Wall Street's Best Investment: Paying for Policy in Washington

Financial deregulatory mania over the last three decades led directly to the current financial meltdown.

Were the deregulators acting out of principle? Perhaps.

But it couldn't have hurt that the financial sector invested a
staggering $5.1 billion in political influence purchasing in the United
States over the last decade.

The money flows are laid out in gruesome detail in "Sold Out: How Wall
Street and Washington Betrayed America," a report that my colleague Jim
Donahue and I wrote, along with a team of contributors from the
Consumer Education Foundation and my organization, Essential
Information. The report is available at: www.wallstreetwatch.org/soldoutreport.htm.

The entire financial sector (finance, insurance, real estate) drowned
political candidates in campaign contributions, spending more than $1.7
billion in federal elections from 1998-2008. Primarily reflecting the
balance of power over the decade, about 55 percent went to Republicans
and 45 percent to Democrats. Democrats took just more than half of the
financial sector's 2008 election cycle contributions.

The industry spent even more -- topping $3.4 billion -- on officially
registered lobbyists during the same period. This total certainly
underestimates by a considerable amount what the industry spent to
influence policymaking. U.S. reporting rules require that lobby firms
and individual lobbyists disclose how much they have been paid for
lobbying activity, but lobbying activity is defined to include direct
contacts with key government officials, or work in preparation for
meeting with key government officials. Public relations efforts and
various kinds of indirect lobbying are not covered by the reporting
rules.

During the decade-long period:

* Commercial banks spent more than $154 million on campaign
contributions, while investing $383 million in officially registered
lobbying;
* Accounting firms spent $81 million on campaign contributions and $122 million on lobbying;

* Insurance companies donated more than $220 million and spent more than $1.1 billion on lobbying; and

* Securities firms invested more than $512 million in campaign
contributions, and an additional nearly $600 million in lobbying. Hedge
funds, a subcategory of the securities industry, spent $34 million on
campaign contributions (about half in the 2008 election cycle); and $20
million on lobbying. Private equity firms, also a subcategory of the
securities industry, contributed $58 million to federal candidates and
spent $43 million on lobbying.

Individual firms spent tens of millions of dollars each. During the decade-long period:

* Goldman Sachs spent more than $46 million on political influence buying;
* Merrill Lynch threw more than $68 million at politicians;

* Citigroup spent more than $108 million;
* Bank of America devoted more than $39 million;
* JPMorgan Chase invested more than $65 million; and

* Accounting giants Deloitte & Touche, Ernst & Young, KPMG and
Pricewaterhouse spent, respectively, $32 million, $37 million, $27
million and $55 million.

The number of people working to advance the financial sector's
political objectives is startling. In 2007, the financial sector
employed a staggering 2,996 separate lobbyists to influence federal
policy making, more than five for each Member of Congress. This figure
only counts officially registered lobbyists. That means it does not
count those who offered "strategic advice" or helped mount
policy-related PR campaigns for financial sector companies. The figure
counts those lobbying at the federal level; it does not take into
account lobbyists at state houses across the country. To be clear, the
2,996 figure represents the number of separate individuals employed by
the financial sector as lobbyists in 2007. We did not double count
individuals who lobby for more than one company the total number of
financial sector lobby hires in 2007 was a whopping 6,738.

A great many of those lobbyists entered and exited through the
revolving door connecting the lobbying world with government. Surveying
only 20 leading firms in the financial sector (none from the insurance
industry or real estate), we found that 142 industry lobbyists during
the period 19982008 had formerly worked as "covered officials" in the
government. "Covered officials" are top officials in the executive
branch (most political appointees, from members of the cabinet to
directors of bureaus embedded in agencies), Members of Congress, and
congressional staff.

Nothing evidences the revolving door -- or Wall Street's direct
influence over policymaking -- more than the stream of Goldman Sachs
expatriates who left the Wall Street goliath, spun through the
revolving door, and emerged to hold top regulatory positions. Topping
the list, of course, are former Treasury Secretaries Robert Rubin and
Henry Paulson, both of whom had served as chair of Goldman Sachs before
entering government. Goldman continues to be well represented in
government, with among others, Gary Gensler, President Obama's pick to
chair the Commodity Futures Trading Commission, and Mark Patterson, a
former Goldman lobbyist now serving as chief of staff to Treasury
Secretary Timothy Geithner.

All of this awesome influence buying has enabled Wall Street to
establish the framework for debates in Washington, and to obtain very
specific deregulatory actions, with devastating consequences. More on
this in tomorrow's column.