How is it that two years after passage of the much acclaimed Dodd-Frank Wall Street reform (four years after economic crash), Too Big To Fail (TBTF) institutions are not only bigger, but also too big to regulate and too big to jail? Don’t be fooled into believing that because a law has been passed by Congress and signed by the president, it has actually been implemented.
Keep in mind that Congress controls the funding for the federal regulators who are charged with carrying out the reform — Commodity Futures Trading Commission and Securities Exchange Commission. What would possess members of Congress, who bragged about banning banks from gambling with taxpayer money, to force regulators to strategically surrender significant rules by threatening budget cuts?
Answer: their livelihoods. Yes, the very livelihood of a member of Congress is indeed in the hands of the TBTF financial institutions. What better motivation is there than your career and financial future of your family? The financial sector is far and away the largest source of campaign contributions to federal candidates and parties, with insurance companies, securities and investment firms, real estate interests, and commercial banks providing the bulk of that money. In this 2012 election cycle alone, this industry has already donated $122 million to campaigns of members of Congress.
In addition to campaign contributions, this industry spends billions of dollars to lobby Congress. The tally since the financial collapse, 2009 – Q1 of 2012, for this industry is $1.5 billion. Do you think that over a billion dollars can influence members of Congress to threaten regulatory agencies with budget cuts? Of course the agencies are rewriting and redrafting and rehashing the most significant reform regulations until they are void of reform completely.
Linked very closely with lobbying is the high-income revolving door. Practically every industry hires lobbyists to represent and defend their interests in Washington, D.C. But some industries specialize in employing those who previously worked for the federal government they’re now tasked with lobbying. Open Secrets has profiled 826 people who passed through the golden revolving door into this particular industry, capitalizing on the connections that they forged while in public service. Could these connections assist in influencing financial reform legislation?
Although Congress wields power over the legislative process and thus, the non-implementation of Wall Street reforms, the White House wields power over the law enforcement process. What would possess a President, who proclaimed loudly that those causing the economic crisis would be held accountable, to not hold TBTF accountable? Answer: his livelihood. Apparently during our last presidential election, Obama had convinced TBTF that he would play by their rules better than his rival, John McCain, because by the end of January 2008, Obama had raised well over $7 million from the securities and investment industry. All told, Obama far outraised McCain on Wall Street — around $16 million to $9 million — and Goldman Sachs executives sent Obama more money than employees of any other company in the world. This presidential election, however, Romney has convinced TBTF that he will play by their rules better than Obama because at the end of January this year, Obama had only $2.4 million from Wall Street (compared to $7 million last time).
The very game Obama played so well in 2008 is now playing him with the opposing party putting up a shoe-in for Wall Street. Unfortunately, Obama did follow through on his commitment for those earlier campaign contributions. The top leadership appointed at the Department of Justice was drawn almost exclusively from law firms that represented the institutions that DOJ was supposed to be investigating. Covington and Burling, the firm from which both Attorney General Eric Holder and Associate Attorney General and head of the criminal division Lanny Breuer hail, has as its current clients Goldman Sachs, Bank of America, JP Morgan, Wells Fargo, Citigroup, Deutsche Bank, ING, Morgan Stanley, UBS, and MF Global among others. The work at Covington involves defending employees at TBTF institutions from prosecution by the federal government. As Attorney General, Eric Holder was supposed to represent the federal government in prosecuting employees at TBTF institutions, who could have been defended by Covington. In other words, Obama made it clear to Wall Street in January 2009 that their empires were thus joined through an incestuous marriage. Holder’s loyalty to TBTF will be handsomely rewarded too. White collar criminal defense work, like that he performed at Covington and Burling, is “enormously lucrative” for large legal firms. Eric Holder left Covington with a $2.5 million salary and a seven figure bonus. If he returns to Covington (as two of his colleagues at Justice already have) a similar payday certainly awaits him. He would have been permanently banished from his “circle” and banned from his career if he had prosecuted TBTF while at the DOJ.
With members of Congress controlling the rule-making process and the White House controlling the law enforcement, and Wall Street money controlling both, TBTF can continue being bigger than too big to fail, as well as too big to regulate and too big to jail. After years of wrangling, the TBTF Wall Street institutions win the war against capitalism and the free market. These are the only financial institutions that get to keep the upside of their bets, no matter how reckless, but get to stick others, mostly the taxpayers, with the downside of any losses. They aren’t allowed to fail even if they are bankrupt and their management runs them into the ground. When any of the other banks in our economy fail, they get taken over, lose their jobs and shareholders lose their wealth. Capitalism died and we got an aristocracy of TBTF Wall Street and their elected/bought representatives.