As the current economic calamity unfolds, lots of fingers in Washington are pointing at Wall Streets excesses as the cause. But a new study of regulatory and legislative actions suggests the government should look in the mirror.
The financial sector invested more than $5 billion in political "influence purchasing" in Washington over the past decade, with as many as 3,000 lobbyists winning deregulatory decisions that led to the current financial collapse, according to a 231-page report issued by Essential Information and the Consumer Education Foundation.
The report found that Democrats and Republicans split corporate donations almost evenly, with Republicans taking 55 percent of the donations between 1998 and 2008, and Democrats taking 45 percent. Democrats took just over half of the donations in the 2008 cycle.
The organizations describe themselves as nonpartisan, nonprofit advocacy groups which push for stronger consumer protection laws and to curb "excessive corporate power."
The report, "Sold Out: How Wall Street and Washington Betrayed America," shows that, from 1998-2008, the financial sector made $1.7 billion in political contributions and spent another $3.4 billion on lobbyists.
Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. Surveying 20 leading financial firms, the report finds 142 of the lobbyists they employed from 1998-2008 were previously high-ranking government officials.
The report documents a dozen distinct deregulatory moves that, together, made a financial meltdown all but certain.
These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.
"The report details, step-by-step, how Washington systematically sold out to Wall Street," said Harvey Rosenfield, president of the Consumer Education Foundation. "Depression-era programs that would have prevented the financial meltdown that began last year were dismantled, and the warnings of those who foresaw disaster were drowned in an ocean of political money."
"Americans were betrayed, and we are paying a high price -- trillions of dollars -- for that betrayal," he said.
"Congress and the Executive Branch," says Robert Weissman of Essential Information and the lead author of the report, "responded to the legal bribes from the financial sector, rolling back common-sense standards, barring honest regulators from issuing rules to address emerging problems and trashing enforcement efforts."
"The progressive erosion of regulatory restraining walls led to a flood of bad loans, and a tsunami of bad bets based on those bad loans. Now, there is wreckage across the financial landscape," Weissman said.
The full report is available online. Guest commentator Ivan Fail offers a no-holds-barred discussion of the report at DCInsider.com.