The Great Betrayal: Wall Street and the Washington Ruling Elite Sell Out America?

The Wall Street Watch, a project jointly sponsored by the Consumer Education Foundation and Essential Information, both non-profit public interest groups, released a 231 –page report ‘Sold Out: How Wall street and Washington Betrayed America?’ The report points out that between 1998 and 2008 Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates gave $1.725 billion in political contributions to buy influence at the White House and Capital Hill in order to remove or undermine Federal regulations. They also spent $3.4 billion on nearly 3,000 officially registered lobbyists to attain their aims. The report mentions a dozen cases of financial deregulations. Such deregulations not only permitted the mergers of commercial and investment banking but also allowed the banks to maintain off-balance sheet accounting which enabled banks to hide their liabilities. In addition came the deregulation of financial derivatives which led to massive speculation. In 2004, the surveillance of investment banks by the Securities and Exchange Commission was substituted by a voluntary regulation scheme enabling the banks to incur massive debts. Commercial banks were also allowed to determine their own capital reserve requirements, based on their internal risk assessments. Federal regulators not only refused to block widespread predatory lending practices either by refusing to issue appropriate regulations or by enforcing existing ones. They also prevented states’ regulators to enforce consumer protection laws that could have restricted predatory lending and other abusive practices. Federal rules also prevented victims of abusive loans from suing firms involved in predatory practices. Fannie Mae and Freddie Mac, the two largest government sponsored mortgage lenders in the United States, were allowed to extend beyond their traditional business by entering the subprime market, which ultimately led to the virtual collapse of the world financial system costing taxpayers round the world hundreds of billions of dollars. The government also abandoned antitrust regulatory regimes that led to a merger mania and the creation of mega banks willing to take unwarranted risks. In addition to this, the Security and Exchange Commission was prevented from properly regulating the private credit rating firms, thus enabling them to incorrectly assess the quality of mortgage-backed securities.
Both political parties are equally blamed by the authors of the report. During the ten year period between 1998 and 2008, Republicans received 55 percent of the political contributions from the financial sector, Democrats received 45 percent. However, in the election cycle 2008, Democrats received a little more than half of the total political contributions.
Securities firms donated as much as $504 million in campaign contributions and spent an additional $576 million in lobbying. The insurance companies gave $218 million in campaign contributions and spent as much as $1.1 billion on lobbying. Commercial banks’ contributions to campaign finance totaled $134 million with an additional $363 million in lobbying. Accounting firms contributions to campaign finance at $68 million with $115 on lobbying was more modest.
The political leadership colluded with the financial sector by appointing Wall Street expatriates to top official positions including the post of Treasury Secretary. Both Robert Rubin and Henry Paulson were former chair persons of Goldman Sachs. Similarly, many of the lobbyists used by the financial sector were at one time senior government officials. The report found that as many as 142 of the lobbyists employed by the sector were previously high ranking officials either in the Executive Branch or Congress.
This tradition of officials from the government and big business changing position has become entrenched over the years and has come to be known as the ‘revolving chair.’ This tendency is reinforced by the constitutional provision that the senior officials appointed by the outgoing president leave with him and the new incumbent appoints his own team whose tenure lasts as long as the new president. Clearly, those appointed to high official positions know that their tenure, at best, lasts for eight years (maximum tenure of a president) after which they have to return to their old or similar firms. As a result, while in office they tend to promote or safeguard the interests of the big businesses. The practice of senior officials turning into lobbyists is also very well entrenched. Some of the heavy weights such as Henry Kissinger, Cyrus Vance, Lawrence Eagleberger, Alexander Haige, George Schultz, Edmund Muskie and Warren Christopher, all of whom had held the office of secretary of state at one time or another, have been acting as lobbyists for China.
In the words of Harvey Rosenfield, president of the Consumer Education Foundation, the regulatory mechanisms ‘that would have prevented the financial meltdown that began last year were dismantled, and the warnings of those who foresaw disaster were drowned in the ocean of political money. Americans were betrayed, and we are paying the high price—in trillion of dollars—for that betrayal.’ One might add, it was not just the betrayal of America, it was the entire world which became the victim of the greed of American big business and the Washington ruling elite.
The question remains whether the political culture of the United States will ever be reformed. President Barak Obama promises a change but his own record in this context is rather dubious. He has tried to distance himself from the Washington lobbyists and has attempted to marginalize their influence. On the other hand instead of setting an example, he declined to receive federal funding for election expenses which would have restricted his freedom to collect campaign finance. In spite of his widely advertised claims that much of his campaign finance came from small donors, it is now known that much the same as George W. Bush, only 20 percent of his campaign donations came from the small donors, the remaining 80 percent came from the very traditional sources that had funded other politicians. True, he did not accept donations from Washington lobbyists but he did accept donations from law firms connected to the very same lobbyists. In fact, in the 2008 election cycle he was often the largest or second largest recipient of campaign donations from the financial sector firms which subsequently received massive bail out by state funds. President Obama has also, certainly not as much as George W. Bush, appointed big business executives in senior positions. His Deputy Secretary of State Jacob Lew comes from Citigroup. Attorney General Eric H. Holder Jr., comes from the D.C.-based law firm Covington & Burling. Deputy Attorney General-nominee David Ogden has been a partner in the WilmerHale law firm Defense Department General Counsel-nominee Jeh Johnson has been a partner in Paul, Weiss, Rifkin, Wharton & Garrison LP. Securities and Exchange Commission Chairman Mary Schapiro was a board director at Kraft Foods. As the Washington Times reported on February 8, 2009, Jacob Lew reported a seven-figure compensation deal with one of the nation's biggest recipients of bailout cash. This certainly undermines the president’s desire to cap the executive compensation to only half a million dollars. Almost all the above Obama appointees have come with compensations above that limit. Given the president’s need for a second term--one term president is considered a failure in the United States—and the need to maintain a Democratic majority in Congress in 2010, it is highly unlikely that the president will kill the goose that lays golden eggs for him and his party.