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Investment Banking
Minting Bank Lobbyists on Capitol Hill
April 13, 2010, 7:27 pm
Representative Barney Frank publicly rebuked a former aide this month for taking a job with a big Wall Street firm right after drafting a regulation that could affect the way the firm did business. Mr. Frank described it as an unusual transgression, one that embarrassed others working on the legislation and created at least the appearance of a conflict of interest.
But while the speed of the aide’s movement from government to Wall Street was extraordinary, it reflected reality as Congress has taken on an overhaul of the nation’s system of regulating financial giants, The New York Times’s Eric Lichtblau reports from Washington. Wall Street, perhaps more than any other industry, is ramping up its lobbying forces and turning more and more to former lawmakers and Congressional staff members to lead the fight against stiff rules.
The revolving door is an oft-noticed phenomenon here, but in recent years the migration from Congress to the financial services firms that are trying to stave off greater federal regulation has become more pronounced.
From anonymous midlevel staffers to former House and Senate majority leaders, more than 125 former Congressional aides and lawmakers are now working for financial firms as part of a multibillion-dollar effort to shape, and often scale back, federal regulatory power, data shows. Indeed, some of the biggest players in Washington politics are lobbying now on the regulatory bills that are making their way through Congress.
The former congressman Michael G. Oxley, the Ohio Republican whose name is on one of the most famous pieces of business regulatory legislation in history — the 2002 Sarbanes-Oxley Act that imposed tougher accounting measures on firms after scandals at Enron and other companies — is a senior adviser to the Nasdaq stock market. Mr. Oxley received $40,000 in the last quarter of 2009 for lobbying to limit the ownership of banks and other competitors in clearinghouses.
Another former Republican congressman, Richard H. Baker of Louisiana, served for 12 years as chairman of the House banking panel that oversaw capital markets before he left Congress in 2008. He is now president and a registered lobbyist for the Managed Funds Association, which represents the largest trading firms in the multitrillion-dollar hedge fund industry. The association reported spending $3.7 million last year alone to lobby federal officials on regulations for the hedge fund industry.
An analysis by Public Citizen found that at least 70 former members of Congress were lobbying for Wall Street and the financial services sector last year, including two former Senate majority leaders (Trent Lott and Bob Dole), two former House majority leaders (Richard Gephardt and Dick Armey) and a former House speaker (Dennis Hastert).
In addition to lawmakers themselves, data from the Center for Responsive Politics counted 56 former Congressional aides on the Senate or House banking committees who went on to use their expertise to lobby for the financial sector. Visa Inc. had the most former Congressional officials with 37 lobbyists, following closely by other financial powerhouses like Goldman Sachs, Prudential Financial, Citigroup and the American Bankers Association, according to the Public Citizen analysis.
The case of Peter S. Roberson, whose hiring by a derivatives clearinghouse drew the ire of Mr. Frank, is the most extreme, and it points up holes in the rules governing lobbying by former aides.
As a senior aide to Mr. Frank on the House Financial Services Committee, Mr. Roberson helped draft legislation last year on regulating the over-the-counter derivatives market, which played a big part in the 2008 market collapse. Last month, he began working as a lobbyist for Intercontinental Exchange, the world’s leading clearinghouse for derivatives.
Mr. Roberson, who was paid $124,416 last year as a senior aide, is banned from contacting or lobbying his old colleagues on the financial services committee. But that won’t stop him from lobbying, if he chooses to do so.
Indeed, he is opening the Washington lobbying office of the exchange. He is allowed to contact other committees that will be considering the derivatives part of the legislation, like the Agriculture Committee, as well as anyone in the Senate, where the debate has now shifted. The House has already approved the legislation authored by Mr. Frank.
The exchange, known as ICE, said that Mr. Roberson would not be available for an interview and declined to say who initiated the job discussions. In a statement, Johnathan Short, general counsel for the company, said: “ICE is aware of and has respectfully followed all requirements under House ethics rules governing contact between members, current and former staff. We hired Peter with a full and complete understanding of existing ethics rules and the chairman’s purview in administering the same.”
http://dealbook.blogs.nytimes.com/20...ists&st=Search
In related news....
April 13, 2010
Banks Resist Plans to Reduce Mortgage Balances
By DAVID STREITFELD
In a rebuff to the Obama administration, two big banks on Tuesday drew a line in the sand on cutting the mortgage balances of beleaguered homeowners, saying that the tool would be applied sparingly.
The idea of reducing loan principals last month became a centerpiece of the administration’s efforts to help seven million households threatened with foreclosure. But an official at one of the banks, David Lowman of JPMorgan Chase, said principal reduction could reward households for consuming more than they could afford, might punish future homeowners by raising the cost of borrowing and in any case was simply unworkable.
“We are concerned about large-scale broad-based principal reduction programs,” Mr. Lowman, the bank’s chief executive for home lending, testified during a hearing of the House Financial Services committee.
Mr. Lowman’s comments were briefly echoed in more restrained form by an executive from Wells Fargo. “Principal forgiveness is not an across-the-board solution,” said the executive, Mike Heid, co-president of Wells Fargo Home Mortgage. Two other bankers who testified, from Bank of America and Citigroup, largely avoided the issue.
A Treasury Department spokeswoman declined to comment on the hearing.
A more radical plan urges lenders to refinance loans for borrowers who may be solvent but who owe much more on their homes than they are worth. Many of these loans have been securitized into investment pools but are serviced by the big banks.
The investment pool would get the mortgage off its books for the current market value of the property — less than it is owed, perhaps, but more than it would receive if the house went into foreclosure. The borrower would receive a new government-insured loan at market value, presumably making him less likely to walk away.
It is this last program that seemed to irk JPMorgan Chase.
“If we rewrite the mortgage contract retroactively to restore equity to any mortgage borrower because the value of his or her home declined, what responsible lender will take the equity risk of financing mortgages in the future?” Mr. Lowman asked in his prepared comments.
In any case, he said, Chase cannot rewrite most of these deals. The bank’s contractual arrangements with the investors do not allow for principal reduction.
Furthermore, Mr. Lowman argued, the cost of reducing principal will be built into future loans, resulting in less access to credit and higher costs for consumers.
What Chase — one of the strongest of the big banks — might be really worried about is not the primary mortgages it services but the $133 billion in home equity loans and lines of credit it carries on its own books.
The question of what happens to these secondary loans in a mortgage modification was at the heart of the Congressional hearing on Tuesday.
Investors who own the primary loans argue that the others should be second in line, getting only the money that is left over after they have been satisfied. But banks like Chase, which own the majority of second loans, want a better deal. Since they have the power to disrupt any modification, the result so far has been a standoff.
Mr. Lowman emphasized the moral side of the issue. (
) Mandating write-downs in home equity loans would be a particularly bad idea, he said, because these loans were simply used to consume rather than pay for housing.
http://www.nytimes.com/2010/04/14/bu...ages&st=Search
and at the bottom of the food chain....looking up....
April 13, 2010
Banks Making Big Profits From Tiny Loans
By NEIL MacFARQUHAR
In recent years, the idea of giving small loans to poor people became the darling of the development world, hailed as the long elusive formula to propel even the most destitute into better lives.
Actors like Natalie Portman and Michael Douglas lent their boldface names to the cause. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize for it in 2006. The idea even got its very own United Nations year in 2005.
But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more.
“We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks,” Mr. Yunus recently said at a gathering of financial officials at the United Nations. “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.”
The fracas over preserving the field’s saintly aura centers on the question of how much interest and profit is acceptable, and what constitutes exploitation. The noisy interest rate fight has even attracted Congressional scrutiny, with the House Financial Services Committee holding hearings this year focused in part on whether some microcredit institutions are scamming the poor.
http://www.nytimes.com/2010/04/14/wo...ef=todayspaper
Minting Bank Lobbyists on Capitol Hill
April 13, 2010, 7:27 pm
Representative Barney Frank publicly rebuked a former aide this month for taking a job with a big Wall Street firm right after drafting a regulation that could affect the way the firm did business. Mr. Frank described it as an unusual transgression, one that embarrassed others working on the legislation and created at least the appearance of a conflict of interest.
But while the speed of the aide’s movement from government to Wall Street was extraordinary, it reflected reality as Congress has taken on an overhaul of the nation’s system of regulating financial giants, The New York Times’s Eric Lichtblau reports from Washington. Wall Street, perhaps more than any other industry, is ramping up its lobbying forces and turning more and more to former lawmakers and Congressional staff members to lead the fight against stiff rules.
The revolving door is an oft-noticed phenomenon here, but in recent years the migration from Congress to the financial services firms that are trying to stave off greater federal regulation has become more pronounced.
From anonymous midlevel staffers to former House and Senate majority leaders, more than 125 former Congressional aides and lawmakers are now working for financial firms as part of a multibillion-dollar effort to shape, and often scale back, federal regulatory power, data shows. Indeed, some of the biggest players in Washington politics are lobbying now on the regulatory bills that are making their way through Congress.
The former congressman Michael G. Oxley, the Ohio Republican whose name is on one of the most famous pieces of business regulatory legislation in history — the 2002 Sarbanes-Oxley Act that imposed tougher accounting measures on firms after scandals at Enron and other companies — is a senior adviser to the Nasdaq stock market. Mr. Oxley received $40,000 in the last quarter of 2009 for lobbying to limit the ownership of banks and other competitors in clearinghouses.
Another former Republican congressman, Richard H. Baker of Louisiana, served for 12 years as chairman of the House banking panel that oversaw capital markets before he left Congress in 2008. He is now president and a registered lobbyist for the Managed Funds Association, which represents the largest trading firms in the multitrillion-dollar hedge fund industry. The association reported spending $3.7 million last year alone to lobby federal officials on regulations for the hedge fund industry.
An analysis by Public Citizen found that at least 70 former members of Congress were lobbying for Wall Street and the financial services sector last year, including two former Senate majority leaders (Trent Lott and Bob Dole), two former House majority leaders (Richard Gephardt and Dick Armey) and a former House speaker (Dennis Hastert).
In addition to lawmakers themselves, data from the Center for Responsive Politics counted 56 former Congressional aides on the Senate or House banking committees who went on to use their expertise to lobby for the financial sector. Visa Inc. had the most former Congressional officials with 37 lobbyists, following closely by other financial powerhouses like Goldman Sachs, Prudential Financial, Citigroup and the American Bankers Association, according to the Public Citizen analysis.
The case of Peter S. Roberson, whose hiring by a derivatives clearinghouse drew the ire of Mr. Frank, is the most extreme, and it points up holes in the rules governing lobbying by former aides.
As a senior aide to Mr. Frank on the House Financial Services Committee, Mr. Roberson helped draft legislation last year on regulating the over-the-counter derivatives market, which played a big part in the 2008 market collapse. Last month, he began working as a lobbyist for Intercontinental Exchange, the world’s leading clearinghouse for derivatives.
Mr. Roberson, who was paid $124,416 last year as a senior aide, is banned from contacting or lobbying his old colleagues on the financial services committee. But that won’t stop him from lobbying, if he chooses to do so.
Indeed, he is opening the Washington lobbying office of the exchange. He is allowed to contact other committees that will be considering the derivatives part of the legislation, like the Agriculture Committee, as well as anyone in the Senate, where the debate has now shifted. The House has already approved the legislation authored by Mr. Frank.
The exchange, known as ICE, said that Mr. Roberson would not be available for an interview and declined to say who initiated the job discussions. In a statement, Johnathan Short, general counsel for the company, said: “ICE is aware of and has respectfully followed all requirements under House ethics rules governing contact between members, current and former staff. We hired Peter with a full and complete understanding of existing ethics rules and the chairman’s purview in administering the same.”
http://dealbook.blogs.nytimes.com/20...ists&st=Search
In related news....
April 13, 2010
The idea of reducing loan principals last month became a centerpiece of the administration’s efforts to help seven million households threatened with foreclosure. But an official at one of the banks, David Lowman of JPMorgan Chase, said principal reduction could reward households for consuming more than they could afford, might punish future homeowners by raising the cost of borrowing and in any case was simply unworkable.
“We are concerned about large-scale broad-based principal reduction programs,” Mr. Lowman, the bank’s chief executive for home lending, testified during a hearing of the House Financial Services committee.
Mr. Lowman’s comments were briefly echoed in more restrained form by an executive from Wells Fargo. “Principal forgiveness is not an across-the-board solution,” said the executive, Mike Heid, co-president of Wells Fargo Home Mortgage. Two other bankers who testified, from Bank of America and Citigroup, largely avoided the issue.
A Treasury Department spokeswoman declined to comment on the hearing.
A more radical plan urges lenders to refinance loans for borrowers who may be solvent but who owe much more on their homes than they are worth. Many of these loans have been securitized into investment pools but are serviced by the big banks.
The investment pool would get the mortgage off its books for the current market value of the property — less than it is owed, perhaps, but more than it would receive if the house went into foreclosure. The borrower would receive a new government-insured loan at market value, presumably making him less likely to walk away.
It is this last program that seemed to irk JPMorgan Chase.
“If we rewrite the mortgage contract retroactively to restore equity to any mortgage borrower because the value of his or her home declined, what responsible lender will take the equity risk of financing mortgages in the future?” Mr. Lowman asked in his prepared comments.
In any case, he said, Chase cannot rewrite most of these deals. The bank’s contractual arrangements with the investors do not allow for principal reduction.
Furthermore, Mr. Lowman argued, the cost of reducing principal will be built into future loans, resulting in less access to credit and higher costs for consumers.
What Chase — one of the strongest of the big banks — might be really worried about is not the primary mortgages it services but the $133 billion in home equity loans and lines of credit it carries on its own books.
The question of what happens to these secondary loans in a mortgage modification was at the heart of the Congressional hearing on Tuesday.
Investors who own the primary loans argue that the others should be second in line, getting only the money that is left over after they have been satisfied. But banks like Chase, which own the majority of second loans, want a better deal. Since they have the power to disrupt any modification, the result so far has been a standoff.
Mr. Lowman emphasized the moral side of the issue. (
) Mandating write-downs in home equity loans would be a particularly bad idea, he said, because these loans were simply used to consume rather than pay for housing. http://www.nytimes.com/2010/04/14/bu...ages&st=Search
and at the bottom of the food chain....looking up....
April 13, 2010
Actors like Natalie Portman and Michael Douglas lent their boldface names to the cause. Muhammad Yunus, the economist who pioneered the practice by lending small amounts to basket weavers in Bangladesh, won a Nobel Peace Prize for it in 2006. The idea even got its very own United Nations year in 2005.
But the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more.
“We created microcredit to fight the loan sharks; we didn’t create microcredit to encourage new loan sharks,” Mr. Yunus recently said at a gathering of financial officials at the United Nations. “Microcredit should be seen as an opportunity to help people get out of poverty in a business way, but not as an opportunity to make money out of poor people.”
The fracas over preserving the field’s saintly aura centers on the question of how much interest and profit is acceptable, and what constitutes exploitation. The noisy interest rate fight has even attracted Congressional scrutiny, with the House Financial Services Committee holding hearings this year focused in part on whether some microcredit institutions are scamming the poor.
http://www.nytimes.com/2010/04/14/wo...ef=todayspaper
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