Undue corporate influence over U.S. elections has been a serious problem in American politics for decades, but this year's Supreme Court ruling in Citizens United v. Federal Election Commission made things worse. Worst of all, we may never know the extent of the damage.
Citizens United freed corporations to spend unlimited amounts of money backing specific political candidates, and without congressional action, those expenditures can be completely anonymous. Major corporations are already capitalizing on the new legal landscape by the millions, and the public doesn't really know who is buying what influence or why.
That's why The Media Consortium will be carefully watching the effects of this ruling in the run up to this year's midterm elections. Every day through Nov. 4, we'll bring you some of the best independent reporting on the effects of corporate spending in an attempt to measure just how widespread the effect of Citizens United will be on this-and the next-election. Keep your eye on "Campaign Cash" as we follow this issue in the coming weeks. If you want to tweet about it, use the hashtag #campaign$.
The impact of Citizens United
As Harvard University Law School Professor Lawrence Lessig explains in an interview with The Nation's Christopher Hayes, the Citizens Unitedv. FEC decision represents one of many ways that corporations buy political favors.
Prior to the ruling, companies couldn't spend money to directly advocate the election of a particular political candidate during election season. They could form Political Action Committees (PACs) to support or attack specific candidates, but those PACs had to be funded by individuals who worked for the company and couldn't be funded from the corporation's treasury directly. The executives of Goldman Sachs, for instance, could band together to form GoldmanPAC and spend their money on whatever candidates they wished-and many corporate employees exercised that right and spent freely on elections through their corporate PACs.
Now corporations can spend as much as they want and actual corporate funds-not just organized individuals-can also be deployed, making massive amounts of corporate cash eligible for political purchasing.
But the scariest part of Citizens United, as Lessig emphasizes, is the money that isn't spent. That is, if a firm makes it known that they are willing spend millions of dollars to fight any politician who opposes them on a particular policy issue, representatives and senators might begin changing their voting behavior in Congress before the company actually has to put up the cash.
And ultimately, Citizens United didn't just legalize unlimited corporate expenses on elections. It also allows those expenses to be anonymous. If companies launder their political cash through a front group, that third-party spender doesn't have to disclose who its donors are.
This isn't your local Chamber of Commerce
As Harry Hanbury details for GRITtv, this laundering scheme is essentially the business model for the U.S. Chamber of Commerce-- a lobbying powerhouse in the nation's capital. Don't be fooled by its name-the U.S. Chamber has almost nothing to do with the local small business coalitions who help strengthen local economies.
As Hanbury notes, 40 percent of the U.S. Chamber's 2008 funding came from just 26 corporations. The group represents many of the nation's largest and most irresponsible corporations, from those responsible for the financial meltdown on Wall Street to BP, the company that spilled millions of barrels worth of oil in the Gulf this summer. The Chamber's branding allows them to disguise their political as a coalition of local businesses while it does dirty work for corporate titans.
When BP was publicly promising to do everything in its power to fix the massive oil disaster it created in the Gulf of Mexico, it was also funneling money to the U.S. Chamber of Commerce. And what was the Chamber up to? It was lobbying furiously to protect BP from new rules that would force the company to pay for oil disaster clean-up. The Wall Street banks did the same thing as financial reform legislation moved through Congress, and companies never have to disclose these expenditures to the public.
So it's no surprise that the Chamber responded to Citizens United by immediately announcing a 40 percent boost in its political spending operations. So much corporate money then flowed into the Chamber that the group chose to boost this budget again by 50 percent, allocating $75 million for its 2010 war chest. So far, the Chamber's ads have favored Republican's 93 percent of the time. No entity spends more on politics than the Chamber-not even the political parties themselves.
Corporations top the list of big election spenders
But while the future of corporate spending in campaigns looks bleak after Citizens United, corporations are still barred from contributing directly to political campaigns. A company might take out a television ad attacking Rep. Alan Grayson (D-FL), but it can't make unlimited contributions directly to Grayson's challenger, Republican Dan Webster.
Nevertheless, corporate employees and company PACs have already been spending lavishly on elections for decades. In a feature for Mother Jones, Dave Gilson compiles the 75 biggest political spenders, both companies and trade groups, from 1989 through 2010, and breaks them down by industry. Goldman Sachs, Citigroup, JPMorgan Chase, and Morgan Stanley are all among the top 20 most extravagant political spenders-but the American Bankers Association, a trade group that all four belong to, is also in the top 10. If you're wondering how Wall Street was able to secure its massive taxpayer bailout in the face of widespread voter outrage, this is your answer.
To soften the Citizens United blow, Congress has been debating the Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act, which would require companies to disclose all of their political expenditures as well as requiring front-groups like the Chamber to list the identities and amounts of its donors. The bill, sponsored by Rep. Christopher Van Hollen (D-MD) and Sen. Russ Feingold (D-WI), cleared the House this summer but was stymied by a Republican filibuster in the Senate.
Undoing the damage dealt by Citizens United through something like the DISCLOSE Act will help, but it won't make our democracy totally safe from corporate abuse. As Lessig notes, the day before the decision was handed down, U.S. election financing was already encouraging rampant corruption and in need of serious reform.
Lessig suggests banning political expenditures by corporations altogether, and placing a hard cap on the amount that individuals can contribute. By limiting individual donations to $100, the ability of corporate PACs to funnel cash into the political process would be thwarted.
This post features links to the best independent, progressive reporting about the mid-term elections and campaign financing by members of The Media Consortium. It is free to reprint. Visit The Media Consortium for more articles on these issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Audit, The Mulch, The Pulse, and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
Bailouts and political connections go hand in hand according to a just released academic study. The study, which was conducted by the Ross School of Business at the University of Michigan researchers, shows concretely that lobbying, campaign contributions, and the finance/federal government revolving door has helped the most damaging banks despite the dangers they pose to our economy.
In the age of the bailout, blaming the revolving door between corporate lobbying and politics is so obvious that it has become almost cliche. But the reason why it is one of the greatest handicaps to our political system is critically important. The revolving door turns "survival of the fittest" on its head by masking failure, propping up underperforming companies, and hiding inefficiencies in the markets. The new study shows the extent to which political connections influenced how TARP bailout funds were paid out.
The researchers found that there was a 31% increase in the likelihood of receiving bailout funds at financial companies whose executives had served on the board of the Federal Reserve. Banks that had connections with members of Congress who serve on key finance committees were found to be 26% more likely to receive bailout funds than banks without those kinds of connections. It is the revolving door between lobbyists and politicians that undermine a fair and accurate system for determining healthy policy.
But the research hits just the tip of the iceberg. Zach Carter at The Nation recently reported on a much deeper case of how the revolving door shapes U.S. policy. Our "too-big-to-fail economy" was developed in large part by one of the country's current top bank regulators; someone who has major conflict of interest with the banks he is supposed to regulate, Carter reports. John Dugan is now chief regulator of the largest US banks at the Office of the Comptroller of the Currency. In one of his former positions at the Treasury, he was a chief architect of the three most influential pillars of banking deregulation that have been blamed for causing the financial meltdown last year (hat tip The Big Picture). In 1991, Dugan published a 750-page book where he successfully pushed for policies allowing banks to operate in multiple states without additional regulatory oversight, to repeal the Glass-Steagall Act allowing safe commercial banks to merge with risky investment and insurance companies, and to allow corporations like General Electric and Sears to own banks.
"[Dugan's book] was unquestionably the blueprint for the major Clinton-era deregulation," says Arthur Wilmarth Jr., a longtime banking scholar at George Washington University Law School. "It was the first real recipe for too big to fail."
A few years after publishing his book, Dugan was out of government and in a new job as a lobbyist with the American Bankers Association working his political connections to help pass the financial deregulatations he described in his book. From his earlier years in government, he had enough pals in Congress and the Clinton administration to get many of his policies enacted. Now he's back playing the game from the government side as one of the country's chief regulators. Same guy, same mind, same mission; just working from the inside at the moment. Indeed, "as head of the Office of the Comptroller of the Currency, Dugan played a leading role in gutting the consumer protection system, allowing big banks to take outrageous risks on the predatory mortgages that led to millions of foreclosures," Carter reports.
The revolving door actively hurts our economy because it puts our country on a path of survival of the richest, most connected lobbyists with cover-ups of market inefficiencies and bad consumer products. Dugan helped dangerous-for-the-consumer, highly-profitable-for-the-bank consumer products pop up throughout the 90's as subprime and adjusted rate loans. The Ross researchers agree that "the effects of political ties on federal capital investment are strongest for companies with weaker fundamentals, lower liquidity and poorer performance - which suggests that political ties shift capital allocation towards underperforming institutions." When money determines political power, the political system itself encourages corporations to put profit and lobbying above developing consumer products people actually need.
Dugan's role in aiding the creation of too-big-to-fail banks was born out of industry. Because Dugan has a highly influential political position, his weaving of politics and private interests which has spanned a career is problematic: "Over the course of nearly a quarter-century, Dugan has proved himself a staunch ally of the American financial elite as a Senate staffer (1985-89), a Treasury official (1989-93) and a lobbyist (1993-2005), building a career that culminated in 2005 when George W. Bush appointed him comptroller of the currency. When the financial system finally succumbed to its own excesses in September 2008, Dugan's fingerprints were all over the economic wreckage, but almost nobody noticed." Dugan's work is exemplary of the phenomena of policy being determined by webs of influence.
To be fair, lobbying presents opportunities for busy politicians to learn about issues. But, unfortunately the weaving of long tentacles in private and public sectors is a prerequisite to effective lobbying. Last week in DC, I met young career politicos who saw Capitol Hill jobs as a first stop on the road to high-paying lobbying jobs later on. Their political connections are golden resume nuggets. This complicated climb to the top is bearing down on policies we see today - President Obama made a campaign promise to keep out the lobbyists in his administration and failed, but the disheartening part is the bottom to top entrenchment of Citigroup executives and lobbyists and their work on financial reform policy.
At its inception, corporations were allowed to exist when they served the public's interest; the Supreme court ended that in the 1800-1900's . No longer bound by public duty, shareholders' returns have become a singular goal in the free market and politics race to the top - Congress seems to have understood less and less the impact these policies have on the economy at large. The money and secret inner circle of influence in DC is unfair because it creates a snowball effect of making the powerful more powerful and policy less about policy. Thus lobbying and its powerful cousin, the revolving door serve to prop up companies that may be weak or have bad products, leading to an economy that is more likely than not to become fractured or in other words, too big to fail.
A new study by Economist Emmanuel Saez revealed this week that income inequality in the U.S. is more severe today than at any time since World War I, and the current recession is taking its heaviest toll on the worst-off members of our society. As our government rebuilds the financial sector using taxpayers' money, it's important to remember that both financiers and the government are responsible to our communities, not just bank shareholders. If we want to strengthen our country's economic foundation, we need to demand better wages for workers and an end to all kinds of predatory lending.
Saez's new data on income inequality is, as Paul Krugman put it, "truly amazing." Saez, who teaches at the University of California at Berkeley, found that the top 0.01% of U.S. earners had 6% of total U.S. wages, more than double the level in 2000. Earners in the top 10%, meanwhile, took home an astonishing 49.7% of all wages. That gap is larger now than during the Great Depression or the Gilded Age of the Roaring '20s.
"We're seeing Depression-era inequality again-only now it's slightly worse," writes Steve Benen for The Washington Monthly. Benen also notes that this level of inequality is not an inevitable consequence of a market economy: It's an extreme historical aberration. In the U.S., prosperity for much of the 20th Century was shared. But in 2007, at the economic bubble's peak, the wealthy simply got wealthier.
In that context, it is beyond absurd that the government is allowing 8-figure bonuses to be doled out by bailed out banks. Writing for Salon, Robert Reich dissects the policy implications of Citigroup's plans to pay its top executives an average of $10 million this year and award over $100 million to its top trader, a man who literally owns a castle in Germany. Citigroup was one of the most reckless U.S. banks during the housing bubble, a major subprime offender that received $45 billion in direct bailout money, as well as hundreds of billions in federal guarantees. How much is $45 billion? With the median U.S. home price at $174,100, that's the full market price of over 258,000 foreclosed homes. The company says that $10 million a head is necessary to attract and maintain top "talent," which Reich notes is a somewhat misleading term, given recent history. The problem is not just that Citigroup and other Wall Street firms are paying tons of money to a few people, it's that these people are being rewarded for the same kind of activities that got us into this mess to begin with: Risky, highly leveraged securities trading.
"Over the last several years Wall Street has exhibited a truly astonishing lack of talent," Reich says, noting that, "The Street is back to the same, relentlessly untalented tactics that made it lots of money before the meltdown-which also forced taxpayers to bail it out, caused the world economy to melt down, and tens of millions of people to lose big chunks of their life savings."
In truth, Reich argues, most large financial firms in the U.S. are much more like public utility companies than private-sector businesses. Even in good times, they depend on government guarantees and other support systems to function. In bad times, we bail them out. Instead of paying financiers tens of millions of dollars to reinforce a flawed system, Reich argues that we should impose rules that result in salaries similar to the public utilities sector, where top earners are generally restricted to 6-figure incomes.
The American Prospect features two pieces emphasizing problems in the current financial sector. Under a law known as the Community Reinvestment Act (CRA), enacted in 1977 we require banks to make loans in communities where they collect deposits. The loans have to be to dependable borrowers and they have to be relatively inexpensive. The law works very well-institutions covered by it made only a tiny fraction of the high-interest subprime loans that brought down the financial sector, as National Community Reinvestment Coalition President John Taylor notes for the Prospect. But CRA only applies to actual banks. You know, the places where you deposit your paychecks. CRA does not apply to subcompanies owned by the same corporation, and it does not apply to giant Wall Street securities firms like Bear Stearns and Goldman Sachs. Taylor says we need to expand CRA to cover these other big players in the financial world.
Why? As Alyssa Katz details in a piece for the Prospect funded by The Nation Institute, many Wall Street firms are bidding on foreclosed properties and selling them at rip-off rates to low-income borrowers.
But as Mary Kane notes for The Washington Independent, banks have also devised several methods of making money without making a loan. By charging tremendous fees on borrowers for minor infractions, banks generate billions of dollars without producing anything of social value. One of the worst forms of abuse, Kane writes, comes in the form of overdraft fees. When you withdraw too much money from your bank account, the bank fronts you the money, and then charges you a fee for this "protection." The trick is, banks almost never tell you that this has occurred, and often play around with the timing of your charges and deposits to maximize the fees they collect. Banks are on track to collect $38.5 billion in such fees this year alone. The worst part is, the fees come from the poorest customers-rich people don't overdraw their bank accounts, because they have tons of money.
In the case of credit cards, banks routinely slap borrowers with outrageous fees and interest rate hikes when the borrowers are making payments on time. Over the years, banks have targeted younger and younger credit card customers, as Adam Waxman notes for WireTap. After years of declining wages for all but the wealthiest citizens, consumers have been turning to pricey plastic to finance basic necessities.
Sadly, corporate America does not seem very focused on helping workers establish their financial independence. The Real News talks with Richard Wolff, an economist with the New School who emphasizes that, while worker productivity has jumped in recent months, wages have not made the corresponding increases. Quarterly productivity numbers tend to jump around a lot, but the trend of not compensating workers for improved efficiency has been around for years.
In a consumer-driven economy, major problems can't be fixed by giving lots of money to a few people, especially if those few people are already rich. To support broad, meaningful economic growth, we need to tailor our policies that empower those on the lower rungs of the economic ladder. And when we bail out giant corporations with taxpayer money, we need to make sure those companies arrange their business to improve the lot of taxpayers.
President Barack Obama rolled out his plan to overhaul financial regulation last week. While much of the Obama plan relies on the same regulators and structures that led to the current meltdown, there is one key exception. The establishment of an independent Consumer Financial Protection Agency would give ordinary citizens a seat at the financial policy table for the first time and prevent the abuses in credit card and mortgage lending that have wreaked havoc on households all over the country.
Earlier this month, President Barack Obama rolled out a new plan to limit the use of offshore tax havens and crack down on corporate abuse of the tax system. These tax havens siphon over $100 billion a year from the government, and have allowed many U.S. banks to duck paying taxes despite receiving massive, taxpayer-funded bailouts. The president's plan is far from perfect, but comes as a welcome acknowledgment of the unfairness embedded in the current tax code.
Climate, health care, financial re-regulation - there's a lot of heavy lifts for the Obama administration these days.
Some reports suggest that another big endeavor is being considered. Last week, new U.S. Trade Representative Ron Kirk announced that he wants to move Bush’s leftover NAFTA-style Panama Free Trade Agreement (FTA) through Congress “as expeditiously as possible.” In his first major policy speech, USTR Kirk contradicted President Obama’s specific and frequent calls for a change of course on our failed trade policy and an end to the tax loopholes that promote job offshoring.
As my colleague Lori Wallach said, "The last time a new Democratic president took on a Bush trade agreement despised by his base, the result was the destruction of the political momentum and honeymoon he needed to pass health care reform and the defeat of the Democratic majority in the next midterm election."
This deal is being pushed by financial firms like Citigroup and AIG, who have subsidiaries in Panama and who can evade U.S. taxes by parking their income there.
The trade deal does nothing to resolve Panama's tax-haven status, and could even make it worse by giving corporations new tools to challenge U.S. anti-tax haven policy.
The nitty gritty on the trade deal and Panama's tax dodging is detailed in this 50-page report my group Public Citizen just put out... the much shorter conclusion summarizes the report, and what can be done to fix the deal and Panama's tax-haven problems.
It seems that another bank on the public dole is using its taxpayer-subsidized time and resources to lobby against the Employee Free Choice Act.
Today, Sam Stein of the Huffington Post reports that Citigroup hosted a private conference call yesterday to bolster opposition to the Employee Free Choice Act that included a senior executive at the U.S. Chamber of Commerce, a business lobbying group that has put tens of millions of dollars into the anti-Employee Free Choice disinformation campaign. Jane Hamsher at Firedoglake notes that the Citi stock analyst who downgraded Wal-Mart over fears of the Employee Free Choice Act passing was on the call, too.
By Zach Carter, Media Consortium MediaWire Blogger
President Barack Obama rolled out his highly anticipated federal budget proposal on Thursday, and while the plan represents a dramatic departure from the priorities of the Bush administration, its ultimate impact may be crippled by a counterproductive bank bailout.
by Zach Carter, Media Consortium MediaWire Blogger
In this week's Audit, we're examining Treasury Secretary Timothy Geithner's thoroughly uninspiring bank bailout plan, which fails on almost every level. What's more, some of the most insightful (and stinging) critiques of the proposal are coming from progressive media
If you were not one of the 2 million people watching the inauguration on the Mall in Washington, you could watch the spectacle on any number of television channels. Flipping between ABC, CBS, NBC and PBS would have yielded different commentary but largely the same mood: euphoria, awe at the magnitude of electing the first African-American president, and somber urgency about what confronts our financial system and the world. Yet, even as Obama warned of a difficult road, the crowds were wildly enthusiastic, and millions were moved. Main Street has turned a corner.
But if you had turned on CNBC, you would have seen a different world. Wall Street was in free-fall, with the worst day for bank stocks ever. Some major banks, Citigroup, Bank of America and State Street especially, lost between 25% and 60% of their market value. Similar sell-offs occurred in British bank stocks, with the Royal Bank of Scotland particularly eviscerated. Wall Street pessimism was terrible a few months ago, and has now transcended pessimism and evolved into manic nihilism.
Citigroup's position weakened, with its shares losing as much as 65 percent after the failed Wachovia deal amid a collapse in investor confidence -- precipitating another rescue attempt.
Again, Bair held out for concessions as the Fed and Treasury sought to shield Citigroup from losses in its holdings of toxic assets. Bair insisted on getting preferred shares for the FDIC in the New York-based bank. She also demanded that Citigroup agree to implement mortgage modifications according to a model developed by her agency.
At one point during a Nov. 23 Fed board meeting about the Citigroup rescue, Chairman Ben S. Bernanke stepped out to take a call from Treasury Secretary Henry Paulson. Returning a few moments later, Bernanke told his colleagues that the secretary was still locked in negotiations with Bair, whose demands were delaying the deal...
On other issues, too, Bair has stepped out in front of her Bush administration colleagues.
As the mortgage bust deepened, Bair repeatedly pushed Fed and Treasury officials to boost aid for homeowners.
In 2007, Bair told lawmakers the Fed should use its authority over home-loan standards to tighten oversight and crack down on the practices that contributed to the subprime mortgage mess.
Ian Welsh discusses this in greater detail. Bair is a principled regulator who stood up against the good ole boys club. It's not a good sign that the new Treasury Chief is trying to ax her for that.
I'm having trouble wrapping my head around the politics of the current bailout and transition. The government is now going to lay out $7.2 trillion in lending to the financial system, which Congress ratified with the bailout vote. And that TARP program is rumored to be enlarged to $1.2 trillion from its current $700 billion amount. Citigroup is being bailed out with a remarkably awful deal for taxpayers, where the government takes a small percentage of the company in return for hundreds of billions of dollars. Robert Rubin, who should be living in disgrace, is going to be an important force in the White House, Larry Summers, who helped cause a lot of the policy problems, will run the Fed in 2010, and Tim Geithner, a Rubin disciple, is going to be the Treasury Secretary.
All of this is in the name of 'stability.' Of course, the automakers are on the brink of devastation, Blanche Lincoln is 'undecided' on the Employee Free Choice Act (so much for that 60 votes in the Senate threshold), and that promise to revise Bankruptcy Laws is far in the distance. This would be mindblowing if I hadn't watched the runup to the war in Iraq, the impeachment of Clinton, and the elite self-protection games that have gone on for years. I never expected Obama to be a progressive (since he kept saying he didn't believe in ideology and wasn't part of the left), and took a lot of heat here for saying that repeatedly. And he's obviously not. But more than that, I'm just kind of floored by the automatic pilot this political system is on, even after ten years of obviously horrible and embarrassing public policies.
It's just simply awful. The law? Pff, whatever. The WTO? No, the rich people want subsidies, that's cool. Congressional authority? Nah, it's obvious that the executive branch is going to be dominant for the foreseeable future, and that the public has very little input into, well, anything. The Very Serious People are still as powerful as they've ever been; we might have helped shuffle around the Village a little bit, but that is it.
Man I hope there is an Obama movement, distinct from Obama himself and with leaders who can create oppositional and proactive stances. This is really really bad.
His problem was a call about Enron he made in November 2001 to undersecretary of the Treasury Peter Fisher. In the call Rubin asked whether Fisher might not want to ask the credit-rating agencies to hold off on any downgrading of Enron's debt--Rubin's point being that delay might allow the company's bank creditors to scramble a rescue.
Rubin, who was phoning at the instigation of Citi's banking head, later told a bipartisan congressional staff investigatory team that he prefaced his conversation with Fisher with a qualifier about this being "probably a bad idea." He'd chosen to put it forth nonetheless, and he wasn't just any caller; he was the former Secretary of the Treasury, weighing in from a company that had huge exposures to Enron. Even so, Fisher thought Rubin's idea was bad, and the matter ended. Later the staff investigation concluded that nothing illegal had happened, leaving the question of impropriety hanging in the air. Rubin says today he can see why the call might be questioned, but that given the circumstances of the time and what he knew, he would make the call again. You have to wonder, though, whether he really would.
In another strike against him, Rubin did not urge Citi to put in something like a "zero defects" program when he arrived there in 1999. In fact, Rubin himself asks today the very large question of why he--along with many others, including the media--did not recognize earlier the investment-banking and research conflicts that have led to so many scandals. His answer, not too satisfying, is that perhaps the great bull market masked many sins or created "powerful incentives" not to dwell on problems when all seemed to be going so well. He calls that a "natural human inclination."
This subprime meltdown, lovingly known as the 'big shitpile' by Atrios, feels eerily like the East Asian crisis in 1998. I was in Japan at the time, and I read in the newspapers about one country after another go into a tailspin, with the financial press offering neoliberal prescriptions from the IMF. Malaysia, which rejected those prescriptions, seemed to do pretty well. Thailand and Korea, not so much.
Rubin was Treasury Secretary at the time. Why is this guy near every major financial disaster of the last ten years, always in an influential yet seemingly peripheral position? And why doesn't he catch blame for it?
UPDATE: I should add that Rubin is widely lauded as the architect of 1990s prosperity for his low deficit and strong dollar policy. Regardless of the merits of his stewardship in the 1990s, it seems odd that he should receive no blame for any of the problems. It's oddly like this Citigroup situation, where he's directly in the path of responsibility and yet somehow seems to be considered above it all.
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