Three billion dollars spread across 435 members of the House of Representatives and 100 members of the Senate equates to $5,600,000 per seat, over ten years. This bought a lot of attention. And according to a New York Times/CBS News poll released in the last week, the percentage of people approving the way his or her members of congress are doing their work has “never in history been lower.” In short, lobbying (from all sources) has skyrocketed; performance for the people has disintegrated. Lobbying played a significant part in the descent into the present economic quagmire.


Financial industry lobbying dollars (in millions) courtesy of the Center for Responsive Politics.

The total lobbying expenditures by the three mortgage-involved industries (finance, insurance, real estate) in 2007 alone was over $400 million. And the pace continues, even as taxpayer money is used to try to keep the three industries afloat. Here are a few current highlights:
• Merrill Lynch spent at least $1.5 million on lobbying between July 1 and September 30 of this year, up from $1.2 million the previous quarter. And M.L. spent $1.7 million in the first quarter this year. The U.S. Treasury will buy $25 billion in shares in Bank of America, which is buying Merrill Lynch to keep it in operation.
• Morgan Stanley will get $10 billion from Treasury. In the third quarter this year, Morgan spent $765,000 on lobbying; in the second quarter it spent $810,000.
• Wells Fargo, which will sell shares to the Treasury for $20 billion, spent $1.2 million on lobbying the last two quarters.Wells is buying troubled Wachovia Bank that gorged itself on mortgage-backed securities, the virus.
• AIG, after receiving $120 billion from D.C., continued to lobby heavily to soften new federal regulations requiring mortgage originators to get licenses. There was a rare outcry from several senators. AIG is “reviewing the situation.”

The only exception to business-as-usual has been that Freddie Mac, a government sponsored agency, didhave to fire most of its 25 staff lobbyists after the government took over a month ago. This is, or was, a case of the government lobbying itself.

Sources & Uses
Where did—and does—all the money go? Is there a direct-connect between the dollars spent by the finance, insurance, and real estate industries and the systematic deregulation plus the lack of Congressional oversight the past ten years? The reader is the judge. Parts I and II of this series may be helpful in developing one’s point of view.

In reality, in the USA money flows in a thousand different ways—from little favors to big re-election campaign contributions—from a myriad of “special interests” to lawmakers. One of the newest ways is for lobbying organizations to funnel dollars to selected members of Congress’s pet charities. The New York Times reported on October 18, 2008 that during the first six months of the year, “lobbyists, corporations, and interest groups gave approximately $13 million to charities and nonprofit organizations in honor of more than 200 members of the U.S. House and U.S. Senate.”

Here are some examples of where the money went and who was “honored.”
• Support of a symphony orchestra in Johnstown, PA. It is a “beloved” charity of John P. Murtha, of the U.S. House of Representatives.
• Support of the Baca Foundation. It was founded by Joe Baca of California, a member of the U.S. House.
• Support of the James E. Clyburn Research and Scholarship Foundation. It was named for the South Carolina congressman and majority whip, a high office.
• Dollars for the Richard G. Lugar Center for Renewable Energy. It was founded by the Indiana senator.
And one older, classic (and traditional) example:
• The DeLay Foundation for Kids in Texas received millions of dollars from companies over a period of years. This was founded by Tom DeLay, former U.S. House majority leader, another high office.

As was noted in the NYT article: Donating to pet charities “is a very personal way to curry favor with powerful lawmakers,” says Keith Ashdown, the chief investigator for Taxpayers for Common Sense. “It’s also a lobbying tactic that is not completely understood or even known by the public.”

Scope of Lobbying
Many, many candidates for office say, “elect me and I will go to Washington and change it.” Each promises he or she will shake things up. Most end up getting changed themselves. They get plenty of help in learning the ways of D.C.

In Washington there are currently 15,966 registered lobbyists; this works out to be 30 lobbyists per member of Congress. And in 2007, the total of all lobby spending was $2.15 billion. That’s just for the year. The total has been over $2 billion each year since 2003. And it is interesting to note that the money is spent about evenly on Democrats and Republicans, according to the Center for Responsive Politics. (See: http://www.opensecrets.org/lobby/index.php.)

Perhaps there is a master, lobbying strategy in the nation's capital: Spread the money evenly to help ensure the continuance of the gridlock and traditional pork habits of members of Congress. Gridlock keeps the big things from getting done; pork (federal $) for bridges to nowhere and other such goodies "back home" gets incumbents re-elected. This minimizes the work load on lobbyists.

Why do large corporations and others (e.g., AMA, AARP, American Hospital Association, National Association of Realtors, US Chamber of Commerce, Pharmaceutical Association) invest hard dollars in lobbying? Here is a telling quote from a Wall Street Journal story on October 20, 2008:
“Financial services is a heavily regulated space, and there is a tremendous amount of activity that the Congress and the next administration is going to undertake to rewrite the rules. Now is definitely not the time to limit your involvement in lobbying and otherwise educating policy makers.” So says Erick Gustafson, director of government relations at Marsh & McLennan in Washington, a lobbying firm.

Organizations invest in lobbying to “educate” lawmakers and because it pays off…for the lobbyists. There are instances where the lobbying can be traced to a positive impact for Americans in general. For example, it might have, or may, help right some wrong or weakness at the federal level that has been recognized by the country. But the positives appear to be far outnumbered by the insidious negatives.

Who pays for all the lobbying and its potentially poisoning impact on the U.S. system of government? Ultimately, Americans pay for it, as either consumers or taxpayers, and usually as both.
# # #


A general summary of these first three articles aimed at deciphering the economic quagmire goes like this: The unraveling situation today (autumn 2008) has its origins in the deregulation of the financial industry. There were many contributors to the present downward spiral including weak, myopic, or incompetent public administrators and elected officials; dysfunctional corporate boards of directors; ambitious executives; aggressive mortgage lenders, house builders, and suppliers; “creative” financial engineers and sales people who sold exotic deals around the world; and a Pollyanna public that happily gobbled up the free credit lunches that were routinely available. So, in a way, almost everyone has been a player, and today just about everyone’s nest egg has a virus infection with an unknown lifespan.

Editor's Note: Steve Brandt is Senior Lecturer in Management, Emeritus at the Stanford Graduate School of Business where he was a faculty member for 21 years.


Author's Note: This series, by a non-economist, non-banker, is written to try to help readers get their arms around the current, economic mess. Understanding can provide a whiff of relief. The series highlights some of the major peaks of the problem; the series does not attempt to describe the entire mountain range, a task far beyond the author’s ability. Parts I and II on Mortgage-Backed Securities and Deregulation & Derivatives can be found by clicking on Other Stories.