The question was simple: Should the lending practices of auto dealers be regulated?
It was already October and the 42 Democrats and 29 Republicans on the House Committee on Financial Services had spent the better part of the year hashing out the details of a new federal agency dedicated to protecting consumers from dangerous and deceptive financial products.
Auto dealers seemed like an obvious target for the new agency; nearly every time someone buys a car, the dealer also sells them an auto loan, complete with promises like zero per cent interest and a pile of cash back. Americans hold some $850 billion in car debt and dealers are responsible for marketing roughly four-fifths of that amount. They pocket lucrative commissions with little oversight, and the committee seemed poised to change that.
Enter Rep. John Campbell (R-Calif.), a former Saab dealer from Orange County, who according to his latest financial disclosure statement still collects rent from some of his former auto dealer colleagues. Campbell downplayed the importance of his industry partners and proposed an amendment to the bill exempting dealers from the new agency's purview. On October 22, it came up for a vote.
As usual, the members filed into the high-ceilinged first-floor hearing room in the Rayburn House Office Building. Committee Chairman Barney Frank oversaw the vote atop four tiered rows of seats, a full story above the witnesses and the audience. The longest-serving Democratic members of the panel -- informally known as the banking committee -- sat to the right or just below the chairman; it can take years, if not decades, for a freshman representative to ascend up the risers.
The clerk called the roll, starting from the top. Senior Democrats roundly rejected Campbell's amendment. It appeared as if the Democrats would beat back the effort and apply the same standard to car dealers that was applied to everyone else.
Then came the bottom two rows, the place where reform goes to die. Despite the disapproval of the powerful chairman and nearly every consumer group in the country, the Campbell amendment passed by a 47-21 margin.
In the fall of 2008, Democrats took the White House and expanded their congressional majorities as America struggled through a financial collapse wrought by years of deregulation. The public was furious. It seemed as if the banks and institutions that dragged the economy to the brink of disaster -- and were subsequently rescued by taxpayer funds -- would finally be forced to change their ways.
But it's not happening. Financial regulation's long slog through Congress has left it riddled with loopholes, carved out at the request of the same industries that caused the mess in the first place. An outraged American public is proving no match for the mix of corporate money and influence that has been marshaled on behalf of the financial sector.
The banking committee is the second-largest in Congress -- the Transportation and Infrastructure Committee has three more members -- and is known as a "money committee" because joining it makes fundraising, especially from donors with financial interests litigated by the panel, significantly easier.
The Democratic leadership chose to embrace this concept, setting up the committee as an ATM for vulnerable rookies. Eleven freshman representatives from conservative-leaning districts, designated as "frontline" members, have been given precious spots on the committee. They have individually raised an average of $1.09 million for their 2010 campaigns, according to the Center for Responsive Politics; by contrast, the average House member has raised less than half of that amount.
Raising that much money, even with a golden seat on the committee, takes an awful lot of time. The Democratic Congressional Campaign Committee (DCCC) pushes members to do as much "call time" with potential donors as is physically possible from the moment they win election -- which doesn't leave much time for legislating.
"It creates a culture where people don't have to show up," says freshman Rep. Jackie Speier (D-Calif.) about the combination of the committee's size and the ever-pressing fundraising concerns. Speier, a freshman on the committee, says she began to think she was stupid for showing up to every single hearing when she first arrived on the Hill. "I don't know if it's just an unspoken rule around here -- because I'm still very new -- but it appears you don't have to show up for the hearing. You just show up to vote... I think for really thoughtful discussion and review to take place, you have to be an active participant. You can't just be the vehicle to whom one of the special interests throws an amendment with a statement attached and feel that you're doing the people's work."
Because the frontline members face the possible end of their careers in November and may be beholden to the whims of powerful donors, the Democrats' 13-seat advantage on the committee is weaker than it appears. If seven members break with the party on a vote, the GOP wins. Rep. Luis Gutierrez (D-Ill.) refers to them as "the unreliable bottom row." (The second row is little better, populated by the Democrats from red-leaning areas who first took office after the 2006 election.)
In short, by setting up the committee as a place for shaky Democrats from red districts to pad their campaign coffers, leadership made a choice to prioritize fundraising over the passage of strong legislation. "It makes it difficult to corral consensus," says Rep. Stephen Lynch (D-Mass.), a subcommittee chairman, of the unwieldy panel.
And just as the lure of money leads inexperienced new members to join the committee, it prompts experienced staffers to bolt for larger paydays in the private sector. "You have this phenomenon where if you have a staffer who's very experienced on a certain issue and is dealing with the financial sector for any number of months or years, all of a sudden they become a real acquisition target for Wall Street," says Lynch.
According to a HuffPost analysis of the 243 people who've worked on the committee -- including clerical and technology staff -- since 2000, almost half of the 126 people who have left registered as lobbyists, mostly for the financial services industry.
And recruiting experienced Capitol Hill hands to work on K Street pays off in material ways. For example, it didn't hurt the auto dealers' chances of winning an exemption that a third of the industry trade group's two dozen lobbyists are former Hill staffers.
Commercial banks, according to the Center for Responsive Politics, spent nearly $50 million lobbying in 2008 and dropped another $37 million in the first three quarters of 2009. They employed 417 federally-registered lobbyists.
And the revolving door turns in both directions. Sixteen of the committee's 86 current staffers -- including a good chunk of the senior staff -- worked as lobbyists before coming to the committee. (And it's not just Republicans; 12 of the 16 are Democrats.)
"The door doesn't just revolve once," says Rep. Brad Miller (D-N.C.). "They tend to go out and come back and go out again. It really does create a set of financial incentives, whether conscious or not."
Though Lynch laments the phenomenon of staffers fleeing to K Street, he's got nothing against the individuals who leave: "I don't begrudge any of these young people with huge student loans and some Wall Street firm wants to compensate them."
Frank blames staff compensation: "We underpay public officials. Particularly the staff. [Lawmakers] get a certain degree of non-monetary compensation -- psychic. You know, I get mentioned on 'Gossip Girl.'"
Staffers get a good look at how the other half lives; they rub elbows with lobbyists both at work (in meetings or even on extravagant field trips) and off the clock, during ritualistic happy hours. Those who attend know the unspoken rule: don't talk too much shop but bring plenty of business cards. The friendly social scene helps explain why there's not much condemnation from staffers for colleagues who leave for higher pay.
"Everyone comes here to stand up for something they believe in, and at some point they go downtown to make money, and at some point someone they worked for draws them back [to the Hill]," says a former staffer who works as a lobbyist. "It's the running joke: a staffer gets married, you better go downtown! Spots open and one of the committee staffers has a kid. They'll be moving downtown. Money is number one."
As the House leadership set up committees for the 111th Congress in early 2009, Frank pushed to shrink the size of his own panel in order to better meet the historic challenges presented by the financial collapse and bailout, say several members of the committee including Reps. Mel Watt (D-N.C.), Miller and Lynch. Instead, it got bigger. "He was obviously outvoted," quips Lynch. "Either that or he missed the meeting."
Frank doesn't conceal his distress at the size of his panel. "I had no part in setting up the committee. That was all the Speaker," Frank says when asked about the front-row frontliners. Then, without prompting, he adds: "It's also very large, which is a problem. We're the second-largest committee, but the transportation committee does not have ideological issues."
The size and makeup of the committee have been a challenge even for Frank, a chairman not lacking in confidence or energy. "It's been very hard work. The committee used to be a very good little committee, because it had the urban constituency. But it's become a somewhat more desirable committee for people," he says. "There are a large number of people who have marginal seats, and it obviously makes me have to work harder and is a constraint on what we can do. We start out with what I want to do, but what's relevant is what I can get a majority for."
The sheer size of the committee can sentence reform to death by a thousand cuts. Each member of the majority, no matter where he or she falls on the political spectrum, has political interests back home. If those interests are affected by the bill, they've got someone on the panel to carry their concerns about "unintended consequences" to the chairman.
Frank denies that the big banks control his committee members; he actually claims that the big banks' backing of legislation these days is so toxic that he doesn't want their public support. "Goldman [Sachs] has no influence down here. Bank of America doesn't. Bank of America was ready to support the consumer policeman," Frank says in an interview in his office, referring to the Consumer Financial Protection Agency (CFPA). That support, he says, was politely declined.
There is some truth to Frank's point; groups like the auto dealers don't bring with them to Capitol Hill the public-relations baggage of Wall Street or Goldman Sachs. "The local auto dealers are very popular in their districts," Frank says. The more an interest group can make an issue district-specific and the more it can relate on an everyday level, Frank argues, the better it will do. "That's why the realtors always beat the bankers. The bankers sit and they go [Frank makes a dour face, leans back in his chair and tightly folds his arms, miming an aloof posture]. The realtors are out there joining the Kiwanis and sponsoring little league."
The same is true with John Deere, dairy farmers and other back-slapping boys from back home. But the big banks have figured this out, too -- and now they use precisely such groups to poke holes in the reform effort. Over the last year, they've drafted an army of credible little guys to walk the halls of Congress and push the interests of brokers, swaps traders and Wall Street bankers. And they've shown that they don't need big loopholes to slip trillions of dollars through.
"What's happening now is the pro-regulation forces are being out-grassroots-ed by the antis," Frank says. One member, he says, represented tons of title insurance companies. Another came from the headquarters of credit unions. A third's district is home to LexisNexis; another to Equifax. Each of those entities received special treatment because their representative sits on the committee -- and the more members on the committee, the more special treatment is needed. "I have not had a problem because of campaign contributions. The problem is democracy: it's people responding to people in their districts: community bankers, realtors, auto dealers, as I said, end users, insurance agents," says Frank.
A video of the vote on Campbell's amendment shows how the auto dealers won their victory. It's both serious and comical. After the senior committee members enter their no votes, the bottom two rows begin weighing in with yes after yes after yes -- followed by unanimous ayes from the GOP side.
Then, once it becomes clear that auto dealers are getting their way, those senior Democrats -- not wanting to get on the bad side of a powerful industry for a losing cause -- actually start switching their votes from no to yes.
As confusion spreads and more votes are changed, Frank tweaks his colleagues with a subtle dig. "Can I ask this? Would members please vote loudly, especially if you plan to vote differently than the clerk anticipates?" The chamber echoes with laughter.
Pretending that there is some mistake, several members ask the clerk how they were recorded before asking to switch their votes. After Rep. Dennis Moore (D-Kan.), a senior New Dem and a subcommittee chairman, employs this technique, Frank puts a stop to it. "I would also say, at the same time, if you know how you're recorded, don't ask the clerk. Just change your vote," he says. This time, there is no laughter.
Later on, when the bill was on the House floor, Frank and Watt, a subcommittee chairman, tried to narrow the exemption but failed. The lopsided committee vote had sapped the strength of the opposition.
The scene of the unfolding vote demonstrates a few things at once: First, notice the size of the committee and the time it takes for everyone to vote. Then, watch the bottom two rows up-end the legislation. And see how difficult the committee is to control, even for as forceful a personality as chairman Frank:
It's in this environment that Frank is tasked with passing what he considers financial reform as historic as "what Theodore Roosevelt and Woodrow Wilson did to control trusts, and what FDR did to control the stock market" -- a regulatory bulwark that stood firmly until it was disassembled in the '80s and '90s.