished, a red-faced Dodd turned and walked away without saying anything.
Cantwell explained her problem on the floor of the Senate on Wednesday: “My colleagues think we can talk about building a dam against this wall of dark derivatives. But even something such as the Hoover Dam, with all the great concrete and all the great engineering and all the great things that make that structure work, still has a problem if somebody drills a hole in the bottom of it. Over time, that is where the water will flow, and that is where this derivative market is, too.”
While she doesn’t sit on the Wall Street reform bill’s committees of jurisdiction, Cantwell’s colleagues said she has long been an expert on the derivatives market, having fought against the use of the complicated financial instruments to manipulate energy prices, most notably by Enron. As a freshman Senator, Cantwell also took up the case of a Washington energy company that was being sued by Enron for payments on what she called fraudulent contracts.
Cantwell’s critics said her solution to the problem — invalidating uncleared swaps — could have unintended effects. Several Democratic aides pointed to an American Prospect article as a rebuttal to Cantwell’s argument.
“Administration officials worry that dealers on the wrong end of a contract — potentially owing hundreds of millions or billions of dollars — could simply claim they should have cleared the derivative and walk away, accepting the criminal penalty and fine but avoiding a potentially huge loss,” the magazine’s Tapped blog said in a May 20 post.
Asked why he did not use the Lincoln swaps language in his bill, Dodd indicated that Cantwell’s language could “kill” the use of swaps and other complicated financial instruments.
“We had language that we thought worked,” Dodd said Thursday after final passage. “This is a strong bill — stronger than anything that’s ever existed before in dealing with exotic instruments, but we don’t want to kill them either. They’re a critical component of economic growth to be able to have the use of those under the kind of scrutiny that our legislation provides but there are examples where over-the-counter derivatives may not need that kind of tight” regulation.