Companies in bailout are big donors to candidates, parties

The Wall Street financiers and companies whose problems have prompted a $700 billion federal bailout are no strangers to Capitol Hill or to politics. Since 2001, eight of the most troubled companies have donated $64.2 million to congressional candidates, presidential candidates and the Republican and Democratic parties, according to the nonpartisan Center for Responsive Politics. The donors include investment banks Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, insurer American International Group, and mortgage giants Fannie Mae and Freddie Mac. Since March, all of those companies except Goldman Sachs and Morgan Stanley have been bailed out by the government, have been sold to other companies at deeply discounted prices or have simply failed. "You could say that the finance industry got their money's worth by supporting members of Congress who were inclined to look the other way," said Lawrence Jacobs, director of the University of Minnesota's Center for the Study of Politics and Governance. Legislators failed in several instances to conduct oversight hearings or to raise concerns as the Bush administration adopted rules that fed the mortgage frenzy and set Wall Street on the route to disaster. For instance, in 2004 when the Securities and Exchange Commission adopted a major rule change that freed investment banks to sink tens of billions of dollars in borrowed money into subprime mortgages and other risky plays, congressional banking committees held no oversight hearings. "It's unusual that Congress lets a major new program go through without at least oversight hearings. And they didn't happen," said John Coffee, a Columbia University law professor who specializes in banking and securities regulation. Congressional inaction also allowed mortgage agents to earn high fees for peddling loans to unqualified home buyers and kept states from toughening regulations on predatory lending practices. Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee and unsuccessful candidate for his party's 2008 presidential nomination, has received nearly $1.3 million from employees of the eight troubled companies since 2001. Dodd spokeswoman Kate Szostak said that since Dodd was first assigned to the banking committee, in 1981, he's "taken independent, tough positions at odds with the industries the committee oversees. In no way does he allow contributions to influence any decision he makes." In the House of Representatives, Massachusetts Democrat Barney Frank has collected about $78,000. Frank, chairman of the House Financial Services Committee, has taken the least cash of the four House and Senate banking chairmen of recent years. He said that's probably because he "fought like hell" against administration limits on state predatory lending laws but had limited influence until Democrats won the House majority and he became chairman in 2007. He said he'd just become the panel's ranking Democrat in 2004 when the SEC rule was adopted, and "I don't remember that issue coming before us." Former Ohio Rep. Michael Oxley, who was the GOP chairman of the Financial Services Committee in 2004, when the SEC rule was adopted, received more than $260,000 from the eight banks before he left Congress, in 2007. Last year, he was named vice chairman of the tech-heavy Nasdaq stock exchange. He couldn't be reached for comment. Sen. Richard Shelby, R-Ala., who was the Banking Committee chairman when the SEC rule was adopted, received more than $152,000 in donations. Jonathan Graffeo, a spokesman for Shelby, said campaign donations "are not a factor in Sen. Shelby's decision making." The Democratic and Republican presidential candidates, Sens. Barack Obama and John McCain, have received a combined total of $3.1 million. It's impossible to say what, if anything, Wall Street bought with its $64 million. Politicians and political parties take money from a wide variety of sources, many of them with competing interests and opinions, but experts interviewed by McClatchy said inaction by Congress helped set the stage for the current crisis. Some state regulators, recognizing early signs of trouble in housing markets, sought help from Congress when the Bush administration adopted rules barring states from enforcing tough laws targeting predatory lending–the practices that were enabling unqualified applicants to obtain subprime mortgages. With Wall Street serving a key role in buying, bundling and reselling subprime mortgages, state officials couldn't get Congress to intervene, said John Ryan, executive vice president of the Conference of State Bank Supervisors. "When the spotlight's on, sometimes reason carries," Ryan said. "But when it's not on, all of the influence is overwhelming." Jacobs, co-author of The Private Abuse of the Public Interest, said, "The big impact that money may have is in discouraging certain topics from ever coming for a vote or even being seriously considered in a committee hearing."