I have my nomination for the highest return investment of the past three years — the hundreds of millions the financial industry spent on lobbyists who take their percentage and then pass lots of it along in heavily string-attached political contributions.
The fascinating part of this whole game is how the game itself derails any attempt to reform it. By the way, the corruption-maintenance by the system only partially includes the nightly fund-raising cocktail parties in Washington where the standard lobbyist contribution is $5,000.
I recently ran across an interpretation of how the system itself corrupts, a view suggesting cash-stuffed envelopes or enormous political contributions aren’t the biggest influence. Those tawdry and obvious forms of payoff may not be nearly as effective as the lifestyle change that our whole system of 2-year election cycles gives to a lawmaker.
In short, the fact is that the expensive meals, first-class (or chartered jet) transportation, meetings (with family invited) in exotic vacation spots, etc. are the environment in which a Congressional or important state office holder does their begging for money. It’s all paid for, and allowed, funded by lobbyists or major contributors so those politicians can meet with and ask for support from those well-heeled contributors. Living that upscale life may be the real corrupter in this picture.
We certainly can’t expect billionaires to agree to a lunch at Applebee’s to meet the candidate, can we?
But the candidate gets multiple invitations every week, effectively living the lifestyle of the rich and famous simply by being part of the system. If they refuse to play the game by only taking small contributions, or if they disappoint the big money crowd too often, that candidate (and their family) loses out on a number of free vacations each year and too many dinners with $200 bottles of wine to count. In short, they take a massive hit to their quality of life if they don’t get invited to the big league money-raising events.
Maybe now we can understand how US Representatives can cry poverty at their $174K per year salary level. After all, they couldn’t possibly pay for all the great things they and their families now enjoy thanks to the lobbyist/contributor fundraising merry-go-round.
If that isn’t enough to make you want to give up on democracy, we can throw in the reality of how laws get written — by experts on the topic. No one can expect 20-somethings that intern and staff Congressional offices to know the details of policy down to the level needed to address things like offshore drilling safety standards and tests, medical procedures that need to be called “experimental” or require a second opinion, the details of derivative securities off-balance-sheet swap contract settlement, and the thousand other issues each Member of Congress needs to vote on. Instead, the laws themselves are written by mid-six figure experts at the lobbying firms with 20+ years detailed industry experience.
It should come as no surprise, then, when an apparently insignificant afterthought two-paragraph bit of the Troubled Asset Relief Program turned the entire program into a below-market-rate taxpayer purchase of preferred stock, doing exactly nothing for the borrowers trapped in those subprime or negatively amortizing loans. In fact, the program never even bought any of the troubled bonds. It just handed the banks more working capital paying less than half the market rate when they couldn’t get it anywhere else, and invited them to ride the carry trade (0% short rates, 4% or higher long rates) until they earned enough to offset the credit losses.
Whichever bank or Wall Street firm paid millions to the lobbyist who suggested that “alternative” for the TARP money to be spent earned their fee and then some.
Just look at the difference between the 10% interest rate and boatload of warrants Warren Buffet got for his investment in preferred stock in Goldman months before the crisis really hit. After Lehman failed and the Commercial Paper and interbank lending markets collapsed, the terms for that kind of investment would have been at least 15% to 20% interest rates and ownership that started at 10% of the companies and went up from there. Ask any private equity investor what they would have demanded to invest at the end of September of 2008.
Instead, the taxpayers got single-digit interest rates on their investments and equity “kickers” that would have been less than the arrangers’ upfront fees. A joke, in other words. Just 5% lower interest amounts to $50,000,000 (Fifty Million!!) per billion invested, per year. And our banking system got hundreds of billions on those terms.
Sure they paid it back. Did it keep the housing market from sinking so far that tens of millions of responsible homeowners who did all the right things were also in trouble? No. Did it do anything to arrest the decline in the construction industry or prevent millions of us from losing our major storehouse of family wealth? No. It did rescue the banks, and even gave them the wherewithal to merge themselves into even bigger TBTF potential problems in the future.
And it gets worse.
Dodd-Frank was a toothless tiger even before it got voted on. And even that toothless tiger is being defunded and left without a leader thanks to ideologues who use perversions of parliamentary procedure to prevent the nation from having its laws enforced. They don’t even have to repeal a law they don’t like if they can keep it from being enforced. I’d guess that every one of those Congressmen and Senators has all the high-end fundraising event invitations they can handle. It can’t have hurt the fund-raising prospect when the next Chairman of the Congressional committee that oversees banks said that the proper role of government is to serve banks.
Since the bizarre new law written by a 5-4 majority of the Supreme Court in its Citizens United decision, the business of creating specialized concentrated government benefits has boomed. It stands to reason that even if two thirds, three quarters, or even 99% of us suffer from a new law, new or repealed regulation, new spending or new tax break, that minority who benefits can afford to spend a piece of the future profits on getting the legislators lined up to to do their bidding.
It’s no coincidence that the infamous Arizona illegal immigrant state law was drafted by the company that has the Arizona contract to warehouse those picked up in any local police action while waiting for an understaffed immigration hearing system to deal with each case. And most of those contributions were before the caps came off, but they were made to state legislators who definitely listen when they get a couple thousand dollars (the old limits), so that money did the job of providing a truly amazing return on investment to Corrections Corp of America.
Now that corporations can anonymously spend millions on influencing elections, how could we expect anything different than an orgy of political spending that maximizes potential profit for them doing the spending? For those who set up the corporate spending vehicles, like Karl Rove, the power of having at least $250 million to spend on one election with no controls whatsoever says he may have even more influence from his private office in Texas than he had in his old office in the West Wing.
From the many, all we have goes to the corporation. E Pluribus Corporatum. It might even aesthetically improve The Great Seal of the United States of America, because that oversized typefont of the Unum part of the motto always bothered me.