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Government and Wall Street: A Revolving Door With Ill EffectsAllan Brownfeld Salem-News.com
The revolving door keeps turning----and government keeps growing and keeps serving the interests of those who so generously finance the campaigns of both Democrats and Republicans...
(WASHINGTON, DC) - It was recently announced that former Treasury Secretary Timothy Geithner would join Warburg Pincus, a private equity firm-----although Mr. Geithner had no experience whatever in the private equity field.
Writing in THE NEW REPUBLIC, Noam Scheiber noted that, "It's hard to believe that Geithner, with no investment or private sector experience, would be worth the millions he will surely earn each year if he didn't also turn heads at the highest levels of government."
The financial industry is one of the largest lobbying groups in Washington. It has always pushed for fewer controls, and has largely succeeded. Two important changes were the Financial Services Modernization Act of 1999, which ended the separation between commercial and investment banking, and the Commodity Futures Modernization Act of 2000, which legally banned the Securities and Exchange Commission from regulating over-the-counter derivatives. The main lobbyist for the 1999 law, Sanford Weill, then head of Citigroup, now admits that, "I don't think it's right anymore." Bill Clinton now says that he regrets not having tried to regulate derivatives.
These pieces of legislation, we now know, led to our financial crisis--and the eventual bailing out by taxpayers of failed banks and financial institutions. Eighteen months before the financial collapse, Sen. Charles Schumer (D-NY) and Mayor Michael Blumberg issued a report called "Sustaining New York's and the US' Global Financial Services Leadership," which warned that if Wall Street were re-regulated, the financial industry would move to London.
It is interesting to see how politically connected banks received larger bailout loans from the federal government during the 2007 financial crisis than banks that spent less on lobbying and campaign contributions. This is the conclusion of a new analysis by Professor Benjamin Blau of Utah State University. His findings were based on data from the Federal Reserve Board and published by the Mercatus Center at George Mason University.
Blau noted that it was "unlikely" that the Fed intended "to provide political favors to banks with the most political connections." But the pattern was clear. Banks that received bailout loans spent 72 times more on lobbying in the decade before the meltdown than banks that got no loans. Blau also found that 15 per cent of the banks that received loans employed politically connected individuals. Only 1.5 per cent of banks with politically connected employees got no loans.
In the case of Timothy Geithner, states Dennis Kelleher, president of Better Markets, a Wall Street watchdog group, "Geithner's spin through the revolving door to cash in on his 'public service' will enrich himself, further erode public confidence in government and give the finance industry more access and influence at the highest levels of government worldwide."
Josh Green of Bloomberg Businessweek writes that, "For all the criticism directed his way, Geithner was the exceedingly rare example of the idea that you can be a talented, high-level regulator and public servant and exist entirely apart from Wall Street financial interests. That won't be true any longer."
Washington, of course, is awash with lobbyists of all kinds----spending literally billions of dollars to get government to do their bidding. Companies spent about $3.5 billion annually on lobbying at the end of the last decade, a nearly 90 per cent increase from 1999 after adjusting for inflation, according to political scientist Lee Drutman in his forthcoming book, "The Business Of America Is Lobbying."
"A growing number of companies," says Drutman, "became fully convinced that having a large-scale Washington presence was a good strategic decision."
According to recent research, lobbying pays off in a major way. Research shows that the more a company spends on influence, the lower its effective tax rate and the higher its stock returns, compared with competitors. A company called Strategas has developed an index to follow the stock performance of the 50 companies that lobbied the most last year. That index outperformed the rest of the market by 30 per cent.
Lobbying, lawyers and government contractors have fueled the extraordinary prosperity of the Washington area, while the economy in the rest of the country has stagnated. During the past decade, the Washington region---including suburban Maryland and Virginia----added 21,000 households in the nation's top 1 per cent. No other metro area came close.
THE WASHINGTON POST reports that, "The signs of the new Washington are everywhere---from the Tiffany & Co. store that Fairfax County development officials boast is the most profitable in the country to the new Tesla dealership in Tyson's Corner. Every morning on the Beltway, contractors, lobbyists and some of the country's highest-paid lawyers sit in the nation's worst traffic. Sports talk radio crackles...with the latest ads from Deltek, a firm that advises companies on 'capture strategies' for winning government contracts."
The revolving door keeps turning----and government keeps growing and keeps serving the interests of those who so generously finance the campaigns of both Democrats and Republicans so that no matter which party is in power, the special interests will have friends to call upon. Wall Street's investment in politicians has certainly paid handsome dividends, as the bank bailout has made clear to all. It is, as a result, not to difficult to understand why a private equity firm would hire a former Treasury Secretary with no experience in the field. It is business as usual---as business is now conducted.
Salem-News.com contributor Allan C. Brownfeld received his B.A. degree from the College of William and Mary, his J.D. degree from the Marshall-Wythe School of Law of the College of William and Mary and his M.A. in Government and Politics from the University of Maryland. He has served on the faculties of St. Stephen's Episcopal School, Alexandria, Virginia, and the University College of the University of Maryland.
The recipient of a Wall Street Journal Foundation Award, Mr. Brownfeld has written for such newspapers as THE HOUSTON PRESS, THE RICHMOND TIMES DISPATCH, THE WASHINGTON EVENING STAR and THE CINCINNATI ENQUIRER. For many years he wrote three columns a week for such newspapers as THE PHOENIX GAZETTE, THE MANCHESTER UNION LEADER, and THE ORANGE COUNTY REGISTER. His weekly column appeared for more than a decade in ROLL CALL, the newspaper of Capitol Hill. His articles have appeared in such journals as THE YALE REVIEW, THE TEXAS QUARTERLY, THE NORTH AMERICAN REVIEW, ORBIS and MODERN AGE.
Mr. Brownfeld served as a member of the staff of the U.S. Senate Internal Security Subcommittee and was the author of that committee's 250-page study of the New Left. He has also served as Assistant to the Research Director of the House Republican Conference and as a consultant to such members of Congress as Reps. Phil Crane (R-Il) and Jack Kemp (R-NY) and to the Vice President of the United States.
He is a former editor of THE NEW GUARD and PRIVATE PRACTICE, the journal of the Congress of County Medical Societies and has served as a Contributing Editor AMERICA'S FUTURE and HUMAN EVENTS. He served as Washington correspondent for the London-based publications, JANE'S ISLAMIC AFFAIRS ANALYST and JANE'S TERRORISM REPORT. His articles regularly appear in newspapers and magazines in England, South Africa, Sweden, the Netherlands and other countries. You can write to Allan at firstname.lastname@example.org
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