This is the first in a series of blog posts that will explain the effects of campaign finance on various aspects of government policy, and how the corruption caused by campaign donations has led to policies that favor the interests of corporations and the wealthy. This post will focus on Wall Street and the financial services industry.
The financial services industry is one of the most politically influential interest groups in America. Led by large investment banks like Goldman Sachs and JP Morgan Chase, the finance industry represents a significant amount of political donations to candidates of both parties, particularly at the federal level. According to Open Secrets , the financial industry is “far and away the largest source of campaign contributions to federal candidates and parties.” In general, campaign donations from the banking and investment sectors favor Republicans. According to donation records from Open Secrets, the five largest sources of campaign contributions for 2008 Republican presidential nominee Sen. John McCain (R-AZ) were investment banks and other major players in the finance industry, and the same holds true for the party’s 2012 nominee, former Massachusetts Governor Mitt Romney .
However, banks and other financial institutions have contributed significant campaign funding to Democratic presidential candidates as well. So far in 2012, President Obama has received almost $4.8 million in campaign contributions from the securities and investment industry, which pales in comparison to the $15.9 million in Wall Street donations pulled in by the Romney campaign. The loyalties of the financial industry have swung significantly in just four years; in 2008, employees and executives of the investment banks donated $14.8 million to Obama’s campaign, compared to $9.8 million to Sen. McCain’s.
Wall Street banks and other financial firms have also contributed significant funding to Congressional and Senatorial campaigns, including those of the leaders of the Congressional committees responsible for financial legislation. From 2007 to 2012, Senate Finance Committee chairman Max Baucus (D-MT) has received more than $800,000 in campaign contributions from the finance industry, making them his largest source of campaign finance. The chairman of the House Financial Services Committee, Rep. Spencer Bachus (R-AL), received well over $500,000 in campaign donations from banks and investment firms just from 2011 to 2012 alone. In 2010, Rep. Bachus famously stated that rather than supervising and overseeing the actions of Wall Street firms, he believes that federal financial regulators “are there to serve the banks.”
The influence of Wall Street on the actions and policies of the Obama Administration was evident from its earliest days. Obama’s appointment of Timothy Geithner, former President of the Federal Reserve Bank of New York, to the position of Treasury Secretary underscores the presence of Wall Street’s voice in the Administration. In Ron Suskind’s book, Confidence Men, which discusses the Obama Administration’s relationship with Wall Street, one top banker refers to Geithner as “our man in Washington.” Other Obama administration appointees, including his first Chairman of the White House National Economic Council, Larry Summers, were also widely perceived as being consistently loyal to the interests of Wall Street and the finance industry.
In exchange for their exceptionally large campaign contributions, the financial industry has been rewarded handsomely by federal policymakers. For example, Wall Street firms played a major role in shaping the financial reform legislation that eventually became The Dodd-Frank Wall Street Reform and Consumer Protection Act. Passed by Congress in 2010, the legislation was criticized by reformers and other experts as a toothless, face-saving measure that failed to take on the largest issues of current financial regulation, particularly the problem of ‘Too Big To Fail.’
Occasionally, politicians acknowledge the overwhelming influence that the financial sector has on federal policymaking. In 2009, Sen. Dick Durbin (D-IL) said in a radio interview that “the banks… are still the most powerful lobby on Capitol Hill. And they frankly own the place.”
The legislative and political rewards that the financial sector has reaped, largely as a result of their donations to the campaigns of candidates for federal office, are clear evidence of the corrupting influence of private funding for political campaigns on American democratic institutions.