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Democracy or “Lobbyocracy”?

We were presented the best opportunity for change (in a couple of decades) by the financial collapse but failed to seize it.

In July, the SEC fined Goldman-Sachs $550 million for failing to disclose vital information in selling an investment.  But if there were fraud, as alleged, then why not a criminal case?  John Paulson at Goldman-Sachs selected packages of mortgage loans that were most likely to fail and bet against them.  At the same time, Goldman sold these to clients deceptively as ‘least likely to fail', and, as endorsed independently by ACA Capital Management.  Goldman is not alone.  In all six major lending institutions investigated, there has been evidence of fraud as well as efforts to conceal it, and, so far, not a single criminal case.

Contrast this with the S&L scandal of the eighties when criminal prosecutions were prompt.  That debacle was the natural result of deregulating the Savings and Loans.  This time it was the banks that were deregulated and Glass-Steagall repealed.  Like clockwork these followed the same cycle of greed, fraud, bust, but with a major difference as noted earlier: no criminal prosecutions.  So what has changed?

Here is one answer.  There are now over 11,000 lobbyists.  Hundreds of ex-legislators and their staffers have joined their ranks.  Billions are being spent - more than a half-billion already for the impending November election.  The University of Kansas recently conducted research on the benefits of lobbying.  Here is just one example they unearthed:  A group of major corporations spent less than $300 million in lobbying for a particular tax break.  They were successful, saving over $60 billion in taxes.  That is twenty times their investment, and a rate of return almost impossible to achieve in a legitimate business venture by established corporations. 

Among the largest contributors, the finance industry stands out, and with it Goldman-Sachs in particular as an active source of cash and personnel.  It alone has around fifty lobbyists, both employed directly and also hired through lobbying firms.  This forceful and highly effective team includes many prominent former elected US Representatives.  It supports Congressmen, Senators, and, especially, members of key committees overseeing the industry.  It is also Obama's second highest contributor, $994,795 according to  Here is a list of personnel it has serving in the higher echelons of the Obama administration.

  • Gary Gensler, Commissioner of Commodity Futures Trading Commission (former GS Partner);
  • Larry Summers is a protege of Bob Rubin a former Chairman of GS and Clinton's Treasury Secretary;
  • Mark Patterson, Geithner's Chief of Staff and the TARP overseer (former GS lobbyist and Vice President forGovernmental Relations);
  • Dianna Farrell, Deputy Director, National Economic Council (former GS Financial Analyst);
  • Stephen Friedman, Chairman, President's Foreign Intelligence Advisory Board - Board Member (former GS Chairman 1990-94; Director, 2005);
  • Robert Hormats, Undersecretary for Economic, Energy and Agricultural Affairs, State Department (formerVice-Chairman, GS Group);
  • Philip Murphy, Ambassador to Germany (former Head of GS, Frankfurt); and,
  • John Thain, Advisor to Geithner (former GS President and Chief Operating Officer).

If all of this signifies an exclusive affinity with Democrats, nothing could be further from the truth.  Their support and influence is quite secular.  Thus Henry Paulson, the Treasury Secretary under George W. Bush, was a former Chairman of - you guessed it - Goldman Sachs.   The revolving door syndrome and the spectacular amounts of money involved become evident if we trace the career of just one staffer:  Rahm Emanuel, the current White House Chief of Staff left Clinton's White House near the end of their term to work for Wasserstein Parella.  He has a B.A. in Liberal Arts and a M.A. in Speech and Communication - no law or business education or experience to contribute.  Yet in two and a half years, he was included in eight deals that ‘earned' him $16.2 million.  No surprise then that while the President talks about strict controls on the financial giants, behind the scenes lobbying takes on a different tack. 

And any wonder that the toothless nematode of a Financial Reform Bill has been the result.  Limits on proprietary trading by the big banks recommended even by that old friend of banks, Paul Volcker, have been excluded.  Such trading by commercial banks on their own account has been permitted ever since Glass-Steagall was repealed through the energetic exertions of Bob Rubin and Larry Summers.  It was without doubt a major cause of our financial disaster and should have been a central feature of the bill.  It is not.  Even if all of Glass-Steagall is re-introduced, it would affect and proscribe the activities of only about ten major banks.  Yet, despite the havoc they, and other involved companies like AIG, have caused no real restraints are proposed.  A cursory look at the daisy chain of personalities lifts the veil high enough to note that nothing can change because the incestuous relationships do not permit different ideas.  Stellar economists and Nobel Laureates like Stiglitz and Krugman, can shout their heads off - nobody is listening because profits bolstered by the ‘free market' (read unregulated) win hands down.

To return to the daisy chain, here is an example.  Jamie Dimon, often rumored to be the next Treasury Secretary, is a close friend of Secretary Geithner who is then expected to rotate to a bank.  Mr. Dimon is the current head of J.P. Morgan-Chase.  Prior to that he was at Citigroup as the favored protege of Sanford Weill and rumored to be the next CEO until trouble brewed.  Mr. Rubin, a former chairman of Goldman-Sachs and a mentor to Tim Geithner, found a home at Citi after finishing his tenure at Treasury.  And so it goes on. 


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The sad fact remains.  We were presented the best opportunity for change (in a couple of decades) by the financial collapse but failed to seize it.  Nothing can change, it seems, because a dependent President with no base, and no existing structure as, for example, a powerful former governor might have, is forced to use the scaffolding, already in place, constructed by the power bases in the Democratic Party.

Much worse have been the accusations against the Clintons.  The Keiser Report accuses Hillary of "look-back" trading.  It can be used as a scheme to transfer money secretly from one person to another and works like this:  Two commodity trading accounts are opened.  Each day simultaneous buy and sell orders are executed.  When the trades are closed, the winning trade is assigned to the account to which money is being transferred.  Hillary Clinton made $100,000, starting with $1000, in a commodity trading account over a 10-month period, at a time when her husband's salary was in the low thirties and they were desperate for money.  There has never been an adequate explanation why with such extraordinary commodity trading skills, she stopped trading shortly thereafter.  Most amateur commodity traders - almost 80% by some estimates - lose their stake within a few months.

Bill Clinton signed in the Commodity Futures Modernization Act in December 2000 just before leaving office.  Steered through by Rubin, Summers, Geithner et al, it, among other relaxations, excluded Credit Default Swaps from regulation.  The secret unregulated (a far cry from a regulated open market) trading in these yielded enormous profits until greed overtook common sense.  Then the government bailout.  Since Bill Clinton left office, he has accumulated over a $100 million, half in speaking fees - paid to a man noted for disputing the meaning of  'is' in a deposition.  Perhaps it is appropriate to quote the well-known journalist, Christopher Hitchens (no darling of the left himself, yet not a conservative, and one who, like the Clintons, supported the Iraq war) who states in a recent interview in the New Statesman, "Clinton could change his mind on any issue, but couldn't change the fact that he was a scumbag."

Then there is the special relationship Hillary and Bill maintain with Haim Saban, the billionaire entertainment mogul who is obsessed with a biblical prospect for Israel.  If you have been wondering whatever happened to the relatively neutral Middle East analysis from Brookings.  Well, in 2002, the $13 million dollar - largest gift in Brookings history - Saban Center for Middle East Policy happened;  in addition, Saban has doled out $5 million to Bill Clinton's library, untold millions through his group of deep pockets for Hillary's presidential campaign, $7 million for the Democrats' National Committee, etc.  Like the bankers, his is the voice that does not cry in the wilderness.

So, who cares if a family's home is foreclosed, or one in five are unemployed, or one in four children live in poverty, or the Gulf has vast dead zones, or that now, after the Israeli blockade, the World Health Organization reports almost half of the children in Gaza are anemic and stunted.  Sadly, not our government.  We have entered a new phase in our democracy, an era where elected officials no longer need to respond to the needs of the general public ... just the minority who pay to play.

Arshad M. Khan is a retired professor. He can be reached at:

Arshad M. Khan

Arshad M. Khan

Arshad M. Khan is a retired US- based professor and occasional commentator. Educated at King's College London, OSU and The University of Chicago, he has a multidisciplinary background.

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