Crumbling Financial Giants Gave Generously To Dodd
By MATTHEW KAUFFMAN And JESSE A. HAMILTON | The Hartford Courant
September 29, 2008
courant.com
When a Democratic takeover of Congress put Christopher Dodd in charge of the powerful Senate Banking Committee, Connecticut's senior senator eagerly met with reporters, outlining his generally pro-industry positions, but pledging to put consumers — and the long-term health of the economy — first.
"At the end of my tenure on this committee," Dodd said in early 2007, "I want it to be said that the safety and soundness of our financial institutions was not weakened on my watch."
A year and a half later, Dodd acknowledges that the nation's finances are in an "economic maelstrom." And while Washington engages in an urgent search for after-the-fact fixes, there is also plenty of finger-pointing, and there are enduring questions about whether campaign cash — millions and millions in campaign cash — blinded Dodd and other overseers to the excesses of industry.
Financial-sector firms — mortgage firms, insurance companies, accountants, brokerage houses, hedge funds — are among the most generous political donors in America, lavishing more than $1 billion on candidates this decade. And in Congress, few politicians have fared better than Dodd. During the past 20 years, PACs and employees of finance-related firms have contributed more than $13 million to Dodd's election efforts, including nearly $6 million in the past two years. Among members of Congress, only leading presidential candidates — Hillary Clinton, Barack Obama, John McCain and John Kerry — have collected more money from the sector.
Manufacturing contracts to lowest level since 2001 as new orders, production, employment fall
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New York Stock Exchange But now, some of Dodd's heartiest patrons have become the poster companies for the Wall Street implosion: AIG Insurance, Lehman Brothers, Merrill Lynch and Bear Stearns. And although Dodd has emerged in recent weeks as a key player in efforts to stabilize the economy, the five-term senator is also facing criticism that he and others in Washington did too little, too late to rein in those generous companies before the crash.
"We have a system where the special interests that give the most money tend to get policies out of Congress that are beneficial to them," said Mary Boyle, a spokeswoman for Common Cause, a nonpartisan advocacy group. "What we need is a system where the public is the beneficiary, and not special interests."
Dodd Cites His Record
Dodd, in turn, points to a string of alarms he says he sounded as the housing market melted down — speeches and letters to federal regulators urging an end to predatory lending practices and relief for homeowners facing foreclosure. And in 2007 he persuaded mortgage companies to commit to a voluntary set of measures designed to keep struggling homeowners out of foreclosure.
"I'm proud of my chairmanship," Dodd said in an interview Friday. He said he considered himself a pro-consumer lawmaker and said campaign cash plays no role in his thinking.
"It's an ugly system, and I hate it," Dodd said of the campaign-finance game. But he added, "I never have — nor would I ever — let a campaign contribution affect what I care about, what I champion, how I vote, how I hold hearings. Ever."
Dodd is also often praised by consumer advocates for his positions on credit-card fees and bankruptcy reforms. And in the current debate in Washington, he has taken the lead in pushing for much stronger oversight of financial companies and insisting that the proposed $700 billion corporate bailout include provisions to help homeowners and protect taxpayers.
Leader Or Opportunist?
That dichotomy is part of the portrait painted by those who follow Dodd: a reliable friend of industry who isn't afraid to turn on his benefactors on populist issues and in times of crisis. But although supporters see that as leadership, opponents call it opportunism.
They note, for example, that although Dodd amassed a strong rhetorical record on the housing crisis, it was not until 10 months ago that he introduced legislation aimed squarely at the industry, with a bill banning practices that drove up fees for home buyers, providing millions for foreclosure counseling and strengthening the oversight of government-sponsored mortgage giants Fannie Mae and Freddie Mac.
"Today, Congress did more than send a bill to the president; we sent a message to American families that help is on the way," Dodd said two months ago, when the Senate passed the Housing and Economic Recovery Act. "In addition to providing urgently needed relief to homeowners on the brink of losing their homes, this legislation will address our broader economic problems by helping to reform our housing sector and provide reassurances to our financial markets."
But by then, the fatal damage was done. Bear Stearns had collapsed six months earlier, and in a matter of weeks after the bill became law, Lehman Brothers limped into bankruptcy court, and the federal government was compelled to bail out insurance firm AIG International and seize mortgage giants Fannie Mae and Freddie Mac.
All of those companies had put substantial money behind Dodd: more than $200,000 from PACs and employees of AIG in the past six years. Another $200,000 from Bear Stearns. And six-figure donations from Lehman and other companies now struggling under bad mortgage debt.
Financial Sector's Bounty
Eighteen of Dodd's top 20 corporate benefactors are finance or insurance companies, and more than half of his campaign funds in the past six years have come from those industries.
The largesse is so great that Washington Post columnist Dana Milbank, writing earlier this year about the collapse of Bear Stearns, identified the senator not as "Dodd (D-Conn.)," but as "Dodd (D-$5,796,000)" — a reference to recent contributions from financial interests.
Sen. Richard Shelby, R-Ala., the former chairman and now the ranking minority member of the Banking Committee, said those implications are unfair.
"I think Dodd at the end of the day is going to do what he thinks is right from a philosophical standpoint," Shelby said. "If you're going to be influenced by campaign contributions, you shouldn't be in Congress."
Shelby said Dodd does not always support industry positions.
"He's a Democrat. I'd say he's more liberal than I am," Shelby said. "I would never describe Sen. Dodd as the advocate for the financial interests."
But Dodd does have a record of pro-business votes that have sometimes put him at odds with his party. In an analysis of 2007 votes, National Journal, a nonpartisan weekly magazine on politics, found that although no Democratic senator had a more liberal voting record than Dodd on social issues, 71 percent of his Democratic colleagues had a more liberal record on economic issues.
And Dodd has made no effort to hide his support for the financial sector.
"I'm not allergic to business. I'm not hostile at all," Dodd said at a December 2006 press conference as he took control of the Banking Committee.
He supported litigation reform — even working to override a veto by President Clinton — saying frivolous lawsuits were hurting corporate share prices. He opposed new rules for hedge funds — lightly regulated funds, some of which made costly bets on subprime mortgages — praising them as "a tremendous wealth-creation vehicle."
He pushed through an extension of the law that insulated insurance companies from potential terrorism-related losses. He cheered the availability of easy credit for would-be homeowners and repeatedly expressed confidence in Fannie Mae and Freddie Mac, the government-sponsored entities, known as GSEs, that the federal government took over.
At a hearing just seven months ago, Dodd deflected critics of Fannie Mae and Freddie Mac, saying the two firms remained healthy sources of credit, even as other mortgage firms collapsed.
"The system is under siege," Dodd declared, "and it is the GSEs that are riding to the rescue."
At the same hearing, Dodd sent the message that he would be taking a cautious approach to reforming Fannie Mae and Freddie Mac, even as a House-passed bill to overhaul regulation of the firms had been languishing for eight months in his Senate committee.
"Let me be clear," he said. "I will not be the one to preside over a legislative process that dismantles this system. I will pursue GSE legislation, and I will do so aggressively, but I will not do anything that undermines the foundations of this highly beneficial system."
The two mortgage firms have scaled back their campaign contributions since a fundraising scandal earlier in the decade. But combined, they have given Dodd at least $133,000 since 1989 — more than they gave to any other member of Congress.
Countrywide Loan Issue
It was a far smaller amount of money, however, that has put the harshest spotlight on Dodd and on the collision of politics and money. In 2003, mortgage behemoth Countrywide put Dodd in its "VIP" program, with preferential treatment that knocked about $2,700 off the upfront cost of two mortgages Dodd refinanced. The company also allowed Dodd's loan rates to "float down" as rates dropped, potentially cutting tens of thousands of dollars in interest payments over the life of the loans.
Dodd denied wrongdoing, but reaction was swift. Legislation to bail out subprime mortgage lenders became widely derided as the "Dodd/Countrywide bill," the Senate Ethics Committee opened an investigation, and conservative pundits declared that Dodd was in the pocket of financial interests — right as he was working on legislation to bail them out.
Those financial interests typically describe Dodd as independent, even as they strongly support him. Ed Yingling, president of the American Bankers Association, praised Dodd's tenure as chairman of the Banking Committee, "even if he doesn't agree with us all the time."
"He's very pro-consumer," said Yingling, who personally donated $3,300 to Dodd last year. "He's looked me square in the eye and said, 'I don't agree with you. We're going to do it another way.'"
'Money Buys Access'
Most citizens, of course, don't get the opportunity to debate issues face to face with senators.
"At a minimum, money buys access," said Massie Ritsch, a spokesman for the Center for Responsive Politics, an independent group that tracks money and politics. "That's a luxury that most constituents don't get."
And Massie said campaign cash can cloud legislators' judgment and make them overly deferential to their benefactors. "I think the money affects their priorities and their sense of what's important," he said.
So when donors in the financial sector insisted in recent years that their businesses were fundamentally sound, Congress was not worried.
"Now," Massie said, "we see there was lots of reason to worry."
But there is perhaps slightly less reason to worry now. Although politicians frequently insist that campaign cash has no influence on public policy, federal regulators who took over Fannie Mae and Freddie Mac aren't taking chances. In seizing the two firms — which were responsible for nearly $200 million in lobbying costs and campaign contributions during the past decade — James Lockhart, director of the Federal Housing Finance Agency, announced a series of new rules.
"All political activities," he wrote — including all lobbying and donations — "will be halted immediately." |
