Government for Sale: How Lobbyists Shaped the Financial Reform Bill

Two weeks ago, along a marble corridor in the Rayburn House Office Building in Washington, I watched about 40 well-dressed men (and two women) delivering huge value for their employers. Except that we, the taxpayers, weren't employing them

By Steven Brill Thursday, July 01, 2010
    • Illustration by John Ritter for TIME

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    By the time the bill was finished, lobbyists seeking Volcker-rule carve-outs had won complete exemptions for most mutual-fund companies and a provision allowing banks to manage funds and still make investments of up to 3% of their capital and to take up to seven years to sell off the investments they already had. Another highly technical tweak allowed banks to define their capital differently from what was originally proposed, meaning that 3% limit on how much they could invest suddenly got lots higher. And the clean-energy troops won a provision tucked into a paragraph on page 670 that, depending on how the implementation rules get written, might allow exceptions for investments in small or start-up businesses that "promote the public welfare."

    Complexity is the modern lobbyist's greatest ally. The House bill was 1,615 pages; the Senate version 1,565. The final bill weighed in at 2,319 pages. And on almost every page there were dozens of phrases — typically framed in near unintelligible legalese — whose wording could mean millions or billions to some company or industry. Depending on which side you believe, they could also mean better protection — or a worse economy — for the rest of us. The bill requires, for instance, that most mortgage companies that sell off their mortgages in repackaged securities keep at least a 5% interest so that they still have skin in the game. Will this prevent another housing bubble, or will it dry up 5% of the credit we need to revive the housing market?

    Three lobbyists showed me three different proposals for rewording what may be the bill's biggest-money section: a provision in the Senate version that would force the five major banks that do most of the country's trillions of dollars of trading in derivatives — and make nearly $23 billion a year doing so — to spin off those operations. Even holding the dueling paragraphs side by side by side, I found it difficult on first read to appreciate the differences. But on closer inspection and with some pointers from the lobbyists, it was clear that billions in profits depended on the variations in this nearly impenetrable language. In the wee hours of the final morning, the conferees resolved the issue largely along the lines of one of the versions I saw that divided up derivatives into different categories: banks were allowed to keep certain types of trading operations while being forced to shed others.

    "Complexity is our enemy," says Elizabeth Warren, chair of the congressional panel overseeing the Troubled Asset Relief Program, who conceived one of the legislation's marquee provisions — a consumer-protection agency to regulate mortgages, credit cards and other financial products. "The more complex these bills are," she complains, "the more they can outgun us."

    The Grease in the Machine
    This all sounds pretty terrible. President Obama at least acts as if he thinks so. He's barred lobbyists from working in his Administration and used some language to describe them that he hasn't used on BP. The press seems to agree; news outlets routinely use influence peddler as a synonym for lobbyist.

    So why does Dave Wenhold of the three-person lobbying firm Miller/Wenhold Capitol Strategies have "LOBYIST" for the license plate of his Mustang convertible? "Because I am proud of what I do," he says. "I think lobbyists provide input that makes the system work better. And in my case," he adds, "I'm often David going against Goliath."

    Wenhold, a graying, sharp-dressing 42-year-old, serves as president of the American League of Lobbyists, a group that claims to speak — and sometimes lobby — for lobbyists. He points to one of his clients to illustrate the constructive role his profession can play. It's a trade association of small telephone-answering services, the kind whose operators pick up the phone when you call a plumber on the weekend. The answering services have chipped in to pay Wenhold's firm $4,000 a month because they're afraid that the way a single sentence might be drafted in a pending Federal Communications Commission rule could put them out of business. It has to do with a fee all telephone companies pay into a fund to support rural phone service. It's so complicated that while Wenhold's argument that the big companies are trying to have their way with his little guys sounds right, it's hard to know for sure.

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