The new administration and Congress are busy preparing the second tranche of bailout money for Wall Street — TARP II — at the same time they’re developing a new set of regulations to make sure Wall Street doesn’t get into this kind of mess again. But will the old politics intrude?
Wall Street is one of the biggest campaign contributors to both parties, and the Street’s contributions have increased considerably over the last several election cycles. According to the Center for Responsive Politics, by the 2006 elections, Wall Street contributions to the Democratic Party had caught up with its rising contributions to Republicans.
For years, Wall Street lobbyists have been among the most aggressive on Capitol Hill. They’re the ones who pushed Congress and the Clinton administration to tear down the wall that had separated commercial from investment banking — a wall erected in the 1930s, after the Great Crash and the Depression revealed how important it was to keep the two distinct. In subsequent years, as Wall Street created ever fancier derivatives, Wall Street lobbied against regulating the new instruments — and their arguments, backed by the campaign contributions they bundled and wielded, won the day. The Street lobbied against giving the Securities and Exchange Commission the power and resources needed to oversee what was going on. Again, they lobbyists won. They lobbied against raising taxes on hedge fund and private equity managers whose gigantic incomes, they said, were nothing but capital gains and therefore should be taxed at 15 percent — lower than the marginal rate paid by most Americans. Again, they won. They lobbied against better oversight of credit rating agencies, and against changing the way those agencies were paid. They said there was no fundamental conflict of interest when rating agencies were compensated by the very firms whose securities they were rating. Again, they won.
When all of this led, as many knew it would, to a speculative bubble of proportions never before seen — and as Wall Street traders and executives took home more money than anyone had ever before seen — a crash was all but inevitable.
Yet what’s happened to the Wall Street campaign contributions and to the lobbyists? They’re still going strong. We now know that many of the financial giants that have been bailed out by taxpayers continue to finance a platoon of Washington lobbyists, who are at this moment trying to influence TARP II and the next attempt to regulate Wall Street. In effect, your money and mine, and that of all other taxpayers, is paying these lobbyists to push Congress in a direction we have every reason to believe is not in our interests but in the continued interests of Wall Street. Citigroup, the recipient of $45 billion of taxpayer money so far, is still fielding “an army” of Washington lobbyists, according to the New York Times. Its lobbyists are working on a host of issues, including the bailout. In the fourth quarter of 2008, when it got its first infusion of bailout money, Citi spent $1.77million on lobbying fees. During the last three months of 2008, at least seven other firms receiving bailout funds (American Express, Capital One, Goldman Sachs, KeyCorp, Morgan Stanley, PNC and Bank of New York Mellon) lobbied the government about the bailout.
Would it not be a reasonable condition for receiving additional bailout funds — from TARP II — that a firm cease its lobbying activities and campaign contributions (as well as any contributions it makes indirectly through its executives) at least until it fully compensates taxpayers what we have provided it?
Originally published at Robert Reich’s Blog and reproduced here with the author’s permission.