Wall Street isn’t the most popular industry in America right now. A poll conducted last fall by the Washington Post and ABC News found that 70% of the country viewed financial institutions on Wall Street unfavorably — and that was before the cavalcade of scandal that whipped through the world’s financial centers over the past six months.
It is perhaps a function of this ignominy, and the knowledge that an elected official could score easy political points by tightening the screws on the industry, that financial institutions spend so much money electing and influencing politicians in Washington. According to OpenSecrets.org, the financial services, insurance, and real estate industries have spent more than $5 billion lobbying Washington so far in 2012, the third most of any sector. But the industry goes well beyond hiring high-priced lobbyists in its efforts to exert control over the American political process. As two recent reports in Bloomberg Businessweek show, the financial services industry has been pulling out all the stops over the past three years to affect financial reform.
The first report grew out of a Freedom of Information Act Request for email exchanges between SEC officials and one Annette Nazareth, a former SEC commissioner who is now a securities lawyer at the firm of Davis Polk. The article documents how Davis Polk –with the help of Nazareth and her deep connections at the nation’s most important financial regulator — secured the position of outside counsel for America’s largest banks and SIFMA, a Wall Street trade group. Even before the ink was dry on the finalized version of the Dodd-Frank financial reform bill in the summer of 2010, Nazareth was in contact with her former colleagues at the SEC, offering them Davis Polk’s analysis of the bill and the more than 100 regulations the SEC would have to write as the law became implemented. According to the report, Nazareth’s communication with the agency was extensive:
“Nazareth’s messages asked for meetings, offered her firm’s products and opined on the debate in Congress. She . . . [wrote that] the prospect of a consumer finance protection agency made her “feel ill” and that she’d asked Sifma, the Wall Street trade group, to “trash” a proposal for an investor advocacy office at the SEC.”
In an interview with Bloomberg Businessweek, Nazerath claimed that she has never gotten preferential treatment from her former employer. But it’s hard to believe that any regulator could possess the probity necessary to treat a former colleague or friend exactly the same as a complete stranger. And the emails and other public documents show that she was given access to SEC officials and a deference that would surely not be granted to, say, you or me. Nazerath was able to secure eleven seperate meetings with SEC Chairman Mary Shapiro — twice as many as any other lawyer or lobbyist — and she brought executives from some of the world’s biggest financial institutions along with her.
The exchanges that most illustrate the cozy relationship between the SEC and Nazareth are those she sent to David Becker, who served as General Counsel and Senior Policy Director at the SEC from 2009 to 2011. According to the report, they “display an easy banter and familiarity developed over the years.” Becker and Nazareth discussed a holiday party the two normally attend together, and Becker offers to introduce Nazareth to another SEC employee, director of trading and markets Robert Cook.
To be clear, there is nothing illegal about presidential appointees petitioning their former agencies on behalf of clients. (At the time Nazareth went to work for Davis Polk, federal ethics guidelines required her to wait a year before doing so, which she did, and that cooling off period has since been extended to two years by President Obama.) And there is no way to draw a direct relationship between Nazareth’s work for large financial institutions and the way in which Dodd-Frank has so far been implemented. But at the very least, Nazareth’s story is a prime example of our revolving-door regulatory system whereby regulators — almost as a rule — go to work for industries they once oversaw. And when voters see this sort of behavior time and again, it’s understandably difficult to have confidence in the evenhandedness of the federal rule-making process.
And if Wall Street can’t get exactly what it wants from Washington regulators, they’re gearing up now to influence Congressional elections in the hopes that much of Dodd-Frank can be repealed outright after the elections. In a separate Bloomberg report published yesterday, it was revealed that the Amerian Bankers Association board will vote today on a plan to create a non-profit that would donate to various Super-PACs, or unregulated organizations that can spend unlimited amounts of money advocating for political candidates. According to the report:
“ABA officials, during a conference call yesterday to brief member firms, said they intend to raise several million dollars in the next few weeks and concentrate their contributions on six to 12 fiercely contested U.S. Senate races. Attempts in the Republican-controlled House to roll back regulation of the financial industry, particularly the 2010 Dodd-Frank Act, have so far run aground in the Democratic-controlled Senate.”
Indeed, if Mitt Romney were to win in November, the only thing standing in the way of a complete repeal of the Dodd-Frank financial regulatory bill – something both House Republicans and Mitt Romney have pledged to fight for – would be a Democratic-controlled Senate. The Republican party needs to win just four Senate seats to gain the majority, and if the ABA raises the $6 million that COO Michael Hunter hopes, the banking association could play a role in tipping that scale in the Republicans’ direction.
Americans sure don’t like Wall Street, and one of the main reasons for this antipathy is the industry’s influence over Washington. But it seems like the industry just can’t help itself. When it comes to the chance to influence the regulators and lawmakers whose actions hold so much sway over their profit and loss, these bankers would gladly trade your esteem for just a few more friends in high places.