Journalism in the Public Interest

Friends in Low Places: Where The Real Lobbying Happens

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Obsess all you'd like about President Obama's nomination of Mary Jo White to head the Securities and Exchange Commission. Who heads the agency is vital, but important fights in Washington are happening in quiet rooms, away from the media gaze.

After a widely praised stint as a tough United States attorney, Ms. White spent the last decade serving so many large banks and investment houses that by the time she finishes recusing herself from regulatory matters, she may be down to overseeing First Wauwatosa Securities.

Now, Ms. White maintains she can run the S.E.C., without fear or favor. But the focus shouldn't be limited to whether she can be effective. For lobbyists, the real targets are regulators and staff members for lawmakers.

Ms. White, at least, will have to sit for congressional testimony, answer occasional questions from the media and fill out disclosure forms. Staff members, however, work in untroubled anonymity for the most part. So, while everyone knows there's a revolving door — so naïve to even bring it up! — few realize just how fluidly it spins.

Take what happened late last month as Washington geared up for more fights about the taxing, spending and the deficit. The Senate majority leader, Harry Reid, Democrat of Nevada, decided to bolster his staff's expertise on taxes.

So on Jan. 25, Mr. Reid's office announced that he had appointed Cathy Koch as chief adviser to the majority leader for tax and economic policy. The news release lists Ms. Koch's admirable and formidable experience in the public sector. "Prior to joining Senator Reid's office," the release says, "Koch served as tax chief at the Senate Finance Committee."

It's funny, though. The notice left something out. Because immediately before joining Mr. Reid's office, Ms. Koch wasn't in government. She was working for a large corporation.

Not just any corporation, but quite possibly the most influential company in America, and one that arguably stands to lose the most if there were any serious tax reform that closed corporate loopholes. Ms. Koch arrives at the senator's office by way of General Electric.

Yes, General Electric, the company that paid almost no taxes in 2010. Just as the tax reform debate is heating up, Mr. Reid has put in place a person who is extraordinarily positioned to torpedo any tax reform that might draw a dollar out of G.E. — and, by extension, any big corporation.

Omitting her last job from the announcement must have merely been an oversight. By the way, no rules prevent Ms. Koch from meeting with G.E. or working on issues that would affect the company.

The senator's office, which declined to make Ms. Koch available for an interview, says that she will support the majority leader in his efforts to close corporate tax loopholes. His office said in a statement that the senator considers her knowledge of the private sector to be an asset and that she complies with "all relevant Senate ethics rules and disclosures."

In a statement, the senator's spokesman said, "The impulse in some quarters to reflexively cast suspicion on private-sector experience is part of what makes qualified individuals reluctant to enter public service."

Over in bank regulatory land, meanwhile, January was playing out like a Beltway remake of "Freaky Friday."

Julie Williams, chief counsel for the Office of the Comptroller of the Currency and a major friend of the banks for years, had been recently shown the door by Thomas J. Curry, the new head of the regulator. Banking reform advocates took that to be an omen that a new era might be dawning at the agency, which has often been a handmaiden to large banks.

Ms. Williams, of course, landed on her feet. She's now at the Promontory Financial Group, a classic Washington creature that is a private-sector mirror image of a regulatory body. Promontory is the Shadow O.C.C. The firm was founded by a former head of the agency, Eugene A. Ludwig, and if you were to walk down the halls swinging a copy of the Volcker Rule, you would be sure to hit a former O.C.C. official. Promontory says only about 5 percent of its employees comes from the O.C.C., but concedes about more than a quarter are former regulators.

Promontory, as the firm explains on its website, "excels at helping financial companies grapple with and resolve critical issues, particularly those with a regulatory dimension." But it plays for the other team, too, by helping the O.C.C. put into effect regulatory reviews. The dreary normality of this is a Washington scandal in the Michael Kinsley sense: a perfectly legal one.

Promontory, which demurred on a request to talk with Ms. Williams, has a different view. The firm doesn't lobby or help in litigation. It argues that after banks stop fighting regulators and lobbying against rules, then they come to Promontory to figure out how to fix their problems and comply.

"We are known in the industry as the tough-love doctors," said Mr. Ludwig, the chief executive of Promontory. "I am deeply committed to financial stability, and the only way to have stability is to do the right thing in both the spirit and letter of the law."

Hmm. Remember the Independent Foreclosure Review, the program that the O.C.C. and other federal bank regulators trumpeted as the largest effort to compensate victims of big banks' foreclosure abuses? As my colleague at ProPublica, Paul Kiel, detailed last year, that review involved consultants like Promontory essentially letting banks decide who was victimized. How well did that work? So well that the regulators had to scuttle the program because it hadn't given one red cent to homeowners but somehow, I don't know how, managed to send more than $1.5 billion to consultants — including Promontory.

Promontory maintains that it complied with the conditions set out by the O.C.C. And the review was replaced by a settlement, which the regulators say will compensate victims — though the average payout is small beer.

Who, exactly, makes the rules at the O.C.C.? I mentioned "Freaky Friday." That's because at the agency, Ms. Williams is being replaced by Amy Friend. And where is Ms. Friend coming from? Wait for it ... Promontory. In March, maybe they'll do the switcheroo back.

The O.C.C. didn't make Ms. Friend available but said that her "talent, integrity and commitment to public service are beyond reproach" and would be subject to the rule requiring her to recuse herself for a year on matters specifically relating to her former employer.

I spoke with people who said she was a smart and dedicated public servant, an expert on the Dodd-Frank Act who can help finalize the scandalously long list of unfinished rules and expedite its implementation.

"Amy Friend is absolutely rowing in the right direction," said a Senate staff member who worked on efforts to push for stronger financial regulation.

Let's hope so.

But people also described Ms. Friend as pragmatic. In Washington, that's the ultimate compliment. Sadly, that has come to mean someone who seeks compromise and never pushes for an overhaul when a quarter-measure will do.

Washington today resembles something like the end of "Animal Farm." People move from one side of the table to the other and up and down the Acela corridor with ease. An outsider looking at a negotiating table would glance from lobbyist to staff member, from colleague to former colleague, from pig to man and from man to pig and find it impossible to say which is which.

John Anderson

Feb. 20, 2013, 2:15 p.m.

Well done Jesse. For starters, the use of First Wauwatosa was genuinely brilliant.

More seriously though—at a time when no financial institution’s disclosures truly represents what they do and how well they’re doing it, to have these gremlins around the fray doesn’t bode well for that changing anytime soon.

John Anderson

Donald Isenman

Feb. 20, 2013, 6:24 p.m.

I find it increasingly distressing to read stories like this—brilliantly and amusingly written as it is; I have been saying for decades (I’m in my 83rd year) that the government is totally and completely corrupt. I was hoping to see some improvement before my death, and though that seems unlikely, it is people such as yourself, should you ever get the the traction you deserve, who will be responsible for a more ethical government should such an outcome ever occur. You are the hope for the future of our country, a country that lost its way after W.W. II beginning with the phoney Cold War.

Julie Stroeve

Feb. 20, 2013, 8:33 p.m.

That Harry Reid is calculating in order to do nothing is a given.  Our elected officials are all about preserving their organizational power structure (Congress) as opposed to doing the peoples’ work.  This is distressing at a minimum.  If Harry Reid “doesn’t have the votes” according to the Whip Byron Dorgan, then who the hell can go out and get the votes?  If this is not the time to renew rules and govern (as each one is elected to do), then who the hell will?  This is dysfunction at is best.  I’m 60 y20 years, I just might have to run for elected office with the intention of governing.  Let’s not put up barriers like changing “Senate Rules” to governance.  If the “Senate Rules” don’t allow governance, then by god change them.  Harry’s going to get primary’d.  Let’s see what happens then.  This just cannot continue.


This is one of your important pieces that is both energising and dispiriting simultaneously. I liked the Animal Farm reference at the close. Being based in London, I read more about the UK’s revolving doors between each industry and its supposed legislators.
Four legs better.

Of course, changing this means getting past the (honestly realistic) objection that there isn’t remotely the time it would take to vet every single staffer and bureaucrat in government.  I’d like to flood them out, myself, but it’s one thing to want it and quite another to have a way that doesn’t tie up the entire government for weeks hiring a Senator’s staffer’s secretary.

A start (but only a start) would be to have a law barring conflicts of interest by staffers in their ordinary business, of course, but I have trouble imagining the situation where that can be enunciated to enough lawmakers to pass it, considering who mediates between us and them.

So, this is how sausage is made.
—thanks for the great reporting to Jesse and ProPub

John said: “I’d like to flood them out, myself . . .”

That visual image is going to stick with me for awhile - I love it!…support the imminent military coup…clone Jesse…

Jesse Eisinger

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at .(JavaScript must be enabled to view this email address)