As Dick Durbin watched his effort to stave off home foreclosures get slaughtered in the Senate by bank lobbyists earlier this month, he concluded that the financial industry "frankly owns the place."
They obtained that ownership partly through tens of millions of dollars in campaign contributions to members of both parties. But they also buy the staff, a crucial investment when a few words deep in the text of a bill can mean billions to an industry.
Staffers aren't bought outright with manila envelopes filled with cash. Instead, they see for themselves what fruit awaits a staffer loyal to the banking industry. And then they return to lawmaking.
On Tuesday, the Senate Finance Committee takes up the nomination of Neal Wolin to be Timothy Geithner's number two at the Treasury Department. During the Clinton administration, Wolin worked under Larry Summers as the Treasury Department's top lawyer, where he helped write the deregulation bill -- Gramm-Leach-Bliley -- that undid Depression-era reforms and is partly blamed for the financial meltdown.
The Bush years were good to Wolin, who became head of the lobby shop at Hartford Financial Services Group, where, according to the company website, he "oversaw the company's legal, government affairs, [and] corporate relations." Now Geithner wants him back in the administration.
"Neal wasn't on Wall Street. He was in the insurance industry," said Treasury spokeswoman Stephanie Cutter in an e-mail.
He'll join Mark Patterson, Geithner's chief of staff, a former top lobbyist with Goldman Sachs. (Cutter points out that Patterson also worked for former senator Tom Daschle. "He's got an extensive policy career," Cutter writes.)
Goldman Sachs didn't have to look far for a lobbyist to replace Patterson. It tapped Michael Paese, who has been a top lobbyist for the past year for the Wall Street trade group SIFMA -- the Securities Industry and Financial Markets Association. A Goldman spokesperson confirmed the Paese hiring but declined to comment further.
Before joining the bankers' lobby, Paese wrote laws for Democratic Rep. Barney Frank's House Financial Services Committee. In 2007, he and Rick Delfin, another Democratic committee aide, worked closely with SIFMA to neuter a bill aimed at preventing banks from bundling up and selling fraudulent, subprime loans, according to Business Week (jump to page four) and confirmed by the Huffington Post.
The changes to the bill requested by SIFMA effectively gave banks operating in the "secondary market" a get-out-of-jail-free card for making, bundling and selling bad loans. The bill was watered down and the market for the securitized loans was allowed to continue as it was. The secondary market was almost completely exempted from rules governing liability for bogus loans.
It is the securitization process that prevents homeowners from selling their home for less than is owed on it, forcing them into foreclosure instead. Securitized loans are at the very heart of the financial collapse, as the process allowed banks to shed responsibility for bad loans by bundling them and shipping them off.
After their work on SIFMA's bill, Delfin and Paese went to work for SIFMA. Often in Congress it is the prospect of future riches -- rather than money already delivered -- that can have the most impact. It's a drunken conga line snaking through the party, starting at the staff level, shuffling to K Street and then shaking it over the White House. All a staffer needs to do is get up and dance.
"We are grateful for the opportunity to have provided insight and input throughout the legislative process," Marc Lackritz, SIFMA president and CEO, said before the vote on the bill. Regrettably, he said, he still couldn't support it, because it might cramp the subprime lending market.
"The bill could severely restrict home loans for a segment of consumers striving to reach the American dream of home ownership," he said. "Firms may choose to abandon the market for making loans to individuals with less than perfect credit -- an end result that would restrict credit to the very borrowers this legislation aims to help. It's regrettable that such a well-intentioned bill, if made law, could have the adverse effect of constraining the mortgage credit market, making it harder for families to own their own home."
The bill was a total failure and led to but a handful of mortgage modifications. It did not stop or even slow the subprime lending market, which continued to burn hotly, right up until it scorched the global economy.
After it passed a similar but undeniably tougher mortgage reform bill last week, the House Financial Services Committee patted itself on the back, saying that if "Congress had enacted these long overdue mortgage lending reforms, which Democrats have been advocating since 1999, the subprime lending meltdown could have been avoided altogether."
But the Center for Responsible Lending, in an otherwise laudatory press release, pooh-poohed the bill for coming up short on securitization.
The bill "does not sufficiently fix the misalignment of incentives throughout the mortgage market that led to the current crisis," it said. As they did at the last dance, the industry found a way to carve out generous exemptions for itself. "Moreover, in some very important ways, the bill exempts from its scope those loans that have been bundled into mortgage-backed securities -- the very loans that are proving most problematic as we try to address the foreclosure crisis."