Barack Obama’s biggest second-term challenge isn’t guns or immigration. It’s saving his biggest first-term achievements, like the Dodd-Frank law, from being dismembered by lobbyists and conservative jurists in the shadowy, Byzantine “rule-making” process.
“The amount of money and resources they’re willing to deploy to protect the status quo is unlimited,” said Kelleher. His company, Better Markets—one of the slickest and most vocal financial reform shops in town—has a $2 million annual budget, Kelleher said, which is about how much the financial industry spends on its lobbying team every day and a half.
While there’s no record of the total amount the industry has spent, it’s clear that there’s no shortage of money in its war chest. In the last quarter of 2010, just a few months after Dodd-Frank passed, the financial industry raked in nearly $58 billion in profits alone—about 30 percent of all U.S. profits that quarter. With that sort of bottom line, spending a hundred million or so to kill a single rule that could “cost” them a couple billion in profits is a pretty good return on investment.
In 2009, researchers at the University of Kansas and Washington and Lee University studied the return on corporations’ investment in lobbying for the American Jobs Creation Act, which included a one-time corporate tax break, and found that it was a staggering 22,000 percent. That means that for every dollar the corporations spent lobbying, they got $220 in tax benefits. Based on the billions Wall Street has spent to weaken Dodd-Frank, it seems that they have done similar math.
One thing all that industry money buys is a well-disciplined army. According to public records, representatives from the financial industry have met with the dozen or so agencies that regulate them thousands of times in the past two and a half years. According to the Sunlight Foundation, the top twenty banks and banking associations met with just three agencies—the Treasury, the Federal Reserve, and the CFTC—an average of 12.5 times per week, for a total of 1,298 meetings over the two-year period from July 2010 to July 2012. JPMorgan Chase and Goldman Sachs alone met with those agencies 356 times. That’s 114 more times than all the financial reform groups combined.
“For every one hundred meetings I have, only one of them is with a consumer group or citizens’ organization,” said Chilton. While it’s good that regulated industries have a chance to express their opinions and concerns to those who regulate them, he said, “the deck is just stacked so heavily against average people.”
It’s not just the quantity of meetings, it’s the quality, too. Kimberly Krawiec, a professor at Duke Law School, published a study last year analyzing the role of external influence during the NPRM period of Dodd-Frank’s Volcker Rule. (The Volcker Rule would ban proprietary trading, which is when banks trade for their own profits, and not on behalf of their customers, making them more likely to fail.) In her study, Krawiec found that while public interest organizations met with agencies in giant group meetings on the same day, head honchos from the industry often met with the agencies’ top staff alone. Former Goldman Sachs CEO Lloyd Blankfein, for instance, was not expected to share the floor.
That’s not an insignificant advantage, considering that the NPRM period is when “the majority of the actual agenda setting and rule making happens,” Krawiec said. Because APA stipulations require that the public get a fair shake at commenting on a rule before it is implemented, a proposed rule can’t be too different from the final rule or an agency can get sued, she explained. That has the effect of pushing most of the rule making to the very beginning of the process, which is also the least transparent, since agencies don’t have to publish what they’re up to or who their staff is meeting with during this time. Because of increased transparency efforts surrounding Dodd-Frank, agencies have been encouraged to publish all of the meetings that occur during the NPRM period—hence Krawiec’s study.
Krawiec has also found that after the Volcker Rule was proposed the vast majority of substantive public comment letters were from the financial industry, trade groups, and their various proxies—lawyers, lobbyists, and under-written think tanks—all of whom have the time and money to present extensive, if wildly biased, legal and economic arguments. Often, industry lawyers will simply rewrite entire paragraphs of the proposed rule, fashioning loopholes or limiting an agency’s scope with a single, well-placed adjective or an ambiguous verb. Whether a rule survives that change, whether it then can be effectively implemented and enforced, really does come down to such trivialities. In the rule-making process, the minutiae aren’t incidental to the rule; they are the rule. (Don’t believe me? The U.S. Supreme Court recently heard a case on a 1934 SEC rule on fraud that centered entirely on different definitions of the verb “to make.”)
Industry lobbyists are well aware that they don’t need to outright kill a rule; they need only to maim it, and it’s as good as dead. In fact, it’s better than that: it’s on the books, the newspapers cover it—it looks like a success for financial reform—but industry remains as unfettered as it was before. “That happens all the time,” said a former rule maker at the CFTC, who spoke on the condition of anonymity. “The public interest groups get the headline, but if you look at the details, the industry group has actually won. There’s an order of magnitude between the public interest groups’ and the industry groups’ attention to detail.” When I spoke to an industry lobbyist in mid-January, he put that another way. “We can’t kill it, but we can try to keep it from doing any damage,” he said.
Jeff Connaughton, a lobbyist turned crusader for financial reform, said that the “ubiquitous presence of Wall Street” goes beyond meetings and legalese in comment letters. In his book The Payoff: Why Wall Street Always Wins, he describes the tight-knit relationships between industry lobbyists and proxies and government officials as the “Blob,” which, in his experience, “oozed through the halls of government and immobilized the legislative and regulatory apparatus, thereby preserving the status quo.” Many in the Blob are married to one another and move fluidly from industry to government and back again, he told me. For example, CFTC Commissioner Jill Sommers, who recently announced her resignation, is married to Speaker of the House John Boehner’s top aide. She used to work at the Chicago Mercantile Exchange, one of the biggest exchanges in the world, which is overseen by the CFTC; she also worked at the International Swaps and Derivatives Association, the organization that later sued the CFTC to overturn the rule on position limits.
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