Tuesday, June 30, 2009

So Damn Much Money by Robert G. Kaiser

(Gerald S.J.) Cassidy agreed that the weak and poor "have less representation" in modern Washington. He also agreed that money interests can set a legislative agenda that flouts the public interest but serves their narrow purposes. He has a favorite example of this, one that brought out the old 1960's liberal that sometimes lurked beneath Cassidy's $4,000 suits: the Bankruptcy Abuse Preventiobn and Consumer Protection Act of 2005, a project of the banking and credit card industries.

Enacted in April 2005, the act made it more difficult for consumers to evade paying their debts by declaring personal bankruptcy. Consumer groups and academics argued that the law would create unfair new burdens for families forced into bankruptcy by unexpected medical expenses or the loss of a job, but proponents were not deterred. Indeed, the final version of the law forced debtors to repay their credit card debt before thet paid child support or alimony.

Cassidy thought it was "the single worst piece of legislation from a public policy point of view that passed in recent years...Here you have a group of people that are essentially unrepresented- those who might go into bankruptcy- and you have the banks, the credit card companies, driving the whole issue. They came up wih a system that essentially turns people into paupers. That it could pass with the margins it passed by [ 303-126 in the House, 74-25 in the Senate, with lots of Democratic support] is absolutely stunning. You look at the amounts of money that were spent on that, it was enormous."

The Center for Responsive Politics in Washington, an independent group that studies politics and money, calculated that the banks and credit card companies gave $40 million to the campaigns of members to promote the law over fifteen years. During the five years before the vote, the eighteen Senate Democrats who voted for the bankruptcy bill recieved, on average, $51,000 in campaign contributions from banks and credit card companies. Democratic senators who voted against th bill had recieved an average of $20,200.

In early 2008, the National Association of Home Builders (NAHB) confirmed the realities with a brazen display of public pique.

Congress had just approved an emergency "stimulus package"- legislation intended to persuade voters that the government was doing something to try to head off a recession. The largest part of the package gave a tax rebate-cash- to most taxpayers in the hope that recipients would spend it and thus stimulate the economy. The home builders had pushed several ideas they thought should be included in this package, including tax breaks for builders and expanded authority for State governments to issue tax-free bonds to finance cheap home mortgages.

The Senate Finance Committee drafted a version of the stimulus legislation that included some of the home builders' ideas- gravy for themselves, obviously. But the final version of the bill dropped those provisions. The president of the NAHB then announced that its PAC would stop giving money to all politicians. BUILD-PAC was the seventh-biggest business PAC; it had given $1.5 million to candidates since the beginning of 2007 and had more than $825,000 in the bank, ready to be donated. The president's statement made clear the home builders frustration: "More needs to be done to jump-start housing and ensure the economy does not fall into recession" The suspension of political contributions "will remain until further notice."

The statement raised eyebrows all over Washington. The NAHB had broken one of the cardinal rukles of the game. "Lobbies like to pretend that congressional action and their donations arn't tied," observed Melanie Sloan, executive director of a watchdog group called Citizens for Responsibility and Ethics in Washington. "But the home builders just confirmed that they are."

The home builders' suspension of contributions lasted just ten weeks. During that time housing legislation became a hot item in the House. The Banking Committee drafted a bill intended to stimulate the moribund industry. The NAHB announced that it had a new priority for this legislation, a $7,000 tax credit for first-time home-buyers. The House embraced this idea, including it in its housing bill. At the end of April, the NAHB resumed making political contributions. "Our message has been heard." said Ed Brady, an official of the association's PAC.

The home builders took on a challenging goal- to persuade Congress to act affirmatively on their behalf. One of the maxims of the lobbying business is that affirmative action in your own interest is always harder than blocking a proposal that helps somebody else. Managers of hedge funds and private equity funds confirmed this in 2007 and 2008.

These investment funds operate as partnerships, and pay low taxes. In 2007 Charles Rangel of New York, then the new chairman of the House Ways and Means Committee, proposed a simple change in the tax code that would have raised the tax paid by hedge and equity fund managers on their earnings, from 15 to 35 percent. The 15 percent, less than most working Americans pay on their income, was based on loophole that allowed these managers to define their earnings as capita gains (normally money earned on investments held for a year or longer) rather than ordinary income. These were people who earned some of the biggest salaries paid in America. Rangel proposed, in effect, to close their loopholes.

Rarely if ever had an industry responded so dramatically to a percieved threat in Washington. The Center for Responsive Politics, which tracks these numbers, found that the hedge funds, and private equity funds, and investment firms and their associations jacked up their spending on Washington lobbying from less than $4 million in 2006 to $20 million in 2007. The same category of interests increased political contributions to candidates from $11 million to nearly $20 million from 2005-6 to 2007-8.

Rangel's plan was blocked. Its most effective opponent was the congressman's fellow Democrat from New York, Charles Schumer. He became the investment industry's leading advocate in the Senate, a role that benefited him in his job as chairman of the Democratic Senatorial Campaign Committee, which collected millions from investment company executives while Schumer staved off legislation the industry opposed.

Long before Rangel proposed the tax change, Schumer was arguing against any federal regulation of hedge funds, at a Judiciary Committee hearing in June of 2006, in particular. This episode caught Gerry Cassidy's attention and stimulated liberal instincts: "It was the damnedest thing I ever heard of...It's mind boggling that you can have a force like hedge funds in the market, have it be unregulated, and have members defending it being unregulated." If a liberal Democrat had argued in favor of deregulating an important segment of the financial markets in the 1960's or 1970's, the idea "would have been laughed out of town. Now it happens and guys run to the committeee to defend it. It's just a remarkable change...."

As Senator Bob Dole said in 1982: "Poor people don't make campaign contributions."


  1. The culture will change, it always does, and it could change for the better if some future Congress destroys the system that developed between the 1970-'s through the 2000s. Destroying it is legally possible. Congress has provided a system for public financing for all elections to federal ofice, though Bill Clinton and Barak Obama's campaigns dispensed with its voluntary provisions.

    Congress could ban any registered lobbyist and any institution that hires a registered lobbyist from raising or soliciting contributions for federal candidates and officeholders. A new law could also reduce to a nominal amount- say $250 or $500- the maximum a lobbyist could give personally to a campaign for federal office.

    Cooling off periods could be lengthened and strengthened to make it difficult if not irrational for an elected or appointed official to consider moving from a government job through the revolving door to lobbying.

    New laws could require broadcast television stations to provde free time to political candidates. Lobbyists could be required by law to report on every meeting and conversation they hold with public officials. History confirms that moral behavior cannot be enforced by passing laws, but laws can make immorality alot more difficult.

  2. "So Damn Much Money; The Triumph of Lobbying and The Corrosion of American Government" by Robert G. Kaiser.; Knopf, N.Y. 2009.

    Mr. Kaiser has been covering Congress, The White House , national politics as well as corresponding from Saigon and Moscow for The Washington Post since 1961. The focus of the book is the saga of Gerald S.J. Cassidy, founder of the most pre-eminant lobbying and PR firm in D.C. for many years.

    Most candidates (encumbants included) depend entirely on professional consultants, public relations experts and pollsters to run their campaigns. They very often have little say on the issues they emphasize or the positions they take, if they are interested in winning. While in office they spend huge proportions of their time raising campaign contributions. They spend very little time in detailed committee work and are often ignorant of the contents, impacts or implications of the bills they pass in respect to anything but the campaign contributions they can expect to result. They are followers, not leaders, with only a few exceptions. Professional lobbyists are today the de facto legislators of the U.S. Government, at least when everything is not just left in the hands of the chief executive.