Ten years after the financial crisis brought the U.S. economy to its knees, about 30 percent of the lawmakers and 40 percent of the senior staff who crafted Congress’ response have gone to work for or on behalf of the financial industry, according to a Washington Post analysis.
The pattern, which applies about equally to both parties, is a stark illustration of how policymakers sought to profit from the financial sector after dealing with one of the worst financial episodes in U.S. history.
Critics of the revolving door say it helps explain why Congress — even as it deployed hundreds of billions of dollars to bail out Wall Street — didn’t take tougher steps to rein it in.
“Some folks that softened Congress’ crackdown on Wall Street shortly after went to work for the companies that benefited from the softening,” said former congressman Brad Miller (D-N.C.), who served on the House Financial Services Committee and now works for a law firm that represents whistleblowers.
Former lawmakers and staffers who went to work for Wall Street say they are taking part in a long tradition of entering the private sector after playing a role in significant legislation.
In 2010, Congress passed the Dodd-Frank financial oversight law that established new rules for Wall Street, including requiring banks to hold more capital in reserve and creating a new federal agency to protect consumers.
“We’ve resolved virtually all the major reforms that needed to be done to avoid a repeat of 2008 — they have already been done,” said Scott Olson, who started a financial services consulting and lobbying firm in Northern Virginia after serving as a top Democratic aide on the Financial Services Committee. (Olson said more needed to be done to reform Fannie Mae and Freddie Mac.)
The debate over how the revolving door may have affected Congress’ response to the crisis echoes today as financial industry lobbyists and lawmakers work to soften Wall Street regulation.
The Post analysis found that Wall Street, K Street and firms representing financial interests have hired at least 15 of the 47 lawmakers who left Congress after serving on the House Financial Services Committee and Senate Banking Committee in August 2008, just before the financial crisis entered its most intense chapter. That number includes six of the 10 senators to leave Congress after serving on the Banking Committee.
Seventeen of the 40 most senior staffers who served on the House Financial Services Committee in August 2008, as well as 15 of the 40 senior staff who served on the Senate Banking Committee at that time, later joined or took jobs representing a large financial institution.
Lawmakers and staff work for institutions such as JPMorgan Chase, Citigroup and Goldman Sachs as well as D.C.-based lobbying firms such as Signal Group Consulting and Venable.
To do the analysis, The Post used lobbying disclosure forms, news releases and news articles to find the employment histories of the senior staff and lawmakers of the Senate and House committees. Former government officials who became lobbyists or lawyers were counted as working for the sector only if they had personally represented a large financial institution or if that institution said their job included representing financial interests.
The Post’s analysis may understate how many lawmakers and staffers went to Wall Street following the crisis. It omits congressional leaders and staffers, as well as other influential lawmakers and staffers who were part of the financial crisis response.
Key Obama-era officials involved in responding to the crash are also now working for large financial interests, such as former Obama treasury secretary Timothy Geithner, who is an executive at a private-equity firm; former Obama treasury secretary Jack Lew, who has also joined a private equity firm; and former Securities and Exchange Commission chair Mary Schapiro, now on the board of Morgan Stanley.
Some former committee members who joined the private sector cited the financial stresses of life for many lawmakers on the Hill. Pay for members of Congress fell from about $165,000 to $151,510 from 2006 to 2015, when adjusting for inflation, according to Legistorm. The Congressional Research Service found inflation-adjusted median pay for Hill chiefs of staff has fallen from $160,000 to $147,000.
“There’s always been an allure of making more money when you leave Congress,” said former congressman Gary L. Ackerman (D-N.Y.), who noted that some colleagues saw their pay jump to more than $1 million a year after leaving the Hill. “A lot of them are very talented and entitled to it.”
That allure can be especially strong for members on the House Financial Services Committee. Party leadership often places vulnerable incumbents on that committee because companies with business in front of it often spend millions on corporate campaign contributions, said former congressman Paul W. Hodes (D-N.H.), a former committee member who now campaigns against money in politics.
In 2015, former House Financial Services Committee chairman Barney Frank (D-Mass.) joined Signature Bank, where he has earned more than $1 million on its board of directors, according to regulatory filings.
This January, former Senate Banking Committee chairman Christopher J. Dodd (D-Conn.) joined Arnold & Porter Kaye Scholer after six years at the helm of the Motion Picture Association of America. A news release from the firm said Dodd would aid clients on issues “affecting financial services,” among other policy areas. Dodd said he has not yet worked for a financial firm.
“The revolving door is a gigantic problem for Congress — far too many people are leaving jobs in Congress where they were working on legislation that affected major corporate interests to go work for those corporate interests,” said former senator Ted Kaufman (D-Del.), who stressed he was speaking generally and did not think Dodd was influenced by the revolving door.
Kaufman and others point to key examples where Congress could have taken a tougher stand against Wall Street — but didn’t.
During the Dodd-Frank negotiations, Kaufman proposed an amendment that would have capped the maximum debt the biggest banks could hold. The legislation would have broken up JPMorgan Chase, Wells Fargo and Bank of America.
Dodd joined 26 other Democrats opposing the measure. Dodd said he voted against the amendment because passing it would have made it impossible to get the 60 votes required to pass the overall bill. He also said it’s not a problem that people rotate in and out of public service.
“There was a time when people in law firms would serve the public and that was celebrated,” Dodd said. “It shouldn’t be a pejorative: I think that way we could lose a lot of potential talent, ability and good people.”
Those who find Dodd-Frank inadequate point to other issues. The legislation delegated responsibility for crafting key banking rules to regulatory agencies, creating a lengthy process that led reforms to be diluted or killed amid fierce Wall Street lobbying.
For example, lawmakers gave federal agencies the authority to curb the kind of exorbitant executive compensation that fuels excessive risk-taking, but new rules have not been implemented.
The financial industry showed its might in other debates, as well. In one example, Republicans in the Senate joined with moderate Democrats in 2009 to defeat a plan to allow judges to set new terms of mortgages, a measure that could have also allowed Americans to get more favorable terms amid the housing crisis.
“The banks — hard to believe when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place,” Sen. Richard J. Durbin (D-Ill.), the measure’s sponsor, said at the time.
Miller cited legislation he pushed that would have opened the largest Wall Street giants to civil lawsuits by homeowners for trading on subprime mortgages. The idea would not be approved until 2010 as part of Dodd-Frank, too late for most of the behavior that led to the crisis.
Many proposals pushed by Wall Street reformers failed to pass for reasons including Republican opposition to the goals of a Democratic Congress. But the effect of the banks’ influence, according to former lawmakers, was to dilute the legislation.
“It’s hard to point to any one instance” of legislation being squashed because of the revolving door, Hodes said. “But there were so many times you would just have to wonder: ‘This result doesn’t make any sense.’ ”
Frank defended the legislation bearing his name and said the largest banks had limited influence on Dodd-Frank. He said the biggest obstacle to more aggressive action was Democrats’ narrow path to passing Dodd-Frank, which gave moderate Republicans power over key provisions.
“Frankly, the big banks had very little clout,” Frank said.
On the Republican side, lawmakers and staffers said they were more swayed by the complaints of small businesses. Former congressman Spencer Bachus (R-Ala.), who was then the top Republican on the Financial Services Committee, listened more to community banks, local businesses and car dealers than to the largest financial giants, said Larry Lavender, a Bachus staffer now at Jones Walker.
“It makes perfect sense, frankly, because when any new statute is being passed by either party, the people who drafted it become highly in demand,” said Brandon Barford, who served on the Republican side of the Senate Banking Committee and now works at Beacon Policy Advisors, which advises hedge funds and asset managers. “It has been happening since time immemorial.”