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Revolving Door Between K Street and Congress Continues Despite Regulations

by Andrew Gripp, published

Few quid pro quos are as apparent as when McDonald’s CEO, Ray Kroc, donated $250,000 to President Nixon in 1972 in return for an exemption from price control that allowed McDonald’s to raise the cost of a quarter pounder with cheese -- along with its profits.

Nevertheless, lobbying has its payoffs. A study released by the University of Kansas in 2009 showed that between 2003 and 2004, 93 firms seeking tax holidays -- companies such as Pfizer, IBM, and Johnson & Johnson -- saw a 22,000 percent return on investment for their lobbying expenses.

When President Obama took office, he vowed to curb the power of special interests and pledged not to bring lobbyists into his administration. Moreover, during his re-election bid, he swore not to raise money from lobbyists.

However, the president did accept over $500,000 in “bundled” contributions from Pfizer executive Sally Susman. Though Susman ran the company’s lobbying operations in 2011 and had visited the White House on several occasions, Obama accepted the cash because Susman herself was not officially registered as a lobbyist.

The president accepted millions in cash from similarly unregistered magnates.

The president's hypocrisy is reminiscent of his ties to the Chicago bundler and convicted criminal Tony Rezko, with whom he engaged in a questionable home purchase deal in 2005. Obama is not the only Democratic lawmaker to serve in the Senate to be involved in similar housing deals.

Perhaps the most venal relationship of this sort was between former Senate Banking Committee Chairman Chris Dodd (D-CT) and former Countrywide Financial CEO Angelo Mozilo, who personally saved Dodd -- one of many in the "Friends of Angelo" group -- thousands on waived fees for two separate mortgages.

Countrywide was perhaps the greatest participant in the subprime mortgage lending scheme that generated the 2008 financial crisis.

Bank of America (BofA) --  which received billions in the Dodd-approved TARP bailout and donated over $100,000 to Dodd since 1989 -- purchased Countrywide in January 2008.

When BofA realized the extent of Countrywide's abuses and the toxicity of its assets, it approached Congress months later and revealed a 28-page plan that put taxpayers on the hook for some of its newly acquired distressed mortgages. Dodd later proposed a bailout and mortgage-insurance bill that borrowed language from these lobbying proposals -- a bill with an estimated $1.7 billion cost to the public.

One lobbyist told a Senate staffer, “the bailout is exactly what Bank of America and Countrywide wanted."

Two months after Dodd left the Senate in 2011, he betrayed his promise not to become a lobbyist and became the head of the Motion Picture Association of America,

joking, "I left one group of bad actors for another group of bad actors."

Leading House Republicans have done the bidding of lobbyists and donors as well.

In the 1990s, Golden Rule Insurance Co, with its lavish contributions to the GOP, nearly succeeded in getting former Speaker Newt Gingrich to reform Medicare by gradually replacing it with a medical savings account (MSA) scheme -- one that would have secured the company millions of new customers.

And current House Speaker Boehner, who in 1996 once brazenly handed out checks from the tobacco industry to fellow Republicans on the assembly floor, is close to many powerful business lobbyists – including former members of the now disbanded "Thursday Group."

However, not all lobbying is equivalent to throwing money at the right person. Lobbyists also seek to influence policy by targeting government agencies in the executive branch.

According to the Administrative Procedures Act of 1946, all federal agencies must follow a two-step process when creating regulatory policies -- a procedure known as the “notice and comment” process.

First, the agency -- say the EPA -- will create a “draft rule” listing its guidelines thus far, which it will make public to allow anyone to comment and propose changes. Then, after this period, the agency will consider all of the comment letters before later issuing its “final rule.”

Lobbyists have two points of access in this process:

  1. They can engage in “ex parte” lobbying by communicating or meeting with regulators in the pre-proposal stage.
  2. Lobbyists – and the public as a whole – can submit comments on the draft rules after an agency releases them.

Lobbying regulators can be more effective than lobbying members of Congress.

While Wall Street lobbied heavily prior to the passage of the Dodd-Frank financial bill in 2010, such lobbying intensified during the bureaucratic rulemaking process. Financial interests targeted agencies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Consumer Financial Protection Bureau (CFPB) -- among others.

In 2012, representatives of the financial industry, including the Chamber of Commerce, the American Bankers Association, and leading banks such as JPMorgan Chase sent 406 lobbyists compared to 20 from consumer and public advocacy groups, such as the Center for Responsible Lending.

The industry’s advantages in wealth and personnel translated into far more face time with regulators. In the first 3 years after Dodd-Frank’s passage, the top 5 industry groups logged 901 meetings with regulators compared to 116 meetings with consumer protection groups.

Lobbying groups can also employ their wealth to pay for expensive top-notch research, analysis, and litigation as a way to delay, impede, and amend rules they want changed.

For instance, a lawyer for the industry, Eugene Scalia -- the son of Supreme Court Justice Antonin Scalia -- sued the SEC for not considering one report submitted by a pro-industry group in one of its cost-benefit analyses.

A court ruled in his favor of the plaintiff and mandated that each new rule undergo a more rigorous and complete cost-benefit analysis, severely increasing the burden on regulators who sometimes spend 21,000 staff hours writing a single, simple rule.

Since the passage of Dodd-Frank, financial lobbyists have scored many victories, though consumer advocacy lobbyists are not without their own accomplishments.

All in all, the history of congressional lobbying seems to confirm the late French philosopher Michel Foucault’s insistence on the slipperiness, the fluidity, and the pervasiveness of power -- even in spite of good faith measures to contain it.

While laws requiring registration and disclosure of expenses and activities are necessary ways of increasing transparency, some provisions -- such as the 20 percent threshold and the "cooling off" period requirements -- have had the unintended effects of masking lobbying activities and keeping the revolving door between Congress and K Street spinning.

With the help of watchdog groups, including the Center for Responsive Politics and the Sunlight Foundation, as well as LDA disclosure reports from the House and Senate, it is up to citizens to keep an eye on lobbying activity.

Editor's note: This is the second installment of a two-part series on the history and impact of congressional lobbying. Check out part one here.

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