Student Researchers: Jocelyn Rapp and Caitlin Ruxton (SSU)
Faculty Evaluator: Samual Mikhail PhD
Economics, Chip McAuley, PhD
Indian River State College and Sonoma State University
October 2, 2008
Truthout, October 2, 2008
Title: “Lax Oversight? Maybe $64 Million to DC Pols Explains It”
Author: Greg Gordon
Capitol Eye, February 10, 2009
Title: “Congressmen Hear from TARP Recipients Who Funded Their
Author: Lindsay Renick Mayer
Rolling Stone, March 19, 2009
Title: “The Big Takeover”
Author: Matt Taibbi
Federal lawmakers responsible for overseeing the US economy have received
millions of dollars from Wall Street firms.
Since 2001, eight of the most troubled firms
have donated $64.2 million to congressional candidates, presidential
candidates and the Republican and Democratic parties. As senators, Barack
Obama and John McCain received a combined total of $3.1 million.
The donors include investment bankers,
Some of the top recipients of contributions from
companies receiving Troubled Assets Relief Program (TARP) money are
the same members of Congress who chair committees charged with regulating
the financial sector and overseeing the effectiveness of this unprecedented
In total, members of the Senate Committee on
Banking, Housing and Urban Affairs, Senate Finance Committee and
House Financial Services Committee received $5.2 million from TARP
recipients in the 2007-2008 election cycle.
President Obama collected at least $4.3 million
from employees at these companies for his presidential campaign.
Nearly every member of the House Financial Services Committee, who in
February 2009 oversaw hearings on how the $700 billion of TARP bailout was
being spent, received contributions associated with these financial
institutions during the 2008 election cycle.
“You could say that the finance industry got
their money’s worth by supporting members of Congress who were inclined
to look the other way,” said Lawrence Jacobs, the director of the
University of Minnesota’s Center for the Study of Politics and
For instance, in 2004 when the Securities and
Exchange Commission (SEC)
adopted a major rule change that freed investment banks to plunge tens of
billions of dollars in borrowed money into subprime mortgages and other
risky plays, congressional banking committees held no oversight hearings.
Congressional inaction also allowed mortgage
agents to earn high fees for peddling loans to unqualified homebuyers and
prevented states from toughening regulations on predatory lending practices.
Author Matt Taibbi writes that some of the most egregious selling of
the US government to Wall Street happened in the late nineties, when,
“Democrats, tired of getting slaughtered in
the fundraising arena by Republicans, decided to throw off their old
reliance on unions and interest groups and become more
‘business-friendly.’ Wall Street responded by flooding Washington with
money, buying allies in both parties.”
In the ten-year period beginning in 1998,
financial companies spent $1.7 billion on federal campaign contributions and
another $3.4 billion on lobbyists.
Wise political investments enabled the nation’s
top bankers to effectively scrap any meaningful oversight of the financial
In 1999, Texas Senator Phil Gramm
co-sponsored the bill that repealed key aspects of the
Glass-Steagall Act, which, since
the Great Depression, prevented banks from getting into the
The very next year Gramm wrote sweeping
new legislation called the Commodity Futures Modernization Act,
which made it impossible to regulate credit swaps as either gambling
or securities. Trading in risky credit was thus deregulated.
In 1997 and 1998 - the years leading up
to Phil Gramm’s act that gutted Glass-Steagall - the banking,
brokerage, and insurance industries spent $350 million on political
contributions and lobbying. Gramm, then the chairman of the Senate
Banking Committee, collected $2.6 million in only five years.
The law passed 90-8 in the Senate, with
the support of thirty-eight Democrats, including Joe Biden, John
Kerry, Tom Daschle, Dick Durbin and John Edwards.
The act helped create the
too-big-to-fail financial behemoths like Citigroup, AIG and Bank of
America - and in turn helped those companies slowly crush their
smaller competitors, leaving the major Wall Street firms with even
more money and power to lobby for further deregulation.
By early 2009, a whole series of new
government operations have been invented to inject cash into the
economy, most all of them under the completely secretive control of
the financial sector.
Taibbi points out that,
“While the rest of America, and most
of Congress, have been bugging out about the $700 billion
bailout program called TARP, newly created organisms in the
Federal Reserve zoo have quietly been pumping not billions, but
trillions of dollars into the hands of private companies (at
least $3 trillion so far in loans, with as much as $5.7 trillion
more in guarantees of private investments).”
“This new, secretive activity by the
Fed completely eclipses the TARP program in terms of its
influence on the economy... No one knows who’s getting that
money or exactly how much of it is disappearing through these
new holes in the hull of America’s credit rating. Moreover,
no one can be sure that these new institutions are really
temporary, or whether they are being set up as permanent,
state-aided crutches to Wall Street, designed to systematically
suck bad investments off the ledgers of irresponsible lenders.”
“The reality is that the
worldwide economic meltdown and
the bailout that followed were together a kind of revolution, a
coup d’état. They cemented and formalized a political trend that
has been snowballing for decades: the gradual takeover of the
government by a small class of connected insiders, who used
money to control elections, buy influence and systematically
weaken financial regulations.”
Fraud and crisis continue to
deepen and expand with significant conflicts of interest in Congress and the
executive branch of US government.
Simon Johnson, former IMF chief
“The finance industry has effectively
captured our government.”
Update by Lindsay
Even as the federal government has continued to figure out ways to help the
struggling finance sector and give the economy a boost, they’ve been
collecting input from the very companies that have accepted taxpayer dollars
and are, in part, being held responsible for the current crisis.
But that’s not all they’ve collected - Congress
has been busy fundraising from the finance sector, including those companies
that received billions of dollars from TARP.
Since this story was written in February, the finance sector has, of course,
continued to give money to candidates, party committees and political action
committees. Since the start of 2009, Wall Street has donated $12.6 million -
more than any other sector this year. And 58 percent of that has gone to
Democrats, marking a change, perhaps, in political strategy.
Not since the 1990 election cycle have finance,
insurance and real estate companies given more than 52 percent of its
overall donations to Democrats, and from 1991 to 2006 finance gave the
majority of its money to Republicans.
Many of the companies that we wrote about in this story that sent their CEOs
to testify before the House Financial Services Committee have
actually scaled back their overall giving in the first quarter of 2009
compared to the first quarters of 2007 and 2005.
However, it is still very early in the cycle,
and campaign contributions generally don’t start flowing in until closer to
an election. For the most part these companies, like the rest of the
industry, targeted Democrats with a majority of their political giving.
Of course, a big story this year will be whether lawmakers took a hit to
their personal finances like much of the rest of the country, or whether
they personally benefited by infusing the Wall Street companies with
taxpayer cash, especially members of the banking and finance committees.
The 2008 personal financial disclosure reports
with those answers are now available on
To read more about how lobbying and influence peddling are shaping
legislation, keep up with CRP’s blog at
http://www.opensecrets.org/news/. And to do
some investigating yourself, dive into our industry profiles:
We also follow the cash flow to committees. Check out the
Senate Finance Committee data.