The Payoff: Why Wall Street Always Wins explains why fighting financial malfeasance and greed is like betting against a gambling casino where the dealers play with marked cards.
So, when an insider reveals the reality of how banks too big to fail hold Congress and the White House on a leash – as in The Payoff – it doesn’t go unnoticed.
Rolling Stone’s Matt Taibbi writes of former senate staffer and retired lobbyist Jeff Connaughton’s detailed book on the revolving door of DC and the subversion of financial reform:
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The great mystery story in American politics these days is why, over the course of two presidential administrations (one from each party), there’s been no serious federal criminal investigation of Wall Street during a period of what appears to be epic corruption. People on the outside have speculated and come up with dozens of possible reasons, some plausible, some tending toward the conspiratorial – but there have been very few who’ve come at the issue from the inside. We get one of those rare inside accounts in The Payoff: Why Wall Street Always Wins…. [T]hose interested in understanding the mindset of the people who should be leading the anti-corruption charge ought to read this book. It’s the weird lack of concern that shines through … On the outside we can only deduce the mindset from actions and non-actions, but Connaughton’s actually seen it, and with the book you get to see it too. It’s scary and definitely worth a read.
Inc. Magazine named The Payoff one of the top five business books of 2012: “You’d think that after destroying the world’s economy with dodgy trades and double-dealing, at least somebody (other than the taxpayer) who was responsible might get thrown in jail. But you’d think wrong because Wall Street essentially “owns” both political parties, thereby making accountability impossible.”
Truthout spoke with Connaughton in a recent interview.
Mark Karlin: Let’s start with Chapter Seven of your book, in which you illustrate how former Democratic senator Chris Dodd sunk a President Bill Clinton amendment to limit corporate fraud accountability as far as forecasting company performance. A lot of people think of Republicans as the pro-corporate party, but Dodd showed that a Democrat could carry a lot of water for Wall Street over many years, didn’t he?
Jeff Connaughton: In a word, yes. I remember meeting Ralph Nader in 1995 and occasionally talking to him as he lobbied the White House to veto both of the legal reform bills that had been promised in the Republican Contract with America (the Private Securities Litigation Reform Act of 1995 and a product liability reform bill). President Clinton did veto both bills, but two-thirds of Congress (that included a lot of Democrats) voted to override the first veto.
Later, when Nader ran for president, he claimed we have two corporate political parties, I wrote him a letter: “How can you say there’s no difference between Republicans and Democrats when President Clinton vetoed both bills you lobbied against?” Now, I see more clearly what Nader was trying to warn against. Twenty or thirty years ago, inside the Democratic Party, the trial lawyers and unions were a far more potent counterweight to corporate America. Now, especially when it comes to Wall Street, we don’t have a two-party system. We have a single contribution party, an ongoing cash bash that benefits both Democrats and Republicans. Yes, the Democrats did manage to pass a tepid Dodd-Frank Act with virtually no Republican support. So, whenever I criticize some Democrats for being too captured by Wall Street money, I feel like I have to end every chorus with the refrain, “The Republicans are even worse.”
Mark Karlin: After Joe Biden was elected vice president, his former chief of staff, Ted Kaufman, was appointed to fill out the last two years of his term. He was a placeholder, promising not to seek a full term. Together, you two took on Wall Street. How badly bruised did you both emerge?
Jeff Connaughton: It actually was a great experience because Ted was beholden to no one, never had to raise a dime of money, and was solely motivated to do the right thing for the country. He believed in two simple ideas: that the Justice Department needed to restore the rule of law on Wall Street, and that the best way to prevent another financial crisis was for Congress to break up the too-big-to-fail megabanks. We worked closely with a small band of reformers who believed as we did. It was only at the end of the two years, when we tallied up the score sheet and had lost badly on both fronts, that I felt so bruised by the experience. If you went back in time and changed some of the key personnel in the Obama administration, like the leadership of the Justice and Treasury Departments – and also gave President Obama a transfusion of thicker spinal fluid – I think things would have turned out differently. And that’s even before you get to Wall Street’s fundraising and lobbying advantages in Congress. When even the “hope and change” administration is, for the most part, letting Wall Street have its way in Washington, you know any reformers in Congress are going to fail.
Mark Karlin: What is the DC “Blob” and how is it reflected in lobbyist/regulator marriages?
Jeff Connaughton: The Blob refers to the government entities that regulate the finance industry – like the Banking Committee, Treasury Department, and SEC – and the army of Wall Street representatives that continuously surrounds and permeates them. As I wrote in the book: “The Blob moves together. Its members are in constant contact by email and phone. They dine, drink and take vacations together. Not surprisingly, they frequently intermarry. Indeed, a good way to maximize your family income in DC is to specialize in financial issues and marry someone in The Blob. Ideally, you and your spouse take turns: One of you works for a bank, insurance company, or lobbying firm while the other works for a government entity that regulates, or enacts legislation for, the financial industry…. What you and your spouse do all the time is share information. After all, no lobbying restrictions yet promulgated can prevent pillow talk between Blob spouses.”
Mark Karlin: You recount in the book your brief career as a DC lobbyist. What did you learn about the other side of the revolving door?
Jeff Connaughton: It wasn’t “brief,” it lasted 12 years. It’s easy to rationalize being a lobbyist while you’re doing it. First, every corporation has a fiduciary duty to maximize shareholder value. And, second, as a lawyer, you’re trained to be a zealous advocate for your client. Many of the issues were challenging and interesting, and I worked with high-level corporate and government officials far earlier in my career than I would have at a law firm. Finally, many of the issues were industry versus industry (like telecom versus cable). Years ago, Roll Call referred to those kinds of industry issues as the “haves” versus the “have-lots.” I certainly knew, understood and profited from the explosion of corporate money being spent in DC to influence government outcomes. But the financial crisis crystallized for me just how badly our legal and regulatory systems had corroded, far worse than I ever believed was the case.
So, yes, I had put my thumb on the scales for corporate America for 12 years, but the financial crisis shocked my conscience. Then, when I went back into government, I saw how, especially on Wall Street issues, the asymmetry is out of control: only a handful of people in DC represent the average investor or the public interest, while Wall Street employs thousands of lawyers, lobbyists and public relations specialists. The public interest was completely outgunned. And I was surprised, too, by how few people in government were as ardent about major Wall Street reforms as Ted and I were. There simply weren’t very many who wanted to take on The Blob and all that that entails for future campaigns or private careers.
Mark Karlin: To what extent do campaign contributions give Wall Street (and financial firms in general) such enormous leverage in Washington?
Jeff Connaughton: There are many ways to talk about that, but here’s just one practical illustration. A not-for-profit housing group asks to meet with a senator’s legislative assistant (LA). The LA says, “I’m too busy, but you can meet with the legislative correspondent (LC).” If I’m representing a bank or major corporation, first I ask to meet with the senator or chief of staff and simply assume the LA will join the meeting. If the chief of staff won’t schedule it, I call the senator’s fundraising consultant (who knows I’ve done an event) and say, “For pete’s sake, I can’t even get a meeting with the chief of staff.” Soon, I’ll get my meeting, and the fundraising consultant will have a chit for the next time he calls me. That happens in Washington every day. I use my leverage to make my arguments directly to the senator or chief of staff, and the not-for-profit guy is stuck talking to some 22-year-old LC.
Mark Karlin: In Chapter Fourteen, you have a specific anecdote regarding [Nevada Democratic Sen.] Harry Reid and an aide explaining why the majority leader in the Senate wouldn’t launch a populist campaign against Wall Street. Will you recount the revealing exchange?
Jeff Connaughton: I asked a Reid staffer why Reid wasn’t using Wall Street reform as a campaign issue in Nevada against his Republican opponent in 2010, since it polled so well. Basically, the answer I got back was that Reid’s campaign already had raised so much money from Wall Street that it had compromised his ability to take a populist stance before his campaign leadership had even considered it as a political strategy.
Mark Karlin: What’s the bottom line on why you believe no high-ranking executives were prosecuted by the Obama Department of Justice for illegal financial behavior that led to the 2007-2008 crash of the US and international economies?
Jeff Connaughton: The bottom line is, if you had a different type of attorney general, deputy attorney general and assistant attorney general for the criminal division, I think you would have seen a far more proactive, timely, better organized and better resourced Wall Street investigation. But President Obama picked his people, and he’s known for at least two years that there were valid concerns about the passive approach the Justice Department leadership had adopted. In 2010, I called a friend in the White House who was in a position to know and asked, “What’s going on over at the Justice Department?” He said, “No one over there is making it a priority.” You can’t pretend the Justice Department is some “hands off” autonomous agency.
Mary Jo White at her confirmation hearings admitted she talked to Larry Summers before indicting a Japanese bank in the 1990s. These high-level officials at the White House, Justice Department and Treasury talk to each other all the time. Obama should have told Holder to kick some ass, not in the direction of a particular target, which would have been entirely inappropriate, but to ensure the resources and priority were top drawer. Because he never did (and perhaps didn’t want to), no one can ever say whether a competent, concerted, purposeful and timely investigation of Wall Street executives might have led to criminal convictions.
Mark Karlin: You got your start on the Hill through your support of Joe Biden in his ill-fated campaign for president in 1988. You ended up on his staff. Yet, threaded through your book are criticisms of and disappointment in him. He comes off as a self-centered blowhard and a friend to the credit card companies headquartered in Wilmington, Virginia.
Jeff Connaughton: I wanted to write an honest account of my career, exactly as I experienced it. I also wrote that Biden has many excellent qualities; people tend to skip over that. But the truth is, I was deeply disappointed that Biden didn’t play a role in the aftermath of the financial crisis, nor did he mentor me into a position where I could keep working on these issues, somewhere in government. It was all Geithner and Holder (and Obama). You know, solving a banking crisis and its devastating effects on the American economy wasn’t the reason that either Obama or Biden ever ran for president, but it’s a primary reason why their ticket got elected and, in my view, has been the central (neglected) issue of their time in office.
Mark Karlin: Explain how the banks get information on possible legislation from the Senate Banking Committee within such a short period of time, while others in the Senate are still in the dark.
Jeff Connaughton: Here’s how I wrote it in my book:
From my lobbying days, I know how the Banking Committee operated: Staffers gave lobbyists information about bills being drafted or what one senator had said to another (especially irresistible were scoops on the views of Chairman Chris Dodd or the ranking Republican, Senator Richard Shelby). The lobbyists passed the information to their clients in the banking or insurance or accounting industry. The clients then forwarded a summary to their trade association or the Financial Services Roundtable. Sometimes within an hour, the news would be emailed to the entire financial services industry and all of its lobbyists. With multiple leakers from the Banking Committee keeping K Street well informed, the banking world had complete transparency into bill drafting, while senators who didn’t serve on the Banking Committee stayed mostly in the dark.
Mark Karlin: After reading The Payoff: Why Wall Street Always Wins, frankly, I felt financial reform is hopeless given the incestuous systemic nature of the control that banks too big to fail hold over both parties. You retreated to Savannah, Georgia, after you and then Senator Kaufman got beat up by the financial industry, regulators and other DC senators and their staffs. How can you hold out any hope to the vast majority of Americans who want to rein in Wall Street?
Jeff Connaughton: Since Kaufman left office, the circle of people who now are calling for breaking up the TBTF banks has grown significantly larger. Ben Bernanke just admitted last week that TBTF has not ended. More people on the right understand that the big banks are benefiting from a dangerous government subsidy. And thanks to PBS’s Frontline, “The Untouchables,” especially, the numbers of people who are outraged (and elites who understand) that Wall Street wasn’t adequately held to account for the financial crisis has grown tremendously. The Justice Department is under substantially greater pressure to hold Libor criminality to account than they were for financial crisis behaviors. The ground is perceptibly shifting. It’s just unfortunate that President Obama himself won’t get in the game. But, who knows? Maybe Elizabeth Warren will run for president in 2016 or 2020. If she does, I’m in.
More about Jeff Connaughton
A former Wall Street insider, Jeff Connaughton came to Washington to campaign for, and then become a staffer on, Joe Biden’s senate team. He worked briefly in the White House with Judge Abner Mikva, White House counsel toward the end of Clinton’s second term. Then Connaughton pivoted to the lobbying side, until Ted Kaufman was appointed senator from Delaware to fill out the last two years of Biden’s term when he became vice president. As Kaufman’s chief of staff, Connaughton and the senator fought Wall Street at every turn, only to ultimately find that the keys to the kingdom of power in DC were in the hands of the people with big money.