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More Lobbying Equals Lousier Lenders

There's now absolute, positive proof -- if you needed any -- that Wall Street lobbying has a pernicious effect on the economy. This thanks to A Fistful of Dollars: Lobbying and the Financial Crisis, an algebra-packed working paper on mortgage lending from the IMF. A study of campaign contributions and lobbying expenses showed that "lenders that lobby more intensively (i) originate mortgages with higher loan-to-income ratios, [that is, riskier loans] (ii) securitize a faster growing proportion of loans originated; and (iii) have faster growing mortgage loan portfolios." The results? Higher mortgage default rates and lower-performing stock at the height of the financial crisis in 2007-8.

Not surprisingly, lobbyists work to prevent a tightening of lending laws that emphasize short-term gains over long-term profits, to allow banks to underestimate risks-and set aside fewer reserves; to thwart legislation that would require tighter lending standards; to restrict competition; and to win favorable treatment in a crisis. All that, say the authors, "provides some support to the view that the prevention of future crises might require weakening political influence of the financial industry."

We're not holding our collective breath. Given the the amounts spent on lobbying by financial services companies, reform doesn't seem to be in the cards.

Below, lobbying expenses by firm per sector.

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