Financial regulation overhaul cleared another hurdle last week when the Senate approved its financial reform bill. However, the inclusion of a derivatives trading restriction left Wall Street wondering why its political contributions weren't doing the talking.
The financial industry was surprised when a provision created by Sen. Blanche Lincoln, D-AR, requiring banks to spin off their derivatives trading arms remained in the Senate's proposal. Wall Street lobbyists are now reaching out to the members of the Senate and House conference committee who will reconcile the two bills. The Senate named its committee appointees Tuesday, which included Lincoln.
The Financial Services Roundtable, a lobbying group representing financial companies, has already started meeting with House members who it believes will be involved in the final process and could help cut the provision.
"There's no substitute for old-fashioned gumshoe lobbying," Scott Talbott, a senior executive with the lobbying group, told The New York Times. "The staff here knows it. We offer to resole their shoes when they wear them out."
Finance executives didn't expect the anti-bank provision to make it this far; Wall Street's influence over politicians starts on the campaign trail with generous, yet strategic, financial contributions. The senators named to the conference committee have received a more than $57 million in total during the course of their careers from the finance, insurance and real estate (FIRE) sector, according to information from the Sunlight Foundation.
Sen. Charles Schumer, D-NY, has received a career total of $16.7 million from the financial industry, making him the biggest committee recipient of such funds.
Hefty campaign contributions are thrown at those in the top seats of financial committees, a well as rookie members. A report by Citizens for Responsibility and Ethics in Washington (CREW) reported that the 14 "freshmen" serving on the House Financial Services Committee have raised 56% more in campaign funds than freshmen on other committees.
But as the public's criticism of big banks, bailouts and investment products tied to the housing market has grown louder in recent months, the effect of campaign funds hasn't had the same success as in previous years.
Sen. Schumer's long record of supporting Wall Street - he was a proponent of repealing the Glass-Steagall Act - changed this year when he fell silent and failed to defend firms during reform talks. The deviation from his norm has put him at odds with New York Mayor Michael Bloomberg and formerly friendly Wall Street leaders.
Some lawmakers like Sen. Lincoln have limited the contributions they accept from banks and finance companies. After the SEC charged Goldman Sachs Group, Inc (NYSE: GS) with fraud, a few politicians returned contributions to the bank to avoid a conflict of interest and appear less associated with the controversy.
Democrats took things a step further last month by proposing bills that would increase company requirements to disclose political campaign funding. The proposals - led in part by Sen. Schumer - are in response to a Supreme Court ruling in Citizens United v. Federal Election Commission that upheld companies' rights to spend unlimited funds on candidates.
"Powerful special interests and their lobbyists should not be able to drown out the voices of the American people," said President Barack Obama. "The legislation would establish the toughest-ever disclosure requirements for election-related spending by big oil corporations, Wall Street and other special interests so the America people can follow the money and see clearly which special interests are funding political campaign activity and trying to buy representation in our government."
Opponents say the legislation violates First Amendment rights and question the supporters' motives.
"[T]he campaign finance bill is not about reform, transparency, accountability or good government," said Senate Majority Leader Mitch McConnell, R-KY. "It is about election advantage, plain and simple. An effort to disregard the First Amendment and defy the Supreme Court in order to limit the speech of those who may disagree with you is an effort that has no place in this country."
California is attempting to limit the influence of special interest groups on state campaign funding with a proposal that outlines a public financing system. Candidates who abide by limitations on spending and private contributions would receive $1 million for the primary and $1.3 million for the general election. Most of the money would come from higher fees for registered lobbyists. The state cites a rise in wealthy candidates as a catalyst for creating the proposal.
Despite what seems to be a changing atmosphere in the campaign-funding world, one reader who has seen the influence Wall Street money has on political activity from the front lines says that the old ways are, and always will be, the prevailing practice. He sent the following letter in to the Money Morning Mailbag.
When I was a young attorney in my first job in Congress (more than a third of a century ago), a very wise older politician told me: "There are only two things that matter to a professional politician: money to run a campaign and votes to get elected; provide one and you will be listened to, provide both and you will be obeyed, provide neither and you will be ignored."
It is not accidental that Sen. Christopher J. Dodd, D-CT, chairman of the Senate Banking Committee, was paid over $5 million in "campaign contributions" in 2007-2008 by those in the financial sector over whom he has oversight authority, or that his buddy, Sen. Charles Schumer, D-NY, (who has been called by his own staffer "Kickback Charley, the kickback king of Capitol Hill") was paid about $4.75 million in the same period.
Anyone naive enough to think it is different now needs simply to look at the latest banking reform legislation introduced by Sen. Dodd which would attempt to end current problems by "locking the barn door after the horse has escaped," except that he tried to open a little door in the rear for a billionaire ("Warren of Omaha") contributor to the Democratic Party and its politicians by allowing him and his cronies to continue "business as usual" without having to adhere to the proposed new rules.
Even President Obama, who turned down public funding and lobbyist contributions in 2008, did not hesitate (according to Business Week) to take over $675,000 in contributions from a Wall Street firm that received $10 billion in federal funding to stay afloat, thus giving new meaning to the term "public funding of Presidential campaigns" (and which may be why Rahm Emanuel has been reported to be telling Wall Street leaders to not worry about the President's rhetoric because he will not allow anything to cause them to lose their income or giant bonuses).
Of course, as long as it costs millions of dollars to run for office, money will control the political agenda and politicians will never forget to whom they really owe their jobs. To think otherwise is at best foolish.
I'm sorry to admit that I have been part of the problem: In the early 1980s I served at the Democratic National Committee as Executive Director of its major donor funding arm, bringing together major donors and elected officials.
-- Peter B.
(**) Money Morning editors reserve the right to edit responses for grammar, length and clarity when posting on our Web site. Please include your name and hometown with your email.
News and Related Story Links:
- The Washington Post:
Top Democrats seek broad disclosure on campaign financing
- The New York Times:
Financial Overhaul Bill Poses Big Test for Lobbyists
- The New York Times:
Friend to Wall Street, Schumer is Suddenly Quiet
- Business Week:
Ballot measure would test public campaign funding
- Money Morning:
Will the Financial Reform Bill Really Rein In Wall Street?
- Money Morning News Archive:
Money Morning Mailbag Feature
- Money Morning News Archive:
Glass-Steagall Act Stories