WATERLOO -- The Republican candidate for U.S. Senate Wednesday laid a large portion of blame for the current financial crisis at the feet of Sen. Tom Harkin, D-Iowa.

Christopher Reed of Marion said a bill Harkin sponsored in 2000 helped escalate the financial meltdown by exempting certain financial instruments such as credit default swaps, which have been blamed as a major aggravating factor, from further regulation. Reed said the bill's effects were akin to reckless gambling.

"They took our money to the riverboat and they lost it," he said.

The bill, dubbed Commodity Futures Modernization Act of 2000, was passed through the Senate on Dec. 15 with bipartisan support, including Harkin. A day before that, the bill also passed the U.S. House, with then-Rep. Jim Leach, R-Iowa, as a sponsor.

Financial experts say credit default swaps and other so-called derivative financial tools weren't necessarily the causes of the problems, but they helped exacerbate it.

A credit default swap is akin to an insurance policy investors take out to protect against risk.

Often it was used to cover losses to banks and bondholders when debts aren't paid. The market in the U.S. is estimated at more than $50 trillion.

One of the problems, Reed said, is that the swap markets aren't regulated and opaque, meaning no one knows for certain what is happening. He said that's encouraged reckless behavior.

Matt Paul, Harkin's campaign director, said Harkin's support for the bill related to the need for additional reform, modernization protection for producers in reglated exchanges like pork belly or wheat futures.

Paul said Harkin was alsoskeptical of the other measures in the bill during hearings.

"I believe the record indicates that Tom questioned Federal Reserve Chairman (Alan) Greenspan's intent to block regulation of these derivatives alltogether," Paul said.

Harkin recently backed efforts to subject swap market to greater regulation and transparency to make sure transactions are sound. He said in a statement this week that will allow businesses to utilize "the same sound economic policies" they use ever day.

But Reed believes it's too little, too late.

"In essence, (Harkin is) going to try to close the barn after the horses have already left the stables," Reed said. "He's complicit in the market crash, he knows he's complicit in the market crash and now he's trying to cover his tracks."

Reed said he'd like to see better regulation on the markets to ensure things are progressing smoothly, but he said it can't reach a "stifling point" that reduces the ability to do business.

Reed also objected to Harkin's support of the financial bailout plan proposed by the Bush Administration. He said the plan was "a knee jerk reaction," and compared it to socialism. He said he believed the market could sort out its own problems if the government stops intervening.

"We need to let the market be the market," he said.

But if any intervention is absolutely needed, he said he'd rather see money go to large banks and financial firms in the form of a loan, which would force them to take some sort of ownership of the crisis.

Contact Josh Nelson at

(319) 291-1565 or

josh.nelson@wcfcourier.com.