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And so, amid deep public bitterness over the financial meltdown and the bailout that followed, financial reform became a wave no army of lobbyists could hold back. "I've been doing this for 25 years and have spent most of my career tinkering at the margins but losing the war," says the Consumer Federation's Plunkett, who calls the final version of the bill's new consumer-financial-protection bureau "pretty much a complete win ... What I saw this time was that every once in a while the public can win and money doesn't triumph because the public is really paying attention."
Nonetheless, there were all kinds of compromises in which the lobbyists tamed what they couldn't kill. Some were highly visible. For example, to many reformers, the obvious way to deal with too-big-to-fail banks was simply to break them up; instead, a "systemic risk council" was established to monitor them, and a scaled-back Volcker rule was enacted to limit them. And in another highly visible retreat by legislators, car dealers, whose businesses are located in every congressional district making their lobbyists "more powerful than bankers'," says Frank won an exemption from new regulations on consumer loans. But most of the compromises were nearly invisible tweaks in definitions, changes in who would be covered, delayed start dates for new regulations. It was here that the lobbyists earned their money.
For example, an important though unheralded issue in financial reform was the extent to which various provisions governing bank reform would override state laws or regulations on the same questions. If a state has a tougher set of regulations governing, say, bank loans, would those rules be set aside by the new federal regulations? There are good arguments on both sides, with the banks coveting what is called federal pre-emption and consumer groups, backed by the White House, fiercely opposing it. One lobbyist told me of how using the two essentials of successful lobbying, personal relationships and money he got a boost from two Democrats in the House "who wanted to help us and whom we knew well through prior associations and have helped raise money for." They provided important support for pre-emption even though they vocally backed the overall reform bill. "They said, 'I can't be with you on the bill,'" he continues, "'but show me where I can help you out and then give me some backup'" which came in the form of a white paper on pre-emption, prepared by the American Bankers Association. The result was a compromise allowing limited federal pre-emption.
This kind of chipping away behind the scenes has only just begun. In fact, if and when the bill is finally approved, the action is going to become even less visible, moving from Capitol Hill to the bowels of the Washington bureaucracies. Officials at multiple agencies, including some new ones that have to start from scratch, will need to write all kinds of regulations to implement it, using an elaborate process of drafts, hearings, public-comment periods and all kinds of other red tape. Referring to a provision that requires banks to set "reasonable rates" when charging retailers for debit-card transactions, a top lobbyist for the credit-card industry says, "When it comes down to it, there are all kinds of definitions of reasonable and of cost ... Those are the real trenches for us," he continues, adding almost gleefully that he has a list of "more than a hundred provisions" that will require elaborate rulemaking, with billions in bank fees at stake.
A Better Way?
Some of the lobbyists' behind-the-scenes victories, whether on the Hill or at a bureaucrat's drafting table, might in fact prevent the unintended consequences for the economy that became the lobbyists' mantra this spring. But the point is that their influence almost always exceeds the power of their arguments. Is there any way to fix an imbalance that will once again hold sway when public attention shifts elsewhere?
Disclosure is usually thought to be a good solution, but as Wenhold (the guy with the "LOBYIST" license plate) points out, "We are already the most regulated, open-book industry in the world. We have to file public quarterly reports of all the money we get, from whom, and whom we lobby." But there could be improvements like requiring members of Congress to disclose their contacts with lobbyists the way lobbyists now have to sign in to a public log when they go to meetings with many regulators and other Executive Branch officials. And reporting of these contacts could be done in real time and be posted on the Internet. But disclosure has yet to embarrass legislators out of meeting with and taking campaign contributions from the private interests whose fates they legislate.