Lawmakers Regulate Banks, Then Flock to Them
Representative Barney Frank publicly rebuked a former aide this month for taking a job with a big Wall Street firm right after drafting a regulation that could affect the way the firm does business. Mr. Frank described it as an unusual transgression, one that embarrassed others working on the legislation and created at least the appearance of a conflict of interest.
But while the speed of the aide’s switch from government to Wall Street was extraordinary, it reflected reality as Congress takes on an overhaul of the system of regulating financial giants: Wall Street, perhaps more than any other industry, is bolstering its lobbying forces, and turning more and more to former lawmakers and Congressional staff members to lead the fight against stiff rules.
The revolving door is an oft-noticed phenomenon here, but in recent years, the migration from Congress to the financial services firms that are trying to stave off greater federal regulation has become more pronounced.
From anonymous midlevel workers to former House and Senate majority leaders, more than 125 former Congressional aides and lawmakers are now working for financial firms as part of a multibillion-dollar effort to shape, and often scale back, federal regulatory power, data shows. Indeed, some of the biggest players in Washington politics are lobbying now on the regulatory bills that are making their way through Congress.
One former representative, Michael G. Oxley, the Ohio Republican whose name is on one of the most famous pieces of business regulatory legislation, is a senior adviser to the Nasdaq stock market.
The legislation, the Sarbanes-Oxley Act of 2002, imposed tougher accounting measures on firms after scandals at Enron and other companies. Mr. Oxley received $40,000 in the last quarter of 2009 for lobbying to limit the ownership of banks and other competitors in clearinghouses.
Another former Republican representative, Richard H. Baker of Louisiana, served 12 years as chairman of the House banking panel that oversaw capital markets before he left Congress in 2008. He is now president and a registered lobbyist for the Managed Funds Association, which represents the largest trading firms in the trillion-dollar hedge fund industry. The association reported spending $3.7 million last year alone to lobby federal officials on regulations for hedge funds.
An analysis by Public Citizen found that at least 70 former members of Congress were lobbying for Wall Street and the financial services sector last year, including two former Senate majority leaders (Trent Lott and Bob Dole), two former House majority leaders (Richard A. Gephardt and Dick Armey) and a former House speaker (J. Dennis Hastert).
In addition to the lawmakers, data from the Center for Responsive Politics counted 56 former Congressional aides on the Senate or House banking committees who went on to use their expertise to lobby for the financial sector.
Visa had the most former Congressional officials, with 37 lobbyists; it was followed closely by other financial powerhouses like Goldman Sachs, Prudential, Citigroup and the American Bankers Association, according to the analysis from Public Citizen, an advocacy group that has pushed for tougher lobbying restrictions.
The case of Peter S. Roberson, whose hiring by a derivatives clearinghouse drew the ire of Mr. Frank, is the most extreme, and it points to holes in the rules governing lobbying by former aides.
As a senior aide to Mr. Frank on the House financial services committee, Mr. Roberson helped draft legislation last year on regulating the over-the-counter derivatives market, which played a big part in the 2008 market collapse. After leaving his Congressional post in January, he began working as a lobbyist for IntercontinentalExchange, the world’s leading clearinghouse for derivatives.
Mr. Roberson, who was paid $124,416 last year as a senior aide, is banned from contacting or lobbying his former colleagues on the committee. But that will not stop him from lobbying, if he chooses to do so. Indeed, he is opening the Washington lobbying office of the exchange.
He is allowed to contact other committees that will be considering the derivatives part of the legislation, like the agriculture committee, as well as anyone in the Senate, where the debate has now shifted. The House has already approved the legislation written by Mr. Frank.
IntercontinentalExchange, known as ICE, said that Mr. Roberson would not be available for an interview and declined to say who had initiated the job discussions. In a statement, Johnathan Short, general counsel for the company, said, “ICE is aware of and has respectfully followed all requirements under House ethics rules governing contact between members, current and former staff. We hired Peter with a full and complete understanding of existing ethics rules and the chairman’s purview in administering the same.”
In an interview last week, Mr. Frank said that he was incensed when Mr. Roberson informed him several months ago that he was in job discussions with the exchange. “In this case, what made it particularly egregious was that he had been working specifically on legislation that was relevant to the company — he had been working on derivatives,” Mr. Frank said.
Some critics of the legislation maintain that the section of the bill regulating derivatives is now tainted because of the involvement of Mr. Roberson, who had worked as a lobbyist for the Bond Market Association before going to work for the financial services committee in 2007.
Mr. Frank said he was confident that Mr. Roberson had not influenced or softened the final drafting of the rules with an eye toward a future employer — “nobody slips that stuff by us,” he said — but he acknowledged that the situation had driven public skepticism.
“It’s the appearance as much as anything else,” he said. “He may be able to give them some insight into how things were worded, etc.,” he added.
Mr. Frank barred Mr. Roberson from having any contact with his committee for as long as he is chairman — a step that goes beyond the one-year restriction in House rules — and he said that he would also order his staff not to have any job discussions in the future with companies for which they are drafting regulations.
“You should not be allowed to do that, because it could have an influence on you,” he said.
It was the second time in less than two years that Mr. Frank had imposed a restriction that went beyond House rules in dealing with a staff member turned lobbyist. He said he had imposed a two-year restriction on any committee contact with Michael Paese, the former deputy staff director at the committee who left in August 2008 to be a lobbyist and top executive with the Securities Industry and Financial Markets Association.
Lobbyists and several executives at financial firms that employ them, none of whom would agree to be named, said that former members of Congress and staff members were in high demand because they brought invaluable expertise and access on federal matters.
“Hiring a well-connected staffer can run a firm something like $300,000 to $600,000 a year, and for a member of Congress, it’s anywhere from $1 million to $3 million,” said Craig Holman of Public Citizen. “The only businesses that can really afford that are those that are very wealthy, but clearly these companies are getting their money’s worth.”