Goldman Sachs Goes to Washington... to Snuff Out Dodd-Frank

Last Updated Jul 7, 2011 8:39 AM EDT

Although Goldman Sachs (GS) has long advanced its interests by stuffing money in politicians' pockets, it has historically stepped more lightly in directly shaping public policy. No more. With government regulators now crafting hundreds of rules to implement the Dodd-Frank financial reform law, the investment bank is building a powerful lobbying arm in Washington:
Increased federal oversight and the threat to its lucrative investment bank business from investigations and pending regulations have led Goldman to bolster its Washington presence significantly, turning a low-key lobbying operation into a sophisticated, high-powered enterprise....
Goldman's lobbying expenses were four times what they were in 2005, when the firm was sixth in industry spending in Washington, behind such companies as Morgan Stanley and Charles Schwab Corp. And Goldman is on pace to set a new high this year after spending $1.3 million on lobbying from January through April, according to its most recent disclosure statement.
The financial industry's broader campaign against Dodd-Frank is as intense today as it was in the run-up to the law's passage in 2010, according to lobbying records (see chart below; click to enlarge). And it appears to be working. Progress in implementing Dodd-Frank has slowed to a crawl. Nearly a year after President Obama enacted the law, only 38 of more than 380 mandated new regulations have been completed.

As a result, the SEC and Commodity Futures Trading Commission have had to delay issuing final rules governing the use of derivatives. Since last summer, meanwhile, Goldman staffers have met with CFTC officials more than 50 times, the L.A. Times reports.
Industry lobbying has also succeeded in blocking appointment of a director to head the Consumer Financial Protection Bureau even as the agency prepares to open on July 21. And while Dodd-Frank tasks financial regulators with a host of new duties, their budgets are being cut.

Goldman and other big industry players are focusing their efforts on three areas of reform: derivatives, bank capital requirements and deciding what constitutes a "systematically important" financial firm. Occasionally, that push bursts into the open, such as when JPMorgan Chase (JPM) CEO Jamie Dimon recently chided Federal Reserve chief Ben Bernanke over the impact of financial regulation.

For the most part, however, the battle is being waged behind the scenes on Capitol Hill, with lobbyists huddling with legislative staffers and flooding regulators with comment letters on proposed rules. Financial firms are also recruiting former heavy-hitters from Congress to make their case in Washington. For instance, Goldman last month hired former New Hampshire senator Judd Gregg, who once sat on the Senate Banking committee, as an adviser.

Loving up the freshmen
That stealth war is supported by the financial industry's usual air drop of campaign money. Goldman has recently steered much of its giving to newly elected House Republicans, for instance, while other banks have also stepped up their contributions. The freshmen, who include lawmakers such as Reps. Michael Grim, R-N.Y., David Schweikert, R-Ariz., and Steve Stivers, R-Ohio, have duly sponsored bills to weaken Dodd-Frank. That alliance between incoming legislators, especially ones hailing from key electoral districts, and deep-pocketed financial firms is being directed by top GOP officials, notes one prominent Republican operative:
"It's orchestrated. The leadership is trying to take care of them," said Ed Rollins, a Republican campaign consultant at The Dilenschneider Group, who rose to national prominence during the Reagan years and most recently ran former Arkansas Gov. Mike Huckabee's 2008 presidential campaign. "A lot of [Dodd-Frank] isn't popular, and it's a good way to get close to people who want it repealed."
Another front in the attack on financial reform are so-called "astroturf" groups, which often operate as faux-populist front organizations for corporate interests. As left-leaning advocacy organization ThinkProgress recently documented, for example, an organization calling itself the Judicial Crisis Network has courted Tea Party activists to rally support against Dodd-Frank (see video below). The JCN is funded in part by the Competitive Enterprise Institute, a pro-business trade group that opposes the law.


Cracks in the wall
Coming up on the one-year anniversary of Dodd-Frank, the law's ultimate impact remains unclear. Every delay in writing rules aimed at preventing a repeat of the financial crisis gives Wall Street firms more time to weaken them, or hire lawmakers who will do it for them. And hopes that Dodd-Frank would be only the first in a series of reforms, as occurred after the Great Depression, are fading.

That makes the current fight over implementing the law just as important as the struggle over its passage last year. As economic historian Charles Geisst recently said, the places where the law "isn't passed are the places where the next crisis will show up."

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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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