Senator Russ Feingold

[Ed. Note: See David’s previous post on the financial regulation bill’s failure to pass a cloture vote earlier today.]

After voting against cloture on the Wall Street reform bill, Russ Feingold released this statement:

“After thirty years of giving in to the wishes of Wall Street lobbyists, Congress needs to finally enact tough reforms to prevent Wall Street from driving our economy into the ditch again. We need to eliminate the risk posed to our economy by ‘too big to fail’ financial firms and to reinstate the protective firewalls between Main Street banks and Wall Street firms. Unfortunately, these key reforms are not included in the bill. The test for this legislation is a simple one – whether it will prevent another financial crisis. As the bill stands, it fails that test. Ending debate on the bill is finishing before the job is done.”

In 1999, Senator Feingold was one of eight senators to vote against legislation tearing down the firewall between Main Street banks and Wall Street investment banks and insurance companies. In 2008, Feingold opposed the Wall Street bailout in part because it failed “to reform the flawed regulatory structure that permitted this crisis to arise in the first place.”

Maria Cantwell just spoke on the Senate floor, and she surprised a bit by stating that the problem is NOT that she didn’t get her amendment on Glass-Steagall. Actually, she brought up a loophole in the derivatives piece that I discussed on Monday.

But one of the strongest pieces of the bill is coming under scrutiny because of what Americans for Financial Reform claims is a giant loophole:

Standard contracts and those not involving so-called “commercial end users” — firms like Coca-Cola and General Electric that use derivatives as insurance against currency and interest-rate fluctuations, for example — will be required to go through these clearinghouses.

The problem, however, is that there’s apparently little consequence if firms evade the requirements, according to the email sent to a Banking Committee staffer by Americans for Financial Reform, an umbrella organization of consumer advocacy, public affairs and union groups arguing for reform. Some of these potential loopholes were first identified by Zach Carter of AlterNet.

“[T]here is no consequence for counterparties who enter into uncleared swaps even after a finding by the [Commodity Futures Trading Commission] or [Securities and Exchange Commission] that the swaps must be cleared,” the email reads. The bill “does not prohibit the use of uncleared swaps and, even more egregious, expressly states that no swap can be voided for failure to clear.”

Cantwell says that has to be fixed, to ensure that all derivative trades are made through clearinghouses. And clearly she’s determined to hold up cloture until that happens.

More when I know it…

UPDATE: Cantwell’s office confirms: “it was the derivatives issue that was first and foremost on her mind in voting against cloture.” A press release will be coming shortly.

So Cantwell wants Blanche Lincoln’s derivatives piece to be STRONGER and won’t vote for cloture without it. And Dodd pulled back his attempt to sink the spinning off of the swaps trading desks.

Suddenly, this is all coming back to derivatives.

David Dayen

David Dayen