Fact and Fiction Behind Too Big to Fail

BREAK ‘EM UP!: Money in Politics Challenges the Real Solution to Systemic Risk

Getting Congress to force separation once again between commercial and investment banking may be politically challenging, even in an era of supposedly courting the middle class. But it is the only way to substantially minimize the need for future taxpayer bailouts of large banks.

Employees and PACs of the largest banking, hedge fund, and private equity firms channel their earnings back to candidates for federal office. Candidates from both parties enjoy the largesse. The not-for-profit Center for Responsive Politics/Open Secrets tracks and parses data from Federal Election Commission filings, providing ample illustration of how the industry buys off Washington.

**********************************************************************************************************************************************************************************

A Quick Trip Through the Money Behind Passage of Dodd-Frank

We’ve seen the money behind recent Presidential campaigns. Yes, Mitt Romney had friends in his industry. But even those who decried income inequality and promised more entitlements took plenty of campaign contributions from Wall Street.

One could say Wall Street owned Congress when Congress was responding to the biggest financial bubble known to humankind. Using Open Secrets/Center for Responsive Politics data, I tracked how Congressional leadership and both Senator Dodd and Representative Frank all received generous donations from the financial sector through the 2008 election cycle, the last before passage of Dodd-Frank. The following links take you to pages in my book. (No need to buy it. The charts were easiest to access and link from that document.)

Money flowed in as the Dodd-Frank sponsors’ influence grew. The Senate Banking Committee and House Financial Services Committee oversee the industry. These were great assignments if one needed to raise cash for re-election. Click on the next six links to watch the money flow.

The first shows financial sector donations to Congressional campaigns in 2008 and the sector’s donations to the Senate Banking committee. The second link shows sector donations to the House Financial Services committee. Subsequent links show donations to individual Congressional leaders and how donations grew over time as influence increased.

2008 Election Cycle Donations — From Industry Sectors and to Senate Banking Committee

House Financial Services Committee Campaign Donations from Financial Service Sector Through 2008

Senator Dodd’s Financial Sector Campaign Contributions Through 2008

Representative Frank’s Campaign Donations from Financial Sector Through 2008

Senate Leadership Campaign Contributions from Financial Sector Through 2008

House Leadership and Finance Committee Leadership Campaign Contributions from Financial Sector Through 2008

Lastly, the next link shows the campaign donations from the institutions themselves in the 2008 cycle.

Financial Institutions Among the Top 100 Contributors to Campaigns in 2008

The Power (and Therefore Money’s Influence) Starts in the Committees

Republicans lament the burden of over-regulation that resulted from Dodd-Frank. They want to reduce the regulatory burden. They are challenging the Department of Labor’s fiduciary rule and the intrusion of the Consumer Financial Protection Bureau. Will they step up to the plate and break up these large institutions? How do they alter the fiduciary rule and the CFPB without amplifying “Flyover America’s” perception that Republican Congressmen are all about helping the rich rather than the little guy?

Dodd and Frank may have sponsored the legislation that now carries their names, but their fellow Republican most-senior minority party leaders enjoyed even greater largesse from the industry. (The most-senior minority party committee leader is called the “Ranking Member”.)

I calculated what percentage of the total raised by committee leaders of both parties was accounted for by donations from the financial sector through the 2010 election cycle. I compared total donations from financial industry sectors listed among their top industry donors to their totals raised. Also for Congressional leadership. Since Senate office is held for six years, I used the most recent election with full detail (total raised, meaning the 2008 cycle) for Senators and the average of the three recent election cycles for Representatives. Then I averaged the results by chamber, party and committee. The Republican leaders in 2008 did even better than the Dodd-Frank sponsors. Click on the next link to see the influence of money on Congressional leadership and on the committees that were supposed to oversee the financial services industry.

Full Congress vs Committee Leadership Donations from Financial Sector 2006 to 2010

2016 Presidential Campaigns: Awash in Financial Sector Donations

With the mainstream media’s focus on corporate influence and on super-rich individuals’ spending on elections, a quick look at the top donors in the 2016 election shows the presence of a large number of unions among the wealthy, the corporations, and other influence-seeking organizations.

2016 Top Organization Contributors _ OpenSecrets

It was very obvious that Mitt Romney had tremendous financial support from the financial services industry back in 2012. That will be the first link below. But a squint at the Center for Responsive Politics’s summary of money donated to Presidential candidates in the 2016 election should cure anyone of the perception that only Republicans enjoy the financial sector’s largesse. Candidate Clinton received tens of millions from the sector. The summary is the second ink. The third link has a nice graph comparing candidate committee donations to outside money sources. (The CRP’s websites lack a print view. The numbers are readable in the PDFs, but their website has some cool color coding and clear presentation for those who want a better view.)

2012 Presidential Race _ OpenSecrets

2016 Presidential Race Summary • OpenSecrets

Behind the Candidates_ Campaign 2016 Committees and Outside Groups • OpenSecrets

The financial services sector was very generous in the 2016 Presidential election. Here is the CRP’s totals for Finance/Insurance/Real Estate.

2016 Sector Totals to Candidates • OpenSecrets

The Center for Responsive Politics breaks down the data further. Here are sector totals for Securities & Investment (where the investment banks and money management firms are categorized), Real Estate, and Commercial Banks (where JPMorgan Chase, Citigroup, and Bank of America are categorized even though they have large investment bank business lines).

2016 Securities and Investment – Selected Industry Totals • OpenSecrets

2016 Real Estate – Selected Industry Totals • OpenSecrets

2016 Commercial Banks – Selected Industry Totals • OpenSecrets

The Center has an interesting background piece from 2014 describing the growing influence of wealthy individuals from the sector, hedge funds, and private equity. Here’s a link to the piece.

Securities & Investment_ Background _ OpenSecrets

The influence of hedge fund and private equity described in 2014 became very visible in the 2016 Presidential election. Here is the Center’s summary for that sector.

2016 HedgeFunds Private Equity – Selected Industry Totals • OpenSecrets

In all the links above, it is obvious the public’s assumption that Washington is bought off is thoroughly illustrated. Does anyone in Washington, including recent winners, really want change that enhances democracy, or are they still drinking the Kool-aid of pure self-interest?

Paralysis may continue as the current administration’s ambitious goals and Republican Congressional leadership’s equally ambitious goals bump up against the public’s deep mistrust and even contempt for Washington politics.

The political headwinds against real financial sector reform are strong. But shareholders, CEOs, and senior employees must long for relief from regulatory suffocation. This blog is just a small voice. I know much more influential voices are out there. Change tends to need crisis for motivation. How deep into crisis do we all want to wade before we act?

 

Click here for the Top of the Series

Fairy Tale Capitalism: Fact and Fiction Behind Too Big to Fail

Buy Fairy Tale Capitalism Today

Was the mortgage debacle the sole cause of the financial bubble's collapse? Do you believe those who say the elimination of Glass-Steagall barriers didn't contribute to its building? Fairy Tale Capitalism: Fact and Fiction Behind Too Big To Fail places the mortgage mess into a broader perspective. It explains how the Federal deposit guarantee was married to investment banking's trading intensity, why the Fed had no choice but to bail out the biggest banks and how derivatives played a poorly-understood, but equally important role in the crisis. In simple terms Emily Eisenlohr walks with those who live on Main Street down Wall Street's darker alleys.

Buy Fairy Tale Capitalism: Fact and Fiction Behind Too Big to Fail at Amazon.com
Buy Fairy Tale Capitalism: Fact and Fiction Behind Too Big to Fail at AuthorHouse

Back to top