BEHIND THE COLLAPSE - Washington's Love Affair With Wall Street

(10/10/2008)

The Wall Street financiers and firms whose problems have prompted a $700 billion federal bailout are no strangers to Capitol Hill or to politics, according to the The Center for Responsive Politics.

Since 2001, eight of the most troubled firms in the Wall Street collapse have donated $64.2 million to congressional candidates, presidential candidates, and the Republican and Democratic parties.

The Center for Responsive Politics has said that investment bankers Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, insurer American International Group and mortgage giants Fannie Mae and Freddie Mac have "engaged in a long-time love affair."

The Associated Press says with the exception of Goldman Sachs and Morgan Stanley, all of these companies have been bailed out.

Despite all the campaign talk, blame game and no one taking responsibility, legislators failed in several instances to conduct oversight hearings or to raise concerns as the Bush administration adopted rules that fed the mortgage frenzy and set Wall Street on the route to disaster.

In 2004 when the Securities and Exchange Commission adopted a major rule change that freed investment banks to plunge tens of billions of dollars in borrowed money into sub-prime mortgages and other risky plays, congressional banking committees never held oversight hearings.

The Associated Press is reporting that congressional inaction also allowed mortgage agents to earn high fees for peddling loans to unqualified home buyers and prevented states from toughening regulations on predatory lending practices.

Democratic Sen. Christopher Dodd of Connecticut, the chairman of the Senate Banking Committee who ran unsuccessfully for his party's 2008 presidential nomination, has received nearly $1.3 million from employees of the eight troubled firms since 2001, according to to an investigation.

Dodd spokeswoman Kate Szostak said "In no way does he allow contributions to influence any decision he makes."

In the House of Representatives, Massachusetts Democrat Barney Frank, has taken the least cash ($78,000) of the four House and Senate banking chairmen of recent years.

Frank said that's probably because he "fought like hell" against administration limits on state predatory lending laws, but had limited influence until Democrats won the House majority and he became chairman in 2007.

The Democratic and Republican presidential candidates, Sens. Barack Obama and John McCain, have received a combined total of $3.1 million from the outfits. A small portion went to their Senate campaigns.

McCain is widely declaring he fought against such special interests, and was on-board until a few weeks ago for deregulation.

Former Ohio Rep. Michael Oxley, who was the Republican chairman of the financial services committee in 2004, received more than $260,000 from the eight banks before he left Congress in 2007.

Sen. Richard Shelby, the Alabama Republican who was the banking committee chairman when the SEC rule was adopted, received more than $152,000 in donations.

Experts interviewed by McClatchy News said that inaction by the Bush administration and Congress helped set the stage for the current crisis.

Some state regulators sought help from Congress when the Bush administration adopted rules barring states from enforcing tough laws targeting predatory lending.

Washington was unresponsive.

"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 Governance.

Jacobs, co-author of the new book "The Private Abuse of the Public Interest," said "the big impact that money may have is in discouraging certain topics from ever coming for a vote or even being seriously considered in a committee hearing."

Michael Calhoun, the president of the Center for Responsible Lending, said the investment banks would use $100 million in cash to borrow $500 million, and then plunk all the borrowed money into risky mortgages.

Hands off in Washington - "Let the market decide."


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