Wall Street’s fingerprints evident on financial reform bill
Congress pledged to tighten regulations on Wall Street after its role in the recession. The industry is reaching into its deep pockets to shape the financial reform legislation to its liking.
Since the near meltdown of Wall Street in late 2008, Congress has pledged to tighten regulations on the finance industry. That exercise is now half over, with the House approving a reform package Dec. 11.Skip to next paragraph
With the Senate poised to take up the issue early in 2010, the next questions are: How much more money and influence will the industry expend to try to shape the reform legislation to its liking, and will it succeed?
Industry spending to sway Congress is hardly news, but the scale of such activity surrounding this season’s finance overhaul legislation is extraordinary, even for Washington.
“What’s astonishing to me is that the special interests opposing us contributed to the failure of the financial system. They’re trying to preserve the system that failed, and Congress is listening to them in some respects,” says Ed Mierzwinski, consumer advocate for US PIRG. a public-interest research group.
With the American public still reeling over the loss of trillions in savings and pensions from 2008’s financial fiasco, Wall Street is playing defense – and there’s evidence that its outsized investment in inside politics is paying returns.
The industry, with the help of centrist Democrats, won key concessions – including limits on the power of a new consumer protection agency, preemption of state consumer protection laws, and loopholes in new rules for the $600 trillion derivatives market that helped trigger the crisis and subsequent recession.
Consumer groups say the industry’s campaign contributions to sitting congressmen influenced these outcomes. The 34 House members who offered amendments to weaken consumer protections, for instance, collectively received $3.8 million in campaign funds from the financial sector in 2009, according to analysis by Consumer Watch and the Center for Responsive Politics.
In all, the finance, insurance, and real estate industries spent a record $475 million on campaign contributions to congressional candidates in the 2008 cycle and are ramping up for 2010 midterm elections.
But that’s not the extent of it. Besides campaign contributions, the finance industry – including companies that got billions in taxpayer bailout money because they’re “too big to fail” – spent more than $300 million in 2009 on lobbying to influence the regulatory reforms. Finance retains nearly five lobbyists for every member of Congress.
At the heart of the debate over financial regulation is the fight for consumer protection. Despite its big investment, the finance lobby lost its bid in the House to derail a new Consumer Financial Protection Agency with broad powers to protect consumers from financial products deemed unsafe. The new agency is the centerpiece of the bill that passed the House on Dec. 11, 223 to 202.
When centrist Democrats held up a committee vote on the House Financial Reform bill on Dec. 9, consumer groups cried foul. The committee bill at that point allowed states to impose tougher standards for consumer protection than the federal government does. In opposition, the financial industry lobbied for a uniform federal standard. At the 11th hour, new Democrats, led by Rep. Melissa Bean (D) of Illinois, threatened to tie up debate on the bill unless their provision enabling federal consumer protection laws to preempt stronger state laws was added to the bill.