Frank’s moment has finally come. The Huffington Post’s Ryan Grim is reporting that the Congressman from Massachusetts is going to bat for big banks by pushing compromise language on derivatives that will gut the tough reforms sought by Senator Blanche Lincoln.

Unfortunately, despite his progressive record on other issues, Frank’s capitulation to Wall Street on this issue is not surprising. As I’ve written before, Frank has spent the past ten years cultivating an exceptional Wall Street donor base. The numbers, drawn from OpenSecrets.org data, are remarkable:

* Frank raised 56% of his campaign contributions from FIRE (Finance, Insurance, and Real Estate — a rough approximation for Wall Street) during the 2008 cycle, a greater share than all but two members of Congress (Bachus and Kanjorski).

* Frank has raised 49% of his total receipts from FIRE during the 2010 cycle, a greater percentage than Wall Street villain Melissa Bean and all but three Democrats (Kanjorski – 63%; Moore – 58%; Meeks – 54%).

* Frank raised more money from FIRE than any other Democratic member of the House in 2006 (with the exceptions of Ben Cardin and Harold Ford, who were both running for Senate) and all but a few Republicans.

* When Frank became the ranking minority member on the House Financial Services Committee in 2002, his fundraising totals rose five-fold, from $268,000 the previous cycle to $1.4 million.

This graph shows the top 50 “Wall Street captives” in Congress — Representatives and Senators who receive the most FIRE money as a share of their receipts in 2010. Frank is #8, in orange (he was #3 out of 535 for the 2008 cycle).

Barney Frank got a lot of credit two months ago for rebuking a former staffer who became a Wall Street lobbyist. He also instructed his staff not to communicate with Michael Paese, another staffer turned lobbyist. But against the backdrop of these fundraising numbers, such gestures appear largely symbolic. You can’t take this kind of money from a class of donors without being on the phone with them all the time. And when issues like the derivatives compromise arise, it’s not hard to predict where Frank, Meeks, and other Wall Street-captured members of Congress will come down.

Last month, we issued a report on the big bank lobby in collaboration with the Campaign for America’s Future. “Big Bank Takeover” identified more than 240 revolving door lobbyists working for one of the six major banks and their principal lobbies.

But expand the scope to include other banks, private equity firms, hedge funds, accounting firms, credit unions, and so on, and the number grows much, much larger. Wikipedia research shows that the number of revolving door lobbyists employed by the industry as a whole is literally larger than the number of soldiers that typically constitute a battalion. This is what the public interest is up against.

Here’s what Public Citizen’s David Arkush had to say about the effect of having so many well-connected lobbyists fighting for the financial industry:

“These people are influential because they have personal relationships with current members and staff. It’s hard to say no to your friends, but that’s what Congress needs to do. Listening to them would result in a bill that would fail to get the job done and would disappoint the American people.”

Read the Huffington Post’s take here, and the Washington Post’s take here.

One rumor floating around Washington is that Democrats will hold off on an amendment that weakens the language until Senator Blanche Lincoln’s primary election in Arkansas on Tuesday. The derivatives language originated in the Senate Agriculture Committee, chaired by Lincoln. A delay will essentially help Congress avoid electoral accountability for caving in to the big banks.

Wall Street executives are pushing for the change to be made behind closed doors, out of the sight of the public. Today’s Washington Post quotes an anonymous executive spelling out their strategy with startling clarity:

Several senior industry executives, who spoke on the condition of anonymity so they could discuss the matter freely, say that based on recent meetings with congressional staff, they expect the rule to be dropped through backroom negotiations “in the dead of night with no recorded votes” on the measure.

Big banks love derivatives for the same reason they want legislation to be negotiated in the “dead of night”: they want to be able to do their dirty work with little oversight, transparency, or accountability.

Market transparency would put an end to their derivatives gambling profits, and democratic transparency would keep Congressional leadership from taking the side of the big banks, against the interests of the American people.

Congress has done this before. As Big Bank Takeover notes, an infamous provision in the Commodity Futures Modernization Act (CFMA) of 2000 opened a giant loophole for a Houston-based energy company that continues to deliver profits for Wall Street banks — at the expense of American consumers.

The Enron Loophole, a regulatory exclusion for energy-based derivatives, has since been blamed for rampant speculation in various energy markets. In 2000, Barack Obama and his presidential campaign blamed high gas prices on the “Enron loophole,” and subsequently Congress passed somewhat watered-down legislation to close the loophole.

That loophole has since been blamed on former Senator Phil Gramm, a Republican from Texas. The Senator was close to Enron, and his wife joined the company’s board shortly after the passage of the CFMA. The story goes that Gramm slipped the provision into the bill in the dead of night, and that the Senate was essentially unaware of what it was voting on.

Gramm has denied that this is the case, and there is plenty of evidence that the Clinton administration — including Larry Summers, currently a top official in the Obama administration — was partially complicit in the passage of the Enron loophole.

This fuzzy blame game is a direct result of a lack of transparency surrounding that legislation, and that’s what the bank lobbyists want now; they are calling for the same sort of “dead of night” situation that gave rise to the Enron loophole. No transparency means no accountability, and that’s a recipe for disaster when the big banks and their army of insider lobbyists are working the Hill.

One difference between this legislation and the CFMA: in 2000, Republicans controlled Congress, and Clinton was in the White House. Now, with Congress in the hands of the Democrats, and Obama in the White House, there will only be one party to blame for a dead-of-night provision that leads to further financial catastrophe — all for the sake of big bank profits.

As it turns out, some of the original Enron lobbyists are still on the scene, including Samuel Woodall, who has been engaged to work for a consortium of big banks, and scored the single most lucrative big bank lobbying contract in 2009.

Will he get his way this time?

There are two consumer protection amendments getting serious attention on the Senate floor this week, one of them positive, one of them incredibly destructive. Both revolve around the concept of “preemption”—the ability of federal regulators to block states from enforcing laws aginst banks that operate within their borders. Over the past decade, state regulators tried to crack down on subprime outrages, but federal regulators stepped in to protect the megabanks. If we want to establish a fair financial system, we have to empower states to take action against abusive banks.

That’s what makes a new amendment from Sen. Tom Carper, D-Del., so dangerous.

At OpenLeft, Chris Bowers has called the amendment “the most dangerous to Wall Street reform.”

Yesterday, I noted that the data we compiled for Big Bank Takeover helps shed light on Carper’s motivation: the same lobbying firm that pushed for similar changes to the House bill is home to Carper’s former chief of staff, Jonathon Jones. When Rep. Melissa Bean stripped consumer protections out of the House bill, she appears to have been acting at the behest of her ex-chief of staff, John Michael Gonzalez, who now lobbies for the firm Peck, Madigan. Gonzalez had lobbied on behalf of the Chamber of Commerce around the “Bean preemption amendment.”

The Chamber, of course, is acting on behalf of big banks. JPMorgan Chase, for instance, has worked closely with the Chamber of Commerce on financial reform issues for the past several years. The bank is a top career donor to both Carper (#2) and Bean (#4). It isn’t alone among big banks in giving big to Carper; Bank of America (MBNA) is number one, and Citigroup is number three. After Bean spoke at a JPMorgan board meeting last June, executives there showered her with cash.

These are the sorts of relationships that position Bean and Carper as the big banks’ chosen representatives in Congress, and they’re the sort of relationships which position them to lead the fight against the banks.

The extent to which Carper’s actions in the Senate are dictated by Jones (and the big business interests he lobbies for) has been especially evident in recent weeks.

The Hill reported last week that Carper wanted to “strike legislation in the Wall Street overhaul bill designed to give shareholders greater power to name corporate board of directors.” The article quotes Business Roundtable president John Castellani saying that his group would oppose the bill if the provision were included, because it “allows small shareholders with an agenda to disrupt the governance process.” (The quote also sums up the problems Big Business has with democracy itself: too much power for the little guy).

The Business Roundtable, of course, is a client of Carper’s eternal chief of staff. Here’s what he lobbied around in the first quarter of 2010 (according to disclosure filings):

Issues relating to executive compensation, shareholder votes and proxy access. S. 1074, The Shareholder Bill of Rights Act of 2009; H.R. 2861, The Shareholder Empowerment Act of 2009. Legislation and regulation pertaining to derivatives. S. 1691, The Comprehensive Derivatives Regulation Act of 2009; H.R. 3269, Corporate and Financial Institution Compensation Fairness Act of 2009. (emphasis mine)

Jones appears to have Carper’s ear like no one else in Washington. Here Carper is in Politico, gushing about his former aide:

The senator seemed to relish the chance to talk about Jones, calling a reporter back between votes in the cloakroom to gush over his longtime aide.

“Jonathon is the most unrelentingly positive person I’ve worked with,” Carper said. “The glass can be bone dry, and he sees it as half full.”

(Of course, doing political dirty work for big business usually pays well enough to keep the glass more than half full.)

While Jones himself isn’t lobbying for the Chamber of Commerce, fellow lobbyists at Peck Madigan are lobbying on behalf of the Chamber around financial reform, including Bean’s ex-chief of staff, Gonzalez. Gonzalez is also working with Jones to lobby for the Business Roundtable.

What’s disturbing about Jones and the rest of the staffers on our list of 240 revolving door lobbyists is that while they were working inside the federal government, they were likely preparing themselves to work on behalf of big business interests in the future. Why take a bribe while still serving in government when you can leave your job after two years and make five times as much working for big banks?

Here is Jones preparing for his role as a corporate lobbyist (also from Politico):

In 2003, Jones played an instrumental role in organizing a regular meeting of Democratic lobbyists and Senate staffers. Every other Monday during the congressional session, 80 to 100 lobbyists and top staffers for Democratic members plotted strategy in a conference room at the Hall of the States near the Capitol.

The inside-outside government dichotomy breaks down when you consider how these kinds of backroom meetings between lobbyists and staffers actually drive our politics.

That’s why events like the Showdown on K Street are so critically important. These lobbyists deserve much more scrutiny for the work they do to corrupt our democratic process as Washington “insiders”, and next week, they’re going to get it.

Originally posted at OurFuture.org.

These days, a “shadow bank lobby,” has played a prominent role in shaping the financial reform process, pushing amendments that will weaken consumer protections, water down regulation of the Wall Street casino, and increase the likelihood of continuing fraud and future bailouts. I discuss this “shadow bank lobby” in Big Bank Takeover, the report on the big banks’ army of lobbyists released yesterday by the Campaign for America’s Future.

Just as the shadow banking system threatens the integrity of financial markets, the shadow bank lobby threatens the integrity of the financial reform process). Both are designed to help Wall Street avoid oversight and accountability for its actions.

Two of the principal players in the shadow bank lobby are large business associations: the US Chamber of Commerce and the Business Roundtable. As Big Bank Takeover details, each institution has morphed into an aggressive financial industry lobby over the bailout period of the past two years. During the bailout period of the past two years, as Wall Street influence has come to be seen as toxic, big banks appear to have directed significant portions of their political budget to these institutions, rather than hiring more lobbyists to lobby directly on their behalf.

Last year, the Chamber, the Business Roundtable, and several other groups partnered to set up the Coalition for Derivatives End Users. The group is supposed to be representing businesses that use derivatives to hedge against risk. But yesterday, a hedge fund manager working with Americans for Financial Reform called on businesses to leave the “sham coalition,” which he said was a creation of the big banks:

“Today, there is no legitimate reason that non-financial businesses should be lobbying to weaken legislation that would prevent the next AIG collapse and taxpayer bailout,” said hedge fund manager Michael Masters. “The only explanation is that these companies are being duped by the big banks, who are desperate to escape accountability for the reckless gambling that crashed the economy and know they are not politically popular these days. It’s time for these companies to wake up to the fact they are being used.

The Coalition claims that it hasn’t coordinated with the big banks, but a closer look at the team of financial reform lobbyists working for the Business Roundtable and the Chamber reveals some evidence that it was created as a front group to push Wall Street’s policy agenda.

Rep. Melissa Bean and the ex-chief of staff that still seems to run her office, shadow bank lobbyist John Michael Gonzalez.

There was only one lobbying firm working for both the Chamber and the Business Roundtable on financial reform issues during 2009: Peck, Madigan, Jones & Stewart, a firm with rich connections to centrist Democrats. Peck, Madigan has lobbied for each Coalition parent around derivatives reform. At the same time, the firm has also lobbied for Deutsche Bank and the International Swaps and Derivatives Association — in other words, for big banks with a healthy appetite for derivatives trading.

Since derivatives lobbyists for the Chamber and the Business Roundtable have so much in common with big bank lobbyists — in fact, they’re the same people — it’s not a giant leap to suspect that this “derivatives end-users” coalition has actually just been set up by big bank executives who are afraid of their own toxicity.

Then there’s the fact that Bill Daley, JPMorgan’s in-house Democratic rainmaker, was a recent chair of the Chamber’s Center on Capital Markets Competitiveness, a big bank-driven effort to shape the financial reform debate. Peck Madigan also lobbied for that group. ThinkProgress has also exposed how the Chamber is working with big banks to kill reform. And JPMorgan CEO Jamie Dimon is on the board of the Business Roundtable, which has hired a number of Goldman Sachs lobbyists.

Unfortunately, the shadow bank lobby is a force to be reckoned with, and has won substantial victories for big banks throughout the financial reform process. In December, for instance, Representative Melissa Bean forced a negotiation with House leadership over federal preemption language in the financial reform bill. Bean succeeded in winning a major concession for the big banks, behind closed doors.

Bean was taking her cues from the shadow bank lobby. Her former chief of staff, John Michael Gonzalez, went through the revolving door in 2009 to become a bank lobbyist. Gonzalez works at the Chamber’s favorite lobbying firm on financial reform issues: Peck, Madigan. Here’s one issue his team was lobbying around on behalf of the Chamber, according to a recent disclosure filing:

H.R. 4173, the Wall Street Reform and Consumer Protection Act; Preemption provisions; Rep. Bean preemption amendment. (emphasis mine)

(While levels of disclosure are typically woefully lacking in lobbying disclosure filings — and Peck, Madigan has had issues in this area surrounding its work for the Chamber — I applaud the firm for their unusual openness here.)

The new Melissa Bean: Tom Carper with his ex-chief of staff Jonathon Jones (no picture available) — now a shadow bank lobbyist at Peck, Madigan. 

These days, Democratic Senator Tom Carper is the new Melissa Bean. He is sponsoring a preemption amendment that will keep states from being able to implement stronger consumer protections than the federal government. The amendment is clearly big bank-driven. But why Carper? Plenty of other Senators could have gone to bat for the big banks on this issue.

The answer is once again found in the revolving door data we compiled for Big Bank Takeover: Carper’s former chief of staff, Jonathon Jones, is a partner at Peck, Madigan — the same firm that lobbied for the Bean preemption amendment, and the same firm where John Michael Gonzalez, Bean’s ex-chief of staff, now works. Carper and Jones are extremely close, to the point where the Senator has “gushed” to Politico about how much he likes his former chief of staff.

This is how the seeds of financial destruction are sown: with real people leveraging real relationships to win major policy concessions for big banks.

If final negotiations around financial reform happen behind closed doors, as they did when Bean won her preemption fight with House leadership in December, the big bank lobby and its army of well-connected insiders will continue to win on the Hill. Today’s Congress will once again facilitate reckless gambling and predatory behavior by too-big-to-fail banks.

Transparency and openness are the only antidote to a big bank lobby that prefers to operate in the shadows; will Congressional leaders embrace these principles, and negotiate the final elements of the bill out in the open?

Originally posted at OurFuture.org

The report, Big Bank Takeover: How Too-Big-To-Fail’s Army of Lobbyists Has Captured Washington, shows how the six too-big-to-fail banks have hired 243 lobbyists who once worked in the federal government, including 202 who used to work in Congress, with others having worked at the Treasury, the White House, or a relevant federal agency like the SEC. (I authored the report, with assistance from researchers at LittleSis.org).

This translates into an average of 40 revolving door lobbyists per big bank.

Previous studies, including one by Public Citizen, have shown that the finance industry is spending $1 million dollars a day to fight financial reform and employing 940 former federal government employees. “Big Bank Takeover” shows that the six biggest banks — JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America, and Wells Fargo — account for a disproportionate share of this activity.

The revolving door lobbyist number includes 54 former staffers to the Senate Banking Committee and the House Financial Services committee (or a current member of that committee), 33 former chiefs of staff, and 28 former legislative directors. Citigroup leads the big banks with 55 revolving door lobbyists, though the federal government was its largest shareholder for much of this period (2009-2010).

These lobbyists left their old jobs for a simple reason: there is a fortune to be made working the halls of Congress on behalf of too-big-to-fail banks. Steve Bartlett, a former member of the House Banking Committee (now the Financial Services Committee), brought home $1.6 million in 2008 as head of the Financial Services Roundtable. SIFMA, another lobby, paid its top official, Timothy Ryan, $2 million in 2008. Ryan is a former JPMorgan executive and former director of the Office of Thrift Supervision.

SIFMA recently hired former Representative Ken Bentsen as head of its DC lobbying operation. Bentsen keeps a framed photograph of a landmark deregulatory bill, Gramm-Leach-Bliley, on the desk of his office, and for good reason: that bill helped spur the growth of megabanks like Citigroup, JPMorgan Chase, and Bank of America that fund SIFMA and pay his salary.

Bentsen was on the other side of the revolving door when that bill was passed, in 1999 — as a member of the House Financial Services Committee. He has a lot of company in that respect: Big Bank Takeover shows that many of these lobbyists worked in government during the 1990s when the too-big-to-fail banking sector got a big boost from bipartisan efforts to deregulate the financial sector.

Former House minority leader Dick Gephardt and Senate majority leader Trent Lott have a combined 16 former staffers who are now working for big banks, including Citigroup and Goldman Sachs. Lott and Gephardt are also lobbying for the banks.

Senator Chris Dodd leads current members of Congress with five former staffers now working as big bank lobbyists. One big bank lobbying firm, Porterfield, Lowenthal & Fettig has ties to the Banking committee chair, Chris Dodd, the ranking member, Richard Shelby, and Dodd’s rumored successor as chair, Tim Johnson.

Big money buys this kind of mercenary army. Between campaign contributions, lobbying spending, and trade association activity at SIFMA, the ABA, and elsewhere, the big banks and their main lobbies have spent close to $600 million since the first major federal bailout of the financial sector happened with Bear Stearns in March 2008.

Of course, that’s a drop in the bucket compared to the $160 billion these banks have received from the US Treasury, and the trillions in free money they’ve received from the Federal Reserve. But these investments are more than enough to buy their way in Washington.

And Wall Street’s lobbying operation is actually much more concentrated than the healthcare lobby. For the healthcare lobby, LittleSis.org put together a similar list of revolving door lobbyists and we found over 500 healthcare lobbyists who used to be Congressional staffers. But that was for literally hundreds of companies in the healthcare sector.

The 240 we came up with this time work primarily for six big banks.

These big bank lobbyists want to operate in the shadows. The banks are hiding much of their lobbying activity in a stealth lobby of generic business associations like the Chamber of Commerce. The report points to several instances of how banks are routing their political spending through these organizations, but there are likely many more examples.

The Washington Post reported last week that lobbyists are now looking to Congressional leaders to work out the final details of the bill in closed-door conference. Big Bank Takeover notes that at least one infamous deregulatory catastrophe happened behind closed doors: the Enron loophole, a legislative exclusion in 2000 derivatives legislation which has been blamed for spikes in energy prices. The same lobbyists that pushed for that measure are on the scene once again.

The report was released in anticipation of next week’s Showdown on K Street, when thousands of Americans will descend on DC in the hopes of setting things straight with the big bank lobby.

I’ll have more on the big banks and their influence army throughout the week. In the meantime, all this data also exists in an open format at LittleSis.org, so if you’d like to take a closer look you can check it out there. Special thanks to Priscilla for helping compile it, as well as Matthew, co-founder of LittleSis.org. OpenSecrets.org was also an invaluable resource in putting it together.

Originally posted at the Institute for America’s Future, OurFuture.org.

McKay’s attempts at damage control in the wake (literally) of the Deepwater Horizon catastrophe haven’t been much better according to PolitiFact’s examination of his appearance on ABC News’ This Week, which garnered a “Barely True” rating thanks to McKay’s attempts to characterize BP’s plainly stated opposition to new safety regulations proposed by the Interior Department’s Minerals Management Service (MMS) as actually “recommending improvements and specific recommendations” to the proposed regulations.

Upon further review PolitiFact found that the letter was indeed “a plea for the company to have less regulation” including specific objections “to language that required equipment to meet manufacturer’s recommendations or specifications” among other things.

BP’s concern regarding equipment specification is telling because the Wall Street Journal reported that the Deepwater Horizon well lacked a remote control shut-off mechanism, called an acoustic switch, which could have greatly mitigated the immense ecological impact of the spill.  The acoustic switch is legally required by adequately regulated “major oil producing countries, Norway and Brazil.”  The Journal concedes that “The U.S. considered requiring a remote-controlled shut-off mechanism several years ago, but drilling companies questioned its cost and effectiveness, according to the agency overseeing offshore drilling.”  The cost of an acoustic switch is estimated to be $500,000; BP spent 32 times that amount on lobbyists in 2009.  The New Republic took a deeper look into why the U.S. doesn’t require companies to install these switches and discovered that in 2000 the MMS (more on them below) did issue a safety notice characterizing acoustic switches as “an essential component of a deep water drilling system.”

By 2003 Government regulators had changed their minds stating, in a rare bit of honesty, that “acoustic systems are not recommended because they tend to be very costly” so a legal requirement mandating their inclusion on wells like Deepwater Horizon was scrapped.  Again it must be emphasized that $500K for an important piece of safety equipment, once labeled “essential”, is deemed too expensive a luxury by the same Oil and Gas industry companies, such as BP, that collectively spent $169 Million on lobbyists in 2009, according to Open Secrets.

A few things that occurred between 2000 and 2003 that may have swayed regulators towards dumping mandated acoustic switches are the election of the Bush/Cheney ticket and the notoriously secret Energy “Policy” meeting convened by Cheney in 2001. Cheney’s ex-firm Halliburton has increasingly come under fire for their role in the Deepwater Horizon thanks to (surprise!) shoddy cement work.

Another factor was the descent of the MMS into an agency imbued with “A Culture of Ethical Failure” seemingly endemic to Regulatory Agencies during the Bush years.

Similar to Massey Energy, BP’s clamor for less regulation comes amidst the backdrop of a record $87 Million fine levied against BP by OSHA in October 2009, the largest penalty assessed in that organization’s history, for the company’s “failure to comply in hundreds of instances with a 2005 agreement to fix safety hazards” at BP’s Texas City refinery which blew up in 2005, killing 15 workers. In 2007 BP was also forced to plead guilty to criminal violations of the Clean Water Act and pay $20 Million in penalties. This cursory glance reveals just a few major blemishes on BP’s record and reputation that might lead reasonable people to believe that a more robust regulatory framework is in order.

Those are things BP have actually gotten caught doing. There are even more frightening allegations of negligence currently under further investigation. Truthout has a lengthy and disturbing report regarding a former contractor’s attempt to notify the Federal Government, in 2008, that BP Atlantis (another of the firm’s Gulf Coast leases) “had been operating without a majority of the engineer-approved documents it needed to run safely, leaving the platform vulnerable to a catastrophic disaster that would far surpass the massive oil spill that began last week.” According to internal communications obtained by Truthout, BP officials were “made aware of the issue and feared that the document shortfalls related to Atlantis ‘could lead to catastrophic operator error’” yet despite  these credible “claims that BP did not maintain proper documentation related to Atlantis, federal regulators authorized an expansion of the drilling project.” After a dubious inspection of BP Atlantis’s documents by the MMS, the contractor and the public advocacy group Food & Water Watch successfully brought this matter to the attention of Representative Raul Grijalva (D-Arizona). Rep. Grijalva is a member of the House Committee on Natural Resources and on Feb. 18^th of this year he sent a letter to MMS requesting that they look further into whether BP is “operating its Atlantis offshore oil platform … without professionally approved safety documents.”

Besides being an organization tainted by “a culture of ethical failure” another reason the Minerals Management Service might not have moved more diligently and aggressively into investigating the contractor’s allegations is the fact, as noted above, that BP spends millions of dollars on lobbying and campaign contributions, including a staggering $3, 530,000 during the first quarter of 2010. Louisiana Senator Mary Landrieu received $18,000 from “individuals and employees” associated with BP during the 2008 election cycle, the most of any candidate not running for President, including $1000 from Lamar McKay. That could be why Senator Landrieu told WWL-TV in New Orleans: “our country needs this oil, there is no question about that.” Despite the devastation creeping through the Gulf, Landrieu, flush with BP’s money which she has defiantly refused to return, urged her colleagues to “not to retreat” or “react with fear” toward plans for new drilling.

Perhaps more striking and predictable is the fact that 5 of the top 10 all-time recipients of BP money currently sit on the House Energy Committee. They are: John D. Dingell (D-Mich.) Joe Barton (R-Tex.), Ralph M. Hall (R-Tex.), Roy Blunt (R-Mo.) and Fred Upton, (R-Mich.).

And maybe those facts explain why the Washington Post is reporting that the MMS granted BP and Deepwater Horizon a “categorical exclusion” from the National Environmental Policy Act in April 2009. The Post also notes that BP engaged in lobbying efforts 11 days before the tragic explosion to expand these exemptions.

The lobbying continues full throttle as gigantic oil companies attempt public relations damage control in DC with a frantic desperation that mirrors the dire ecological damage control unfolding in the Gulf.

It’s starting to be an all-too familiar story. Whether it’s BP or Massey Energy, the zeal for profits at the expense of safety coupled with the unwillingness of sympathetic politicians showered in corporate cash to insist on stringent regulatory standards is a serious, serious problem in the United States.

One possible explanation for the shift: one of McCaskill’s top donors is Steven H Lipstein, chair of the St Louis Federal Reserve. Lipstein has given McCaskill and her committees $16,000 since she first ran for the Senate in 2006, including $11,200 for that campaign, the sort of outrageous sum that illustrates the complete meaninglessness of campaign finance limits. In February 2010, he gave her $4800, maxing out to both her primary and general accounts. His wife, Susan Lipstein, donated $2100 to McCaskill during her 2006 campaign.

Lipstein became chair of the St Louis Fed in January, 2009. Though he is also the CEO of a major nonprofit hospital system, BJC Healthcare, Lipstein suggested to the St Louis Globe-Mail in March that the financial industry is a more significant concern for him than healthcare:

Lipstein, who is also chairman of the Federal Reserve Bank of St. Louis board of directors, doesn’t see the health care bill as a major drain on the economy. If the state can come up with $200 million by 2017-18 it may be in line for an infusion of $2 billion in federal money, he said. “I’m more worried about the financial sector than the impact of the health care bill,” he said. (emphasis mine)

The brother of Rahm Emanuel, entertainment lawyer Ariel Emanuel, also maxed out to McCaskill’s accounts on February 28. Rahm Emanuel is reportedly leading the fight against the Fed Audit.

It’s unclear if these contributions are connected or if they played a role in swaying McCaskill. President Obama was in St Louis for a fundraiser with McCaskill two weeks later, so an invitation for that may have spurred them to donate.

Regardless, the St Louis Fed is clearly influencing McCaskill’s position on the Fed audit. Her recent criticism of the amendment echoes the words of St Louis Fed President James Bullard, who is on the Federal Open Market Committee. In an interview with the Financial Times on May 1st, Bullard called the audit “blatant political meddling in monetary policy.”

The Financial Times called Bullard’s remarks “unusually outspoken comments” from a member of the open market committee.

McCaskill also pointed to the political issues with a Fed audit:

“I’m looking at it. But I think it may have more potential to politicize the Fed than it does opportunity to really change anything that average Americans are looking for.”

All this suggests that the Fed has developed a regional strategy to target key Senators as the Fed audit comes up for vote. Will it work? Given current levels of anti-Wall Street sentiment, it looks like it could be a tough fight. But luckily for the Federal Reserve, McCaskill has taken money from the right people.

Update: I took out a reference to McCaskill donor Jeffrey T Fort, who maxed out to her accounts on the same day as Emanuel and Lipstein. Fort lives a few blocks from Lipstein, but apparently the neighborhood is quite dense with wealthy donors, so it’s hard to tell if the contributions are at all connected.

One such hedge fund manager is Richard Perry. Perry, a former Goldman Sachs trader, became known as one of the subprime winners in 2007 — one of the hedge fund managers who saw the crisis coming, and placed profitable bets that the housing market would collapse. Perry reportedly shorted $3 billion in subprime-related securities, netting a $1 billion profit on the trade.

Around the same time, in late 2006 and 2007, Perry’s hedge fund, Perry Corp, began buying up shares in a certain financial management company that had a close business relationship with Goldman Sachs. His stake grew from 5% to 8% (around $30 million in early 2007), to the point where Perry Corp was disclosed as a major shareholder in the company in the prospectus for one CDO put together by Goldman in August 2007.

That company: ACA Capital, the same firm wrapped up in the Goldman Sachs-John Paulson CDO deal that the SEC has deemed fraudulent.

Perry’s winning billion-dollar subprime short, alongside his major investment in ACA, is all the more notable because of his ties to Goldman Sachs. He was a star trader at the bank under former Goldman Sachs head Robert Rubin, and has partnered with the bank on investments in recent years. Perry is extremely close to Rubin, outside of the professional context — former babysitter to his children, teaching assistant, and advisory board member at Rubin’s Hamilton Project. Despite being extremely close to someone who made $1 billion shorting the subprime market, Rubin has called the financial crisis a “perfect storm” that no one saw coming.

Perry is also the nephew of former Bear Stearns CEO Jimmy Cayne. Bear Stearns was the biggest shareholder of ACA before it went bust.

Which subprime securities did Perry short to score $1 billion? Were they Goldman Sachs CDOs? Was ACA involved?

These are all questions worthy of investigation. But what makes Perry’s investment strategy even more suspicious is the fact that he has previously been investigated for a complex derivatives deal that played both ends of a trade.

In 2004, with the help of financial engineering by Bear Stearns and Goldman Sachs, Perry acquired a large voting stake in a pharmaceutical company (Mylan Laboratories) that was considering the takeover of a smaller company (King Pharmaceuticals). Perry owned a significant stake in King, and also hedged against a drop in Mylan’s stock price.

As Mylan’s biggest shareholder, Perry could vote through the merger, causing a drop in Mylan’s stock price but reaping up to $28 million on the deal because of his investment in King and his Mylan hedges.

The SEC ultimately fined him $150,000 for failing to make the proper disclosures. Perry hired a former SEC official, William R McLucas, to argue his case. Even that probably wouldn’t have happened if Perry had not gotten on the nerves of Carl Icahn, the next biggest shareholder of Mylan.

Were Wall Street investors like Perry, Goldman, and Paulson intentionally using corporate shells like ACA (and AIG) to dupe the marketplace and funnel profits back to them? And were they using their connections to the companies — ownership stakes, personal ties, and so on — to encourage them to participate in these risky deals?

At this point, only one thing is for certain: further investigations are needed.

The article opens by saying that the SEC is “pursuing an unusual claim that could be difficult to prove in court” according to legal experts. But the article only quotes one legal expert clearly criticizing the substance of the case: Allen Ferrell, a professor at Harvard Law School. According to his CV, Ferrell has been engaged as an “expert for large financial institution involving subprime-related litigation (details confidential).”

This is clearly a potential conflict, but the entire article appears to be based around Ferrell’s lone, critical quote. This is irresponsible journalism, especially considering the landmark significance of the Goldman suit. So I wrote the following letter to the Times ombudsman to alert him to the conflict and request a proper correction/disclosure:

Dear Mr. Hoyt,

I am writing regarding the article “A Difficult Path in Goldman Case,” by Binyamin Applebaum, on page A1 of today’s New York Times (April 20, 2010). The article asserts that the fraud case brought by the SEC against Goldman Sachs is a challenging one, pointing to “several experts on securities law.” However, only one expert is quoted as questioning the substance of the SEC’s case: Allen Ferrell, a professor at Harvard Law School.

According to Ferrell’s CV (http://www.law.harvard.edu/faculty/fferrell/cv.htm), he was recently engaged as an “expert for large financial institution involving subprime-related litigation (details confidential).” This is clearly a potential conflict — it is impossible to judge, as long as the details remain undisclosed — yet Applebaum quoted Ferrell as an independent expert. In fact, his quote was the linchpin of the piece; no other securities law expert quoted in the article registered clear criticism of the SEC’s case.

This is irresponsible journalism. Given the significance of the SEC’s case against Goldman, an article headlined “A Difficult Path in the Goldman Case” and running on page A1 should draw on the arguments of independent legal experts who are subject to rigorous disclosure standards — not lawyers in the employ of large financial institutions.

Can you please clarify as to whether Ferrell disclosed this conflict to the Times, and issue a correction notifying readers of the conflict?

Sincerely,

Kevin Connor
Co-Director, Public Accountability Initiative

Update: The New York Times has informed me that they’ve double-checked with Professor Ferrell and he is not working for Goldman Sachs. Regardless, the New York Times should not base this sort of analysis on a quote from a lawyer who works for big banks.