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How financial reform gets whacked

Scott Jagow Dec 30, 2009

If you want to understand why it’s so difficult for Congress to pass meaningful financial regulation, look no further than an excellent article at The Huffington Post.

Here’s the link: The Cash Committee: How Wall Street Wins on the Hill.

The “Cash Committee” is the House Committee on Financial Services, chaired by Barney Frank. Here’s how HuffPo describes it:

In short, by setting up the committee as a place for shaky Democrats from red districts to pad their campaign coffers, leadership made a choice to prioritize fundraising over the passage of strong legislation. “It makes it difficult to corral consensus,” says Rep. Stephen Lynch (D-Mass.), a subcommittee chairman, of the unwieldy panel.

And just as the lure of money leads inexperienced new members to join the committee, it prompts experienced staffers to bolt for larger paydays in the private sector. “You have this phenomenon where if you have a staffer who’s very experienced on a certain issue and is dealing with the financial sector for any number of months or years, all of a sudden they become a real acquisition target for Wall Street,” says Lynch.

In other words, as a lobbyist for Wall Street. But it’s not just Wall Street. As a primary example of the influence of special interests on this committee, the article cites an October vote that exempted auto dealers from being regulated by the proposed Consumer Financial Protection agency. The amendment was offered by California Republican John Campbell, a former Saab dealer from Orange County. HuffPo breaks down a video of the vote:

A video of the vote on Campbell’s amendment shows how the auto dealers won their victory. It’s both serious and comical. After the senior committee members enter their no votes, the bottom two rows begin weighing in with yes after yes after yes — followed by unanimous ayes from the GOP side.

Then, once it becomes clear that auto dealers are getting their way, those senior Democrats — not wanting to get on the bad side of a powerful industry for a losing cause — actually start switching their votes from no to yes.

As confusion spreads and more votes are changed, Frank tweaks his colleagues with a subtle dig. “Can I ask this? Would members please vote loudly, especially if you plan to vote differently than the clerk anticipates?” The chamber echoes with laughter.

Pretending that there is some mistake, several members ask the clerk how they were recorded before asking to switch their votes. After Rep. Dennis Moore (D-Kan.), a senior New Dem and a subcommittee chairman, employs this technique, Frank puts a stop to it. “I would also say, at the same time, if you know how you’re recorded, don’t ask the clerk. Just change your vote,” he says. This time, there is no laughter.

You won’t be laughing either after read this piece. Here’s one more excerpt:

Hill staffers who work on financial issues are particularly susceptible to lobbyists because, while they may be among the brightest to come through their college class, they often don’t know all that much about finance. “They’re stretched too thin, covering three or four issue areas,” says a former staffer. And on the Hill, “issue area” doesn’t mean bond markets or derivatives. “Financial services” is an issue; “health care” is another; “trade” and “education” could be two more, all covered by the same staffer.

“What they know is people,” says a former staffer, “and the way you get to know these people is through happy hours or the [free] receptions” on the Hill, often sponsored by trade associations. Because staffers aren’t always deeply versed in the particular issue they’ve been lobbied on, their advice to their bosses often reflects what they’re hearing from K Street.

Things like — we can’t have serious derivatives regulation. Kill it.

And they did. The article is long, but I recommend it.

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