As the financial stimulus plan plays out in Washington, we hear voices in Congress rage about the financial services industry lobbying to influence the bailout using taxpayer dollars. While I find this outrage to be rather duplicitous, I thought it would be informative to take a look at the numbers. They are staggering.
Financial sector lobbying in Washington has achieved impressive results. Though the return on the political investment made by the companies and their surrogates are dramatic, the risks associated with this political largesse are only now becoming apparent.
The Investment in Political Activity
For 2008, the last full year of disclosure, lobbying expenditures by banks, insurance companies and the real estate sector were phenomenal. The Securities and Investment sector spent more than $92 million on lobbying. Commercial banks spent more than $55 million and the insurance industry spent a whopping $152 million on lobbying that year. If that weren’t enough, their political giving went through the roof.
In 2008, the three industries combined made more than $296 million in contributions to members of the House and Senate and affiliated campaigns. The vast majority of this money, approximately $244 million was given to incumbents in both parties.
As the Center for Responsive Politics notes in a report on their OpenSecrets.org site, “the financial sector is far and away the biggest source of campaign contributions to federal candidates and parties, with insurance companies, securities and investment firms, real estate interests and commercial banks providing the bulk of that money. ”
The CRP goes on to note that several industries within the sector supported bankruptcy reform legislation, privatization of social security and data security regulation, which would have limited the liability of banks in the event of on-line security breaches.
However, as we have witnessed in recent months, the acts of omission in Washington contributed to the variety of factors that brought about the collapse of the global economy thereby showing us the flip side of this return, namely, political risk.
Political Risk Factors Exceed the Investment Returns
Unless you have been living in a remote cave these last few months, it would be next to impossible to ignore the fact that the financial services sector bears the brunt of the global economic crisis.
The risk equation in this situation is not just the risk associated with the political giving act but the outcomes achieved by both lobbying and political giving. Regulators failed to regulate, legislators failed to legislate and as the world changed nothing happened in Washington to ensure that what could and did happen in the industry to the detriment of the world was not prevented.
Thus, in looking at the political risk equation, it is apparent that, along with other risk factors that these companies ignored, political risk was completely overlooked as the returns achieved from the political spending flowed.
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