By Robert G. Kaiser
Washington Post Staff Writer
Thursday, December 17, 2009; C01
It is a rare moment in Washington when a lone politician finds himself at the center of a great legislative battle that he appears to be in a position to resolve. Such a moment might be coming soon for Alabama's Sen. Richard C. Shelby.
As the senior Republican on the Senate Banking Committee, Shelby is positioned to shape a new government role in the American financial system, shifting economic power that has long resided in New York to Washington in hopes of preventing another financial collapse like last year's. It's the kind of transformative accomplishment that creates a historic legacy for a senator, and Shelby -- a complex figure who spent the first three decades of his political career as a Democrat -- appears ready to take a shot at it.
"I believe that we have to have a new regulatory regime for our financial system," Shelby said in an interview in March, because the old system "failed us" in 2008. "Sweeping legislation" will be needed, he said. "I hope we can do it."
If Shelby and Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, can agree on that sweeping bill, Shelby said, stating the obvious, "then the chances of it becoming law are good." But are the chances of a Dodd-Shelby deal good? Their colleagues on the committee see a reasonable possibility. Sen. Mark Warner (D-Va.), a junior member of the banking committee who has grown to admire Shelby, observed that "putting his name" on a historic piece of legislation would interest the Alabamian.
Shelby could play the archetypal Southern senator in a movie. He is a square-jawed, handsome man who speaks mellifluous Alabamese. He is 75 but looks much younger, and at 6-foot-4 he usually towers over everyone around him. He carries himself regally, with the straight-backed, physical self-confidence of a star defensive end -- which he was, at Hueytown High School in Alabama's steel country.
He never moves or speaks quickly, and is a master of self-deprecation. "The most important thing about Shelby is that he lulls people into thinking that he's stupid," said his friend and former colleague Bob Kerrey, a two-term Democratic senator from Nebraska. He may look like "a big, dumb guy from Alabama," Kerrey said, "but he's smart. He's a classic trial lawyer -- he'll lay a trap for you."
"He is a prodigious reader of history, and all types of books," said an Alabama colleague who has known Shelby for years, "but at home he still plays that good ol' country boy -- 'I'm just Richard.' But he's not. He loves New York, he loves Paris, he loves to travel -- he likes all those things, but he downplays it when he's at home. He has the ability to live in both worlds." In fact, Shelby and his wife, Annette, a PhD and retired Georgetown University professor who still cuts an elegant figure at 70, made three trips to Paris just in the past year on various government-funded missions.
Shelby's politics conform to no existing model. On most issues he is predictably conservative, and he rides conservative hobby horses such as a balanced budget amendment to the Constitution (which he introduces every year) and a "flat" income tax that would impose the same low rate on everyone's income.
But he is no knee-jerk conservative. "A lot of people," he said in the March interview, "say, 'Let the market work.' You can't let the market work where the market is manipulated to such an extent that it would bring down our economy and half the world. . . . I think we're going to have to have a powerful regulatory body that approves or disapproves new [financial] products, that will put the old system in play."
Over the years, Shelby has embraced several consumer-friendly bills endorsed by progressives. He voted for Sarbanes-Oxley, the controversial 2002 law on corporate governance passed in the wake of the Enron scandal that was bitterly opposed by corporate America. He challenged Alan Greenspan's rosy view of the housing market years before the bubble burst and brought on last year's crisis. He warned of the inadequate capitalization of Fannie Mae and Freddie Mac years before they both collapsed. "He marches to his own drum," said his old friend Bill Moody, a wealthy Alabama real estate developer and political commentator who helped Shelby get elected to the Senate.
Shelby has always been -- as a Democrat, and then as a Republican -- something of a Southern populist. In his youth in Alabama he was considered rather liberal, according to friends and colleagues from that time. Nearly four decades ago he introduced the Equal Rights Amendment in the Alabama Senate, of which he was a Democratic member from 1971 to 1979. Shelby never embraced the racial politics of the George Wallace faction of Alabama Democrats, and has always enjoyed support from black voters. His friend Moody noted that in their youth in Alabama, "conservative meant racist, and that's not Richard."
"Even some of my Republican friends say I have a populist, progressive streak," Shelby said in an interview. "I am not a doctrinaire, anti-government person."
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Richard Shelby was the seventh of eight children, the only son born to Alice L. Skinner and Ozie Houston Shelby. His father worked for U.S. Steel as a draftsman. These roots are "the key to understanding of Richard," said Mike House, an Alabamian who worked for Shelby and is now a Washington lobbyist. "He's from across the tracks, so to speak. That gives you a different view."
Shelby's talent as a defensive end won him a football scholarship to the University of Alabama, but a serious knee injury in his freshman year ended his college career before it began. He majored in political science and pre-law, preparing for the University of Alabama law school.
Joe Fine, a law-school classmate who served with him later in the state Senate, was a classmate there. "Richard hasn't changed from the first time that I met him," Fine said. He was dignified and reserved even as a law student, and got along with everyone. Was he a good law student? "About like the rest of us," Fine replied. "He's not a Rhodes scholar or anything. You kind of get out what you put into it, and everybody had other interests, politics mainly."
Perhaps Shelby's most enduring accomplishment in his law school years was winning the hand of Annette Nevin, the bright and pretty daughter of two educators. She was an undergraduate at the University of Alabama when Shelby was learning the law. She accepted his Delta Chi fraternity pin three weeks after they met. "I liked his energy level, his wit, his presence," she said. They got married right after she graduated. Friends and rivals agree that she has been a huge asset to Shelby ever since.
Shelby became a country plaintiff's lawyer and was good at it. Juries succumbed to his charms. His wife wanted a career as well, and when their first of two sons was 2, she enrolled at Louisiana State University to pursue a PhD in communications. LSU is 350 miles from their Tuscaloosa home, and Shelby commuted every weekend to see his wife and son. When Annette got the doctorate, she began a teaching career at the University of Alabama.
Shelby first ran for office (the Alabama Senate) in 1970 as a Democrat, when there were just a handful of Republicans to be found in Alabama. Jere Beasley, the powerful lieutenant governor, chose him to serve on the rules committee, which "ran the Senate," according to John Baker, Shelby's colleague on the panel. "They controlled everything." When his law partner Walter Flowers unexpectedly gave up the U.S. House seat that included Tuscaloosa, Shelby quickly decided to run for it. He won with relative ease. He was reelected handily three times.
In 1986, Shelby, still a Democrat, decided to challenge the incumbent Sen. Jeremiah Denton (R-Ala.), a retired Navy admiral, war hero and former prisoner of war in North Vietnam. "I was going up or out," he said, when asked to explain the biggest political gamble he ever took. Shelby was already financially secure -- he owned a successful real estate title company -- and wanted to test himself at a higher political level.
"A lot of my friends tried to talk me out of running," Shelby recalled. They suggested he wait to run for governor or senator later, but he was ready. So was his wife, who was by then a tenured professor at Georgetown University's McDonough School of Business. She took a leave of absence to help run the campaign. First came a tough primary fight, which forced Shelby to spend most of the money he had raised. After winning the primary, Shelby went back to Washington to raise some more -- about $2 million.
The Shelbys hoarded the money for commercials on television and radio, holding firepower until the last few weeks. "He actually outspent Denton at the end," Annette said.
Carter Eskew, then 30 and a young Democratic consultant, made commercials for Shelby. Recently, he gleefully remembered the key commercial: "We had footage of Denton having a meltdown at a press conference where he said, 'I don't have time to come back home and pat babies' butts and get things done in Washington.' It caught his essence, his condescension to the voters of Alabama."
Shelby won by just 6,233 votes out of 1.2 million cast, the only close race in his political career. The newly minted Sen. Shelby decided that he would never be in a position like Denton's. He publicly promised to hold a town-hall meeting in every one of Alabama's 67 counties at least once a year, a promise he has kept for 23 years, through 1,541 town-hall meetings. "He probably knows more people in Alabama than anybody in the state," said Joe , the Shelby friend since law school.
He was reelected to the Senate in 1992 in a landslide. Two years later, Republicans swept back into control in both houses of Congress, and soon afterward the self-described "lifelong Democrat -- I was born one" -- joined a growing army of Southern Democrats who switched parties in the '80s and '90s. Republicans rewarded Shelby by recognizing the seniority he had built up as a Democrat, and giving him an appropriations subcommittee chairmanship.
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The money Shelby raised to defeat Denton was a small drop in what has become a huge bucket. Shelby is a legendary fundraiser. He currently has more than $15.3 million in his campaign account and personal political action committee, more of it from the employees and political action committees of the financial industry than from any other source. Shelby has declared his intention to run for reelection next year but says he won't spend all his money, and politicians in Alabama say he doesn't have to. "He'll be a U.S. senator as long as he wants to be," Fine said.
"I look at it as capital I might need," Shelby said of his war chest.
"He can raise enough money to sink a battleship!" said Joe L. Reed of the Alabama Education Association, a leading black political operative in Alabama. "Every time he sneezes, he raises some money."
Washington lobbyists recount stories of Shelby's relentless fundraising with grudging admiration. "I think it's the way he keeps score," said one regular recipient of the senator's blunt pleas for money.
Shelby keeps score in another way that helps him politically, by bringing home a huge quantity of bacon. Alabama gets about $1.50 back from Washington for every $1 it sends to the U.S. Treasury, much of it in earmarks written and promoted by Richard Shelby.
So his home state boasts of the Shelby Center for Engineering Technology at Auburn University, for example; or Shelby Hall at the University of Alabama; or the Shelby Interdisciplinary Biomedical Research Building at the University of Alabama at Birmingham; or the Shelby Center for Science and Technology at the University of Alabama at Huntsville; or Shelby Engineering and Science Center at the University of South Alabama.
Nor have the Shelbys neglected the accumulation of personal wealth. They are multimillionaires whose two personal homes, one in Georgetown and another in Tuscaloosa, are each valued at more than $1 million. The steelworker's son born across the tracks moved uptown long ago.
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Shelby's populist streak and his belief in the utility of better government regulation is what makes the idea of a Dodd-Shelby reform bill at least plausible. Many Republicans, especially in the House, decided to simply oppose any Democratic effort to set new rules for the money game. House Republicans all voted no last Friday when their Democratic colleagues passed their version of financial regulatory reform.
Shelby, by contrast, clearly would like to help the Democrats write the Senate bill, provided his influence is substantial. He and Dodd have spent many hours -- including several on Wednesday -- mulling the issues before them.
Dodd has been cultivating Shelby for the past two years. The Dodds and Shelbys have had numerous dinners out together. Dodd consulted extensively with Shelby after the death of Sen. Edward M. Kennedy (D-Mass.) in August before deciding to remain chairman of the banking committee (he could have taken Kennedy's place as chairman of Health, Education, Labor and Pensions), explaining later that Shelby convinced him he was serious about trying to reform the financial rulebook.
Dodd and Shelby did collaborate last spring on a bill imposing new, consumer-friendly rules on the big banks that issue credit cards, after Shelby won changes in a Dodd draft. Their joint effort was tougher on the banks than a similar bill passed by the more liberal House.
For months the staffs working for Dodd and Shelby have been sharing proposals, asking questions, discussing the issues of regulatory reform. Then in October, Shelby surprised Dodd by telling him that he could proceed with discussions only if Dodd agreed to drop a proposal for a consumer financial products agency. Dodd had announced months earlier that he considered this -- a sort of consumer product safety commission for financial products, from home mortgages to credit cards -- as a centerpiece of reform. President Obama does, too. The House approved it last week.
If Shelby were insisting on this condition, then Dodd decided to proceed without him. Dodd asked his staff to produce a "discussion draft" of a reform package that he formally introduced to the full banking committee on Nov. 19.
On that occasion Shelby trashed Dodd's draft. It was an uncharacteristic performance, harsh and sarcastic. "This committee has not done the necessary work to even begin discussing changes of this magnitude," he said, reading from a prepared text. Shelby slammed one provision after another in the Dodd draft, and announced, "I will be opposing this legislation."
It was, said a senior Dodd aide, "over the top." Democratic staff thought they heard the voice of Mark Oesterle, Shelby's smart, acerbic senior staffer on banking issues, in the statement Shelby read. Dodd himself was taken aback, but as soon as Shelby finished he tried to make a joke: "Well, I thank you for the endorsement of the bill," he said. Staff laughed nervously.
Then a few hours later, at the end of a long day of oratory from members of the committee, the mood abruptly changed again. Dodd announced that he would not insist on a speedy timetable for markup of a bill, which he had announced earlier. And Shelby struck an entirely new tone:
"We might be agreeing on 70 percent, perhaps more," he declared. "We've got a lot of the concepts we've got to work out, but I think we can do it. . . . We're going to try hard to work with you to do a good bill."
Eleven days later, on Nov. 30, Shelby gave a speech to the Oxford University Union in England that held out hope for a constructive new regulatory regime not radically different from the one Dodd had proposed, though without any consumer protection agency. That speech was "totally enlightened," in the words of one Dodd aide.
So is Shelby serious, or disingenuous? Mike House, the former Shelby aide who now lobbies for Hogan & Hartson, described the Shelby legislative method, first learned in the Alabama Senate: "He'll drive [his colleagues] crazy. They can't figure out where he is -- he won't deal, he won't deal, he won't deal, and suddenly he's dealing. That's what makes him such a good legislator."
"We are honestly making progress," Shelby said late Wednesday. "We will probably make a joint statement before we leave here [for the holiday recess]. We hope maybe toward the end of January to have crystallized a bipartisan agreement."
Negotiations are continuing.
Research editor Alice Crites contributed to this report.