Goldman Sachs Publicly Supports Financial Reform, But Fights It With Lobbyists
For all of Goldman Sachs' professed support for an overhaul of financial regulations, the megabank hasn't exactly withdrawn its army of lobbyists. Far from wearing out its welcome, the firm is busier than ever safeguarding its interests while a Wall Street crackdown takes shape in Washington.
Goldman has an unrivaled and influential network of lobbyists, including about 50 people with close ties to Congress and past White Houses, a Huffington Post Investigative Fund analysis of lobbying and campaign records shows. The lobbyists are challenging reforms aimed at Goldman's profit centers, including the trading of complex contracts known as derivatives. The Senate this week will continue debating proposed regulations of derivatives, which are blamed for fueling the financial crisis.
Perceptions of Goldman's role in the crisis, along with a civil fraud case brought against the bank last month by the Securities and Exchange Commission, have already spurred predictions of a less dominant future. But all is not lost for Goldman, which still stands out as perhaps the most influential of the nation's top six banks -- a remarkable feat given a crowded field of well-connected institutions.
Goldman's professional persuaders hail from 14 different lobbying firms, Senate lobbying records show. No other top bank -- not JPMorgan Chase & Co., Bank of America, Morgan Stanley, Wells Fargo or Citigroup -- has as many firms lobbying on its behalf. Goldman has hired nearly 40 lobbyists, all former government employees, to target financial reform alone, Senate disclosure records show.
These services have not come cheaply. Since the beginning of 2009, Goldman has spent nearly $6 million on lobbying, according to the nonpartisan Center for Responsive Politics. Only Citigroup and JPMorgan spent more.
So far this year, Goldman has revved up its lobbying even further. In the first three months of 2010, the bank spent $1.53 million lobbying, a 22 percent jump over the same period last year. Goldman also has increased its donations to political campaigns.
"It does show how a corporation will leave no stone unturned -- creating a powerful and potentially influential lobbying force," said Ellen Miller, co-founder and executive director of the Sunlight Foundation, a Washington-based nonprofit organization that advocates for greater disclosure of how Washington works and is influenced.
To be sure, Goldman isn't the only investment bank with a sophisticated lobbying operation, and pro-financial reform groups have attacked them all. Last week, three liberal advocacy groups said they had tallied the amount of money big banks are spending to influence financial reform: An estimated $600 million on lobbying and political campaign contributions since the government bailed out Bear Stearns in March 2008, and a lobbying force of more than 240 former government officials and Capitol Hill staffers. (Labor groups today will take to the lobbying industry's venerable K Street corridor in Washington to protest the prominent role lobbyists are playing in the financial reform debate.)
Most of Goldman's lobbying is done through an internal firm, The Goldman Sachs Group.
Leading the group is Michael Paese, who was deputy staff director of the House Financial Services Committee until September 2008. Rep. Barney Frank (D-Mass.), chairman of the committee, has prohibited Paese from lobbying the committee for two years. He did so to prevent Paese from influencing the House's Wall Street reform bill, which Frank largely crafted. Paese can still lobby other lawmakers, the White House and government agencies.
Paese and his group have indeed cast a wide net, lobbying the House, the Senate, the SEC and the Commodity Futures Trading Commission, records examined by the Investigative Fund show. Last year, in the wake of the financial crisis, the group zeroed in on Congress' impending overhaul of Wall Street. They lobbied on financial reform issues each quarter, records show.
A Goldman spokeswoman declined to comment for this story and several Goldman lobbyists did not return calls seeking comment. Without speaking to the lobbyists, it can be hard to tell exactly what they are arguing for or where they stand, because of the vagueness of lobbying disclosure reports.
Public statements suggest that, on the face of it, Goldman appears to support reform. "I think, on the whole, financial reform is absolutely essential," Goldman's Chief Executive Lloyd Blankfein told the Senate Permanent Subcommittee on Investigations last month. "America will be a big beneficiary" from reform, he predicted, though he added, "we will as well."
But some congressional staffers note that big banks are vigorously opposed to reforming their profit-making ways.
The legislation is "especially tough on Wall Street," said Steve Adamske, a spokesman for the financial services committee. "They've all come to talk to us, and none of them like the bill."
Financial reform legislation, in particular some proposed regulations of derivatives, could hit Goldman especially hard.
Derivatives protect companies from the risks of investing in stocks, commodities and mortgage-related securities, among other items. In the lead up to the 2008 financial collapse, Goldman would sometimes sell risky mortgage-related securities to investors, use derivatives to bet that the securities would fail and profit when they did.
At the hearing last month, Blankfein said he supported new derivatives rules, which for the first time would bring much of the $600 trillion private market onto regulated exchanges and clearinghouses.
"While derivatives are an important tool to help companies and financial institutions manage their risk, we need more transparency for the public and regulators as well as safeguards in the system for their use," Blankfein said.
But Senate disclosure records show that Goldman's lobbyists have paid close attention to proposed derivatives regulations during the past year. After all, the bank could lose 41 percent of its profits if the new derivatives regulations pass, according to a new report by Bernstein Research.
One controversial provision in the bill would prohibit banks from trading derivatives altogether, which could cost Goldman billions of dollars in revenue. The plan would force banks to spin off their derivatives trading into separate entities. This idea came from Sen. Blanche Lincoln (D-Ark.), chairwoman of the Senate Agricultural Committee, which passed a derivatives reform bill last month.
Goldman executives and lobbyists met with Lincoln last month to voice their objection to her proposal, according to news reports. Goldman also planned to host a campaign fundraiser in New York for Lincoln, who is facing a fierce primary challenge Tuesday. After the SEC filed its fraud case against Goldman, Lincoln canceled the fundraiser and said she wouldn't take any more cash from the bank. Goldman executives and the bank's political action committee have given about $2.4 million to federal candidates during the last two years, according to the Center for Responsive Politics.
Meanwhile, Goldman's arsenal of lobbyists -- a collection of former White House staffers, SEC employees and congressional committee aides -- has provided the bank with direct access to lawmakers.
Paese answers to Faryar Shirzad, head of global government affairs for the Goldman Sachs Group. Shirzad was a top economic and national security aide to President George W. Bush. The group also employs Ken Connolly, a former staff director for the Senate Environment and Public Works Committee; Joyce Brayboy, a former chief of staff for Rep. Melvin Watt (D-N.C.); and Joe Wall, a former deputy assistant for legislative affairs under former Vice President Dick Cheney.
Goldman also hired 13 outside lobbying firms, according to Senate lobbying disclosure forms. These lobbyists include former House Majority Leader Richard Gephardt; Stephen Elmendorf, Gephardt's former adviser; Ken Duberstien, former chief of staff to President Ronald Reagan; and Janice O'Connell, former adviser to Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee. Goldman also has tapped Harold Ford Sr., a former Democratic congressman from Tennessee and Daniel Meyer, former chief of staff to then-Speaker of the House Newt Gingrich.
The bank, once nicknamed "Government Sachs," has a long tradition of swapping employees with the federal government, including Treasury Secretaries Henry Paulson and Robert Rubin. Elena Kagan, the U.S. solicitor general and recent nominee to the Supreme Court, served on a Goldman advisory council from 2005 to 2008.
Goldman has also gained influence by hiring a series of Washington insiders who technically aren't lobbyists. In April, Goldman hired communications specialist Mark Fabiani, known as the "Master of Disaster" for his handling of public relations crises. The bank also hired veteran New York Times reporter Stephen Labaton, who wrote about regulatory issues. Labaton, who also is a lawyer, serves as a full-time consultant and reports to Blankfein.
Although Goldman's influence troops have largely focused on banking issues, the bank has also lobbied the House and Senate over transportation infrastructure legislation and renewable energy tax incentives for wind and solar power.
Goldman's lobbyists last year also aimed to influence the Treasury Department as it decided whether to allow the bank to pay back $10 billion in bailout funds received in 2008. In April of last year, the bank paid back the money in order to shake off compensation and hiring restrictions imposed on banks that took government aid. The bank expressed its "disapproval" of these restrictions, according to last year's lobbying records.
Goldman's more immediate concern, meanwhile, is the SEC's accusations of fraud and potential criminal charges that could ensue from that case.
In response to the commission's accusations, Goldman is beefing up its legal team. The megabank is projected to hire Paul, Weiss, Rifkind, Wharton & Garrison, a prominent corporate law firm, according to a Financial Times report. An SEC spokesman said he could not comment if Goldman, after hearing about the civil fraud investigation, dispatched lobbyists to dissuade the commission from pursuing the case.
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