http://www.newsweek.com/id/225781/page/1Barney Frank is erupting, as only Barney Frank can. "How dare you!" he says. "How dare you accuse me of lying!" I am up on Capitol Hill to talk about his efforts to fix Wall Street, and Frank is growing agitated as I ask about the influence of the banking lobby on the House Financial Services Committee, which he chairs. Frank is determined to quash any notion that he's been weak on financial reform. I inquire about his decision the day before to postpone a vote on a reform bill. His public statement had said only that some Democrats on his committee weren't ready to decide on the legislation. Was there any other reason? "Are you trying to catch me in some lie?" Frank retorts. "You think I put that off for the big banks?"
Not even critics accuse Barney Frank of being in the pocket of Wall Street. The real question is whether he and -others are being swayed by the legislative legerdemain that Wall Street lobbyists have long practiced. The story of how those loopholes got into the derivatives bill, even with Frank at the helm and the wind of public outrage at his back, shows just how powerful the Wall Street banking lobby remains—and how complex Wall Street's financial instruments have become. "I don't think he ever fully understood the legislation" in its early stages, says Greenberger. Many of the key lobbyists now are the same gang that helped get us into this mess before, and they're spending huge sums once again. In the first three quarters of 2009, financial-industry interests have spent $344 million on lobbying efforts, putting them on pace to break all records, according to the Center for Responsive Politics. That's just for lobbyists' and lawyers' salaries, junkets, and dinners, and doesn't include political donations and issue ads. Even more impressive is the lobbying strategy that money is buying. According to insiders and industry e-mails obtained by NEWSWEEK, the banks have sought to stay in the background and put their corporate customers—a who's who of American business, including Apple, Whirlpool, and John Deere—out in front of the campaign. "This is an orchestrated, well-funded effort by the banks to manipulate our legislation and leave no fingerprints," says a congressional staffer involved in drafting the legislation. The staffer, who would speak only on condition of anonymity, passed on to NEWSWEEK nine pages of proposed changes in the legislation intended to protect trading from open scrutiny—all of it on paper without a letterhead—that she says came from Goldman Sachs. Samuel Robinson, a spokesman for Goldman, says "it's not our document" but adds that Goldman has "an active and appropriate involvement in the process of government" and supports "sensible reform."
Frank contends that many of his critics don't understand the "push-pull" of the legislative process—how difficult it is to muster a majority vote for tougher approaches to regulating super-complex practices. He points to other victories: the approval of the Consumer Financial Protection Agency, and an amendment that will require banks with assets of $50 billion and above to contribute to a rainy-day fund that would be used to break them up if they cause another crisis. "Do you think Wall Street was all for that? They were very upset about it," Frank says.
The Wall Street lobby isn't giving up. After Frank had toughened up his stance on derivatives, the lobby tried to redefine what certain kinds of exchanges do, according to a former lobbyist involved in the strategy who would divulge it only anonymously. Under the lobby's proposed changes, a new kind of exchange called an "alternative swap execution facility" would have required only that derivatives trades be documented after they were completed, says the lobbyist. But the trades wouldn't be open to bidding—or easily regulated. Told about that latest move, Frank at first said he hadn't focused on the language. Last week he directed his staff to rewrite the definition, but questions remain about whether the loophole is actually closed. His decision to briefly postpone a final vote on his bill, he adds, was merely to give members of the Congressional Black Caucus on his committee more time to consider their position.
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