Sense on Cents

A great American and loyal reader (thanks FL) shared a report recently produced by not-for-profits Essential Information and The Consumer Education Foundation.  This report, Sold Out: How Wall Street and Washington Betrayed America, has gotten little to no attention in the general media. What a shame.  I find of particular interest the fact that a number of the currently discussed regulatory changes are directly addressing the points highlighted in this report. I personally view these proposed regulatory changes as substantiating this report and adding credibility to its effort. For the naysayers in the audience, I would ask you to review the report and reconsider your assessment.

I was struck a month ago by the incriminating statements put forth by Senator Chuck Hagel and CIA head Leon Panetta, which I highlighted on February 16th in Legalized Bribery. Those statements bluntly indict our massive system of lobbying, political fundraising, and the quality of those running for elected office! In light of that article, I am more and more convinced that our elected officials have turned their offices into massive for profit machines at the expense of our public well being.

I commend the authors of this report, Roger Weissman and James Donahue, for taking the time and making the extensive effort to expose the truth. The full report, 231 pages in length, spares no detail. In studying it, I found the information and analysis riveting. Let me try to summarize it for you.

The report chronicles in real detail how Wall Street showered Washington with $1.7  billion in campaign contributions and $3.4 billion upon lobbyists over the last ten years. That money went from the lowest members of Congress to the President of the United States. 55% of the contributions went to Republicans and 45% went to Democrats. Yes, a truly bipartisan effort.

The authors are beyond thorough in laying out how the . . .

financial sector showered campaign contributions on politicians from both parties, invested heavily in a legion of lobbyists, paid academics and think tanks to justify their preferred policy positions, and cultivated a pliant media — especially a cheerleading business media complex.

The report highlights the electricity crisis in California in 2000 and the Enron debacle as precursors of our current situation. 

They quote FDR in his statement, “our enemies of today are the forces of privilege and greed within our own borders.” The same clearly holds true today. 

Where were our leaders with the vision and foresight to protect the public? Feeding at the Wall Street trough!! Let’s review what the $5.1 billion bought Wall Street and who in Washington facilitated the process. Later I will highlight a number of politicians who collected substantial amounts of these dollars.

Part I : What Did the Money Buy?

1.  the repeal of the Glass-Steagall Act which separated commercial and investment banking activities. This act came out of the Great Depression.  Former Fed chair Paul Volker supported Glass-Steagall in the late 90’s and still does today. The expected repeal of this Act allowed for the merger of Citibank and Travelers Insurance even before the formal repeal. President Clinton, Treasury Secretary Robert Rubin, Congressman Phil Gramm, and Fed Chair Alan Greenspan were the primary supporters of this repeal.

2. the allowance of off-balance sheet accounting which promoted the increased leverage in banks.

3. the executive branch rejects financial derivative regulation. The CFTC (Commodities Futures Trading Corp), led by Brooksley Born’s effort, sought to exert regulatory control over derivatives. The CFTC was squashed by Robert Rubin and Alan Greenspan. Then Deputy Treasury Secretary Larry Summers told Congress that CFTC proposals would cast regulatory uncertainty over a thriving market.  Aside from Rubin, Greenspan, and Summers, Senator Richard Lugar and SEC Chair Arthur Levitt also supported the Clinton administration’s lack of regulatory oversight.

4. Congress also blocked financial derivative regulation through legislation engineered by Senator Phil Gramm.

5. in 2004, the SEC succumbed to massive lobbying by Wall Street allowing for voluntary regulation.  This acquiescence is the grossest example of the inmates running the asylum. In 1975, the SEC ruled that debt to net capital ratios had to be less than 12 to 1. This “voluntary regulation” led by Goldman Sachs and then CEO Henry Paulson allowed investment banks to develop their own net capital requirements. Merrill Lynch went to a 40:1 ratio. Then SEC chair Chris Cox acknowledged this voluntary regulation was a complete failure!

6. the bank self-regulation goes global. 

7. the total failure to police the mortgage banking industry and its predatory lending. People may never have heard of outfits such as Aames Financial, Delta Funding, Ameriquest, Long Beach, and many more. These firms propagated massive frauds in lending to unqualified borrowers. They need to be brought to justice. 

8. the federal government preempted a number of state consumer protection laws which would have mitigated a lot of the predatory lending.

9. the government allowed for purchasers of loans to escape accountability. Only the original mortgage lender would be liable for the predatory and illegal features embedded in the mortgages. This immunization of the investment banks eliminated their legal exposures and facilitated the continuation of fraudulent lending practices. 

10. Fannie Mae and Freddie Mac expand their footprints into the non-prime mortgage market. Many politicians fed from the Freddie and Fannie troughs, but nobody more than Chris Dodd and Barack Obama.

11. the merger mania in the banking industry has led to institutions now deemed “too big to fail.”  This report believes these institutions should now be treated like highly regulated public utilities.

12. the debacle that played out with the rating agencies only further facilitated this mess. These agencies were and still are massively conflicted.  

Part II: Who Paid What and Who Collected How Much 1998-2008?

— Commercial Banks spent $154 million in campaign contributions and $383 million on lobbyists.

 — Accounting Firms spent $81 million in campaign contributions and $122 million on lobbyists.

 — Insurance Companies spent $220 million in campaign contributions and $1.1 billion on lobbyists!!

 — Investment Banks spent $512 million in campaign contributions and $600 million on lobbyists. 

A very large percentage of the lobbyists were former government officials!!

While the report makes a number of recommendations, a few strike me as self-evident and vitally necessary:

1. derivatives must be regulated.
2. limited leverage within financial institutions
3. revise the compensation system for financial institutions so timing of  reward is linked to elimination of risk
4. consumer advocacy groups

The list of politicians receiving the largesse runs approximately 80 pages and covers the Presidency to seemingly every member of Congress. I was also struck by the consistency of contributions received during each election cycle by Senators Schumer (D-NY) and Dodd (D-CT). Schumer represents the Wall Street territory while Dodd has been a longtime senior ranking official on the Senate Banking committee.

As I perused the financial data specifically for 2008, I paused and reflected on the fact that these institutions were, and to a large extent still are in dire financial straits. While in the process of receiving government support, they had made or were making campaign contributions. As the government has haphazardly reviewed expenditures at these organizations, let’s shed the floodlight right back on these campaigns. It is not difficult to track campaign contributions to politicians back to taxpayer funds injected into these firms. In light of that, I know it will never happen but I believe the political campaigns should return those dollars to the public. Who received how much money in 2008? While not totally comprehensive, my back of the envelope analysis shows the following:

Barack Obama: $3.9 million
John McCain: $2.1 million
Hillary Clinton: $2.5 million
Rudolph Giuliani: $1.1 million
Chris Dodd: $650k
Mitt Romney: $1.060 million
Rham Emanuel: 160k

President Obama, Madame Secretary and gentlemen, please make those checks payable to “American Taxpayer” and let’s begin to return some integrity to our political process.

Where’s the media to shed light on this travesty? Oh yes, they are compliant and cheerleading. 

Robert Rubin, he’s our man, if he can’t do it, Greenspan can,
Alan Greenspan, he’s our man, if he can’t do it, Paulson can,
Henry Paulson, he’s our man, if he can’t do it, Dodd can,
Chris Dodd, he’s our man, if he can’t do it, Gramm can,
Phil Gramm, he’s our man, if he can’t do it, Obama can…

Uh, oh!! We got real problems!!

LD

This entry was posted on Monday, March 9th, 2009 at 3:35 PM and is filed under American Consumers, Bank Failure, Banking Institutions, Barack Obama, Business, Christopher Dodd, Chuck Hagel, Chuck Schumer, Congress, Credit Derivative Swaps, Current Affairs, Democratic Party, Economy, Education, Equity Markets, Fannie Mae, FINRA, Freddie Mac, General, Housing Crisis, Insurance Industry, Leon Panetta, Lobbyists, Obama Administration, Rahm Emanuel, Republicans, Reputation, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.