Under fire, Wall Street puts its money to work

The banking industry, he declared last April, "is still the most powerful lobby on Capitol Hill. And they frankly own the place."… The Obama administration is jam-packed with officials who have deep ties to Wall Street. Those ties are financial, professional and philosophical. Despite Mr. Obama's campaign vow to ban lobbyists from his administration, he has granted several waivers…

The Globe and Mail
January 25, 2010

Under fire, Wall Street puts its money to work
Banking industry is well represented in Washington - with three lobbyists for every member of Congress
Konrad Yakabuski

WallStreet.jpg

In first nine months of 2009, U.S. financial industry spent $336-million to lobby law makers on Capitol Hill. Timothy A. Clary/APP/Images

WASHINGTON — Back in April, 2008, when policy makers still believed derivatives-fuelled convulsions in the banking industry were just a manageable case of the hiccups, University of Massachusetts political science professor Thomas Ferguson had already concluded that there would be no meaningful post-Bush era regulatory reform in the financial sector.

That conclusion was not the result of any intricate weighting of the multiple factors that influence the legislative process in Washington, but was based rather on single, but prophetic, variable - campaign contributions to the presidential candidates.

Prof. Ferguson, a vehement critic of Wall Street's pervasive influence in Washington, found that Barack Obama, who would go on to win the Democratic nomination and presidency, and John McCain, the Republican nominee, were both drawing a whopping 36 per cent of their campaign money from the financial industry.

"I wish I could find real grounds for optimism, but that's not easy," Prof. Ferguson wrote at the time.

Despite the financial calamity of Depression-era proportions that the new president inherited, Mr. Obama's first year largely proved Prof. Ferguson right. Proposals to change the way Wall Street does business moved at a snail's pace through Congress, with bank lobbyists successfully neutering any significant changes along the way.

It led Senator Dick Durbin, an Illinois Democrat, to throw up his hands in despair. The banking industry, he declared last April, "is still the most powerful lobby on Capitol Hill. And they frankly own the place."

Now, as a politically weakened President tries to recapture voter support with a populist attack on Wall Street, that same bank lobby shows no signs of backing down from the "fight" Mr. Obama promised last week in unveiling major proposals to roll back decades of deregulation.

Indeed, the financial industry is on track to spend a record amount on lobbying this year. Members of Congress and their challengers are more dependent than ever on the banking industry as they seek campaign money to wage this fall's mid-term elections. And a Supreme Court ruling last week paves the way for corporations, banks included, to spend without limit to defeat candidates they don't like.

If Prof. Ferguson figured prospects for reform were slim before the 2008 election, he has all but abandoned hope now. "I think it's almost certainly not going to happen," he said in an interview.

It's not only the omnipresence of bank lobbyists on Capitol Hill - some 1,500, or about three for every member of Congress - or the $336-million (U.S.) the financial industry spent on lobbying in the first nine months of 2009 (second only to the health-care lobby), that makes Prof. Ferguson so downbeat.

The Obama administration is jam-packed with officials who have deep ties to Wall Street. Those ties are financial, professional and philosophical. Despite Mr. Obama's campaign vow to ban lobbyists from his administration, he has granted several waivers, including one to Mark Patterson, who was a lobbyist for Goldman Sachs early 2008 and is now Treasury Secretary Timothy Geithner's chief of staff.

Mr. Geithner, who headed the Federal Reserve Bank of New York before his appointment by Mr. Obama, has repeatedly drawn criticism for his kid-glove treatment of the banks. And despite Mr. Geithner's quick defence last week of the President's new regulatory proposals - which were recommended by former U.S. Federal Reserve chairman Paul Volcker, but reportedly resisted by Mr. Geithner for months - the Treasury chief raised eyebrows when he and White House senior adviser Valerie Jarrett held a private dinner with Wall Street CEOs the night before Mr. Obama unveiled the new measures.

If enacted by Congress, the proposals would partially repeal legislation passed in 1999 that broke down the walls between commercial and investment banking, by making it illegal for an institution benefiting from federal deposit insurance and access to low-rate loans from the Fed to engage in proprietary trading. The measures would also prevent such taxpayer-backed banks from owning hedge funds or private-equity firms, and would impose new limits on the size of banks.

With few practical details on how the rules would be applied, however, the proposals provide ample opportunity for lobbyists to shape the wording and scope of any legislation that actually makes its way through Congress.

A key player in the process will be Connecticut Senator Chris Dodd, the Democrat who heads the upper chamber's powerful banking committee. In recent weeks, Mr. Dodd, who is retiring at the end of 2010, has reportedly stalled the progress of a bank-reform package through the Senate because he opposes the creation of a new regulatory body to specifically oversee consumer interests.

Since 2005, Mr. Dodd, who hasn't had to fight an election since 2004, has received more than $8-million in campaign contributions from financial firms. And he received has received more than anyone else in campaign donations from American International Group, the largest recipient of bail-out money under the Troubled Asset Relief Program, whose activities would be unaffected by Mr. Obama's proposals.

Legislation passed last month by the House of Representatives provides for the creation of a Consumer Financial Protection Agency, which would vet financial products much as the Food and Drug Administration validates the safety of prescription medication. The new CFPA would, in theory, prevent the kind of predatory lending that contributed to the financial collapse, though analysts have expressed doubt that the House bill would give sufficient power to the agency to perform its watchdog role.

Still, until Mr. Obama trotted out his latest bank-reform plan last week (two days after a shattering Democratic loss in a race to fill the late Ted Kennedy's Senate seat), keeping the CFPA out of Mr. Dodd's bill was the banking industry's top lobbying priority.

Suddenly, it has been supplanted by Mr. Obama's newest proposals, which could actually upend the way Wall Street does business. Unless, of course, history is any guide.

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