It's time for Wall Street to just shut up

Yes, constitutional freedom of speech protections apply even to banks. But the system is clearly broken


Salon Staff
December 7, 2009 11:34PM (UTC)

The Epicurean Dealmaker has posted a ten-point manifesto for regulatory reform. Everything on it makes sense to me, starting with point one:

1) Ban political campaign contributions by the financial industry.

At The Baseline Scenario James Kwak observes that "there is at least one constitutional problem and possibly two" involved in the recommendation. That's a non-trivial issue.

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But the financial industry's influence on legislation is equally non-trivial. There's got to be a better way. Check out the bombshell in Michael Hirsh's new Newsweek piece on Barney Frank and the perils of crafting new regulations for derivatives trading

In the first three quarters of 2009, financial-industry interests have spent $344 million on lobbying efforts, putting them on pace to break all records, according to the Center for Responsive Politics. That's just for lobbyists' and lawyers' salaries, junkets, and dinners, and doesn't include political donations and issue ads. Even more impressive is the lobbying strategy that money is buying. According to insiders and industry e-mails obtained by NEWSWEEK, the banks have sought to stay in the background and put their corporate customers -- a who's who of American business, including Apple, Whirlpool, and John Deere -- out in front of the campaign. "This is an orchestrated, well-funded effort by the banks to manipulate our legislation and leave no fingerprints," says a congressional staffer involved in drafting the legislation.

An industry that would not even be functioning without massive government help is now spending money at a record pace to prevent legislators from fixing the system so as to avoid a repeat. Set aside conflict of interest issues. The sheer gall of banker arrogance and self-interest is inexcusable. As none other than Treasury Secretary Timothy Geithner told Bloomberg News on Friday, even Goldman Sachs' protestations that it would have weathered the financial crisis without government assistance are nonsense.

"The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run," Geithner said.

Of the biggest banks, "none of them would have survived a situation in which we had let that fire try to burn itself out," he added.

So how do we resolve the First Amendment issues associated with campaign finance reform? A Wall Street executive who takes a job at the White House is supposed to put his stock holdings in a blind trust. Judges are expected to recuse themselves from ruling in cases in which they might have a personal interest. Why do the financial institutions who profit from derivatives trading get a vote on how that business should be regulated? A recent analysis by Sanford C. Bernstein & Co. theorized that JPMorgan could lose $800 million a year in profits if the "most stringent" derivatives legislation was passed.

JPMorgan's opinion on derivatives reform is obviously hopelessly compromised. Our society regards freedom of speech as sacred, in part because good ideas are supposed to drive out bad. But bad ideas that have a half-billion dollar wind at their back aren't too easy to shout down.


Salon Staff

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