As Congressional Democrats and the White House call for reform on Wall Street, executives are understandably uneasy about giving money to those very politicians. As noted by the Center for Responsive Politics and reported in the Washington Post, 4th quarter numbers are starting to shift from the Democrats to the Republicans. But is this political hedging a safe bet or more like investing in currency default swaps?

Wall St. Shifting its Money to the Right

As the Washington Post notes, the shift in giving from Democrats to Republicans puts Democratic politicians in a quandary. They need Wall Street support to fend off GOP attacks but need to distance themselves from the financial industry that is largely responsible for the current economic crisis.

Republicans, on the other hand, are grabbing Wall Street money like looters in Port-au-Prince. House Minority Leader John Boehner (R-Ohio) is “urging Wall Street executives to “help our team” oppose the “bizarre policies” coming out of the Obama Administration.” An unnamed Republican operative noted that the GOP expects to be attacked on Wall Street reform no matter what. “We’d rather have whacks and the money than whacks and no money.”

From a purely short-term perspective, Wall Street’s collective response as measured by the recent giving shifts makes sense. Throw some money at the Republicans and maybe some of them will win or stay in office. Considering the sums given in the context of overall corporate spending, oiling republican coffers could produce some outsized returns on their political investments.

Is Political Risk Real?

The largely unknown factor is what will happen in the post-Citizens United era, where corporations are free to spend unlimited sums on issue advertising. While shifts in candidate giving will not dramatically increase as a result of the U.S. Supreme Court’s Citizens United ruling, support for causes near and dear to the political candidates will undoubtedly soar.

Like the mortgage meltdown, where incremental screw ups by many different players contributed to this epic catastrophe, unlimited corporate spending or, as the U.S. Supreme Court calls it, “free speech,” can have massive unintended consequences. Will massive spending by numerous corporate players trying to shift public thinking about financial reform crush any hopes for solving the economic problems today? Maybe.

One view suggests that Citizens United will result in a situation where political power has so dramatically shifted from ordinary voters to corporate executives that the fundamental democratic process experiences a meltdown. Unlimited corporate political spending will create systemic risk impacting the political process. Like the mortgage crisis, no one player can be blamed for the crisis but the disastrous effects will be huge nonetheless.

On the other hand, some argue that Citizens United will have a negligible effect on corporate political giving since there are already so many loopholes in the system that allow corporations to inject money into the political system that the impact of Citizens United is more about rearranging the deck chairs than any real shift change in the political system.

Forces opposed to the Citizens United decision are rallying for change. However, current shareholder initiatives are totally inadequate for addressing the problem. These proposals, calling for transparency in corporate political giving, do nothing to address the problem. The current list of public companies disclosing their corporate political giving is impressive at first glance. However, in reviewing their disclosure, what remains undisclosed goes to the heart of the matter. Giving through political intermediaries, namely trade associations, has become the standard for obfuscating political activity. Unfortunately, proponents have been largely unsuccessful in addressing this problem.

With regard to the supposed risks – political, reputational and so on – such risks are largely fallacious. While a number of academic studies suggest that corporate political giving reflects any number of problems for companies, nothing suggests that companies experience any significant risk from making political contributions done in accordance with state and federal campaign finance laws.

Is There a Post-Citizens United Strategy?

That said, what is necessary is a new paradigm in which real risk is created for executives and companies they operate when political spending and influence is wielded. Political operatives that have argued that risk is the boogeyman in this process are in fact attempting to create that sort of risk. The rumored Schumer-Van Hollen bill to address the impacts of Citizens United will, among other things, compel executives to stand by their political ads. This doesn’t get at more sophisticated laundering schemes where corporate money is given to a trade association and is labeled as “non-political” and then some or all of that money is given to a political advocacy organization for issue advertising.

What is needed is a much more thoughtful approach to curtailing corporate political influence in America. So far, not much has been done to stem this growing problem.