Earlier this month, the Inspector General responsible for overseeing the government's bailout of the financial sector released an audit of the Treasury Department and federal banking agencies that raised the specter of “external parties” – such as financial institutions – having “undue influence” over the bailout process. In short, the IG concluded that because the Treasury Department and other banking agencies insufficiently document oral communications between external parties and the federal government, it was “impossible” to determine whether bailout decisions were improperly influenced.

When explaining how to fix this disclosure gap, the Inspector General pointed to rules governing lobbying on the $787 billion economic stimulus funds as a good model for the financial bailout. The IG also noted that the Treasury Department announced on January 27, 2009 that it “would develop new rules to increase transparency and curtail potential lobbyist influence” over the financial industry bailout. And yet, the Treasury Department is still “finalizing” its draft policy 7 months after the press release. (More background available from WSJ and the Washington Times.)

It seems, however, that both the IG and the Treasury Department may not have realized that the model they are using for the financial bailout lobbying rules has itself been updated. They also seem to have forgotten about public disclosure of written communications.

Did Treasury Misunderstand the Lobbying Disclosure Rules?

Mike Stern, former senior counsel for the U.S. House of Representatives, wrote about two peculiarities in the Treasury Department's understanding of the stimulus lobbying rules, as recounted by the IG.

Stern highlights this paragraph from the IG report:

"A Treasury official stated that Treasury’s draft policy for TARP [financial industry bailout] funds is similar to the ARRA [stimulus lobbying] policy. The TARP policy will state that Treasury employees cannot talk to lobbyists or members of the Congress, with one exception—instances of overarching policy discussions.” (emphasis added by Stern)

First, Stern explains that Obama's revised stimulus lobbying rules treat lobbyists and other interested parties similarly with respect to prohibiting certain communications. Yet, the Treasury official's statement on the draft financial bailout lobbying rules does not mention other parties as being included in the ban. Second, the revised stimulus lobbying ban likely does not apply to Members of Congress, and yet the Treasury official's statement states that Treasury employees cannot speak with members of Congress regarding specific projects. (This is probably unconstitutional.)

Even with these problems, the Inspector General embraces the stimulus lobbying guidelines as a model for the financial bailout guidelines. And yet, nowhere does the report mention that the administration has updated and significantly revised its stimulus lobbying guidelines. I wrote about the major revisions earlier.

Based upon Stern's analysis, there are two instances where the IG report failed to note that the Treasury official's statement concerning stimulus lobbying guidelines was no longer operative. Moreover, although the IG report summarized the Treasury Department's interim stimulus lobbying guidelines (which mirror the April 7th stimulus lobbying guidelines promulgated by the OMB), nowhere does the report mention that the stimulus lobbying rules were updated by OMB on July 24th.

Has the Treasury Department failed to update its stimulus lobbying guidelines in accordance with OMB rules? Why weren't OMB's updated stimulus lobbying guidelines summarized in the IG report, even if they haven't yet been adopted by Treasury? Should Treasury use the old or the revised stimulus lobbying guidelines as a model for its financial bailout lobbying guidelines?

What Happened to Disclosing Written Communications About Policy Matters?

There is another problem as well. The original stimulus lobbying rules had a loophole that was closed when they was updated. If Treasury uses the interim Treasury stimulus lobbying disclosure guidelines as a model for its financial bailout disclosure guidelines, and not the revised version promulgated by OMB, it leaves open a tremendous loophole: the absence of public disclosure requirements for written communications by lobbyists (or anyone with financial interests).

The interim OMB rules regarding lobbyists writing to federal employees on policy matters had no public disclosure requirements. The revised OMB rules, however, impose a public disclosure requirement on the writings themselves as well as public disclosure that the communication has taken place.

Specifically, the revised OMB memo tells government employees: "If you receive a written communication from a federally registered lobbyist on behalf of a client or employer concerning Recovery Act policy or projects for funding (including, but not limited to, any written communication from a federally registered lobbyist about a pending application), then please submit that written communication to your designated agency official for posting on the agency’s website within 3 business days of the communication. . . . " (emphasis added)

The IG report, however, explains that "although Treasury and the banking agencies have processes for documenting and responding to written external inquiries, not all have procedures to document oral communications with external parties when discussing TARP funds." (emphasis added) In saying this, the report omits any mention of whether the documents that are received by Treasury should be made public. Implicitly, it implies that this is not required.

And if you look further, the IG report's explanation of the stimulus lobbying guidelines parallels the interim (outdated) OMB guidelines in distinguishing between discrete projects and policy matters. The IG report says that "treasury employees are . . . required to forward written communications from federally registered lobbyists regarding specific projects, applications, or applicants." The interim stimulus guidelines contrast "specific projects, applications, or applicants" with policy matters. The IG report does not mention general policy matters, and implicitly adopts that dichotomy as well. Indeed, it fails to adopt the language of the revised OMB memo requiring publication on a website of policy communications.

As a result, it is unclear whether the IG is recommending that the Treasury Department publicly disclose the written communications on policy matters submitted from lobbyists to federal employees. Further muddying the waters is the statement by the Treasury official, quoted in the IG report, that seems to exempt “instances of overarching policy discussions” from the financial lobbying ban on Treasury employees speaking with “lobbyists or members of the Congress.” The focus of that section of the report is on oral communications, but it could be interpreted to include written communications as well.

In a private email (that I have permission to quote), Stern writes that "As a practical matter, if a lobbyist wants to communicate in writing with Treasury regarding a TARP/ARRA policy matter and for some reason does not want the communication to be disclosed publicly, he or she could just have the letter signed by a non-lobbyist representative (eg, the client’s CEO).” He is right. This is another issue that Treasury should address.

It is a good thing that the IG is pressing the Treasury Department and other banking agencies to be more transparent, particularly as to lobbying that could place taxpayers on the line for billions of dollars. However, there are many additional questions that must be answered by Treasury and the IG -- and soon.

If ever there was a doubt that campaign contributions effect the votes of lawmakers, look no further than today's Op-Ed from Amy Showalter in Roll Call. Showalter is the President of the Showalter Group, providing advice to corporations and trade associations on how to leverage grassroots pressure and PAC contributions in their lobbying efforts. Showalter's Op-Ed attempts to reveal why certain lawmakers changed their votes on the recent bailout legislation. In doing so, Showalter winds up higlighting the seedy behavior of feeding campaign contributions to lawmakers in exhange for votes and the stealth nature of grassroots lobbying. On PAC contributions she writes:

Rep. Joe Knollenberg (R-Mich.), who faced one of the toughest re-election fights in the House, told the Associated Press that he changed his mind after he received telephone calls from General Motors Corp. chief executive officer G. Richard Wagoner Jr. and other auto and corporate executives. “I’ve never talked to as many bank presidents in my life, over my entire life,” he said. Knollenberg has received $131,500 from GM since he started serving in Congress in 1993, according to Federal Election Commission records, illustrating another “predictor of influence success.” Our survey showed that giving a legislator the maximum allowable political action committee contribution is a predictor of persuasion success. Lobbyists representing the housing, financial, auto and other business sectors pushed hard for the bailout bill. Several of the lawmakers who changed their minds have received campaign contributions from those industry PACs. Schmidt has received $70,100 from American Financial Group Inc., a Cincinnati-based insurance holding company, and $16,500 from the American Bankers Association since she was elected to Congress in 1989. Rep. Judy Biggert (R) was the only Illinois lawmaker to change her mind about the bailout package. Since she began representing her suburban Chicago district in 1989, she has received $45,000 from the National Association of Realtors, $39,500 from the National Automobile Dealers Association and $37,548 from the ABA. Most lawmakers say they aren’t influenced by campaign contributions, but the recent bailout votes suggest otherwise. We found that the most successful influence attempts typically include campaign contributions. In other words, a PAC contribution represents “exchange” and cements relationships.

While campaign contributions do have to be disclosed to the public, they are only disclosed in quarterly filing reports. This prevents the type of real-time oversight that could be occuring if these "exchanges" were made available to the public as they happened.

Showalter also emphasizes the need for lawmakers to here from "key influentials" in their district. These are often business leaders or small business owners who can be engaged in a grassroots lobbying campaign organized by trade associations. After the initial failure of the bailout bill in Congress, the business community, along with AARP, began a huge grassroots campaign to get business owners to call their congressmen and senators to push for passage of the bill. That grassroots push provided the many examples that Showalter uses in her Op-Ed to show the importance of constituent communications and likely pushed the bill to its ultimate, overwhelming success.

While coalitions that often engage in this type of manufactured grassroots pressure are required to disclose their activities under the Honest Leadership and Open Government Act, the actual effort of grassroots lobbying is still left untouched by disclosure requirements. In the world according to Showalter, a pro at influencing lawmakers, the best ways to get to a lawmaker's heart are still through means not fully policed by disclosure laws.

Check out this really cool word cloud created out of the 110-page Emergency Economic Stabilization Act of 2008 that the House failed to pass on Monday. A digital media and technology enthusiast based in San Francisco, who blogs using the pseudonym Thomas Hawk, produced the graphic by pasting the bill into Wordle.

As the Senate moves forward today with the newest version of the bailout bill (now being referred to as the "rescue plan"), Sunlight has been feverishly parsing the text of the new proposal, as provided by the Senate Banking Committee.

We have finished the first part of the bill, Division A, which is now posted for review and commentary on PublicMarkup.org.

If Congress released the data behind the bills they consider, in real time, at the same time as bills are released, then public review and processing would be much MUCH easier. (Details on what that would take are available in this chapter of the Open House Project report.)

An Alternative Minimum Tax (AMT) patch, a mental health parity bill, a package of tax break extensions, and tax breaks and relief for victims of natural disasters, specifically Hurricane Ike. These don't sound like they have any relation to the relief of an financial crisis, but, as of today, they will all play a major role. The new massive bailout package — sorry, "rescue" package — introduced in the Senate includes all of these measures. The inclusion of these measures could help push the underlying Emergency Economic Stabilization Act through Congress or torpedo it by injecting inter-chamber politics into an already tense political situation.

At the heart of the tacked-on legislation is a combination of an AMT patch and tax break extensions for corporations and renewable energy investments. Senate Democrats, most prominently Sen. Max Baucus, believe that the inclusion of these measures will help draw the support of House Republicans who previously voted down Monday's bailout bill. However, this measure is already drawing the ire of House Democrats, including Blue Dogs and Majority Leader Steny Hoyer.

The AMT/tax break extension package was previously passed by the Senate, but House leaders, pushed by Hoyer and the Blue Dogs, intended on shelving the proposal due to its failure to abide by pay-as-you-go rules (providing offsetting cuts to go with revenue reductions). The inclusion of the package in the bailout bill will revive the animus between the two Democratic factions. Hoyer has already stated that the inclusion of the "tax extenders" is "controversial" and was included only because "they thought that’s the only way they could get it passed.” Of course, the Blue Dogs, being prominent supporters of the bailout bill, may find themselves in a situation where this compromise is the best they can get.

Seeing as how every vote counts at this point — the bailout only needs 12 votes to pass in the House — the inclusion of the mental health parity legislation previously passed by the House could help sway one or two votes. The chief Republican cosponsor of the bill, Rep. Jim Ramstad, voted against the bailout bill on Monday. Also, one the bill's seven cosponsors, Rep. Pete Stark, also voted against the bailout. The inclusion of the defining bill of Ramstad's career, as he retires this year, could be enough to sway this one vote into the "yes" column.

In classic congressional fashion, the Senate has decided to use a crisis piece of legislation as a way to push through a massive package of other priorities forcing an inter-chamber factional battle to come to a head. The inclusion of this controversial legislation could also serve as a remedy to the current failure in the House.

Poison pill or appeasing antidote? We'll wait and see.

It looks like the Senate is moving forward today with a new bailout bill, which is available through the Senate Banking committee site.

A mirrored copy, and an embeddable version are both available below.

We're working on parsing the legislation to get it up on PublicMarkup.org, but until Congress starts publishing bills in XML, parsing it is time consuming. Updates shortly. Update 12:15 PM: Here's the embedded version:

Get your own - Open publication

Update, 12:21 PM: Here's a mirrored version of the PDF.

Update 1:05 PM: Also, for additional info, see the one page and section-by-section analysis posted to the Senate Banking Committee site here.

Update 1:52 PM: For the plan for Senate floor consideration, see the Senate Calendar here.

The unexpected failure of the bailout proposal has given lawmakers and citizens a second chance to understand the details of this sweeping legislation.

You can join the Sunlight Foundation in renewing our call for all legislation to have at least 72 hours online before a vote. Without this minimal public exposure, how can lawmakers and their staff really understand legislation? What hope do citizens have of being truly represented if they can only read bills shortly before passage (or failure, as the case may be)?

We have refined our petition in light of this new opportunity for mindful consideration of the bailout legislation. To sign up, tweet to your friends, or read more details, check out our petition, or read our press release.

Congress responds to public pressure, and posting bills before votes is just common sense. Tell Congress to Read the Bill First! Sign our petition, and check out the latest versions of the bill at PublicMarkup.org.

Today, the Sunlight Foundation is calling on Congress to exercise restraint, and give Members and the public sufficient time to read and respond to the proposed bailout legislation.

Citizens, irrespective of party identity, are deeply skeptical at the proposal.  If any legislation should be considered publicly, and carefully, the Emergency Economic Stabilization Act of 2008 should be considered with level heads and in full public view.

We're happy to see Congress recognizing the public's interest in this legislation, posting the text of the agreement as soon as a consensus plan was developed among congressional leadership.  Congress should take the next logical step, and hold off on floor consideration until a full 72 hours has elapsed after posting the bill.

As our just issued press release says:

But, before the bailout proposal is considered by lawmakers, it must undergo an even more important test: evaluation and assessment by Americans. That's why we are calling on citizens to sign a petition to urge Congress to wait 72 hours between when the bill was first posted online and the actual vote. We believe all legislation should posted online for at least three days before a vote to give lawmakers and citizens sufficient time to review and debate it, and this bill is no exception. This isn't a bill to rename a few courthouses; this bill is Congress's biggest intervention in the economy in decades. This important legislation deserves more time for public scrutiny.

Sign the petition here, and tell Congress to read the bill first!

Congress took a real step today toward legislative transparency, proactively posting the proposed bailout legislation in public, online, in advance of floorconsideration.

To give citizens a chance to fully digest and comment on the proposed legislation, we've posted the text of the legislation to PublicMarkup.org for public review.

On Friday Ellen blogged a request for legislative transparency, calling on Congress to release the bailout draft as early as possible:

The Sunlight Foundation is calling on Congress to publish the proposed bailout legislation as soon as possible, to give constituents and lawmakers themselves as much time as possible to examine the specifics of the proposal before it’s voted on.  We will post the draft legislation to PublicMarkup.org as soon as possible, to give citizens a chance to weigh in on the proposal’s specifics. Any lack of transparency in consideration of this legislation would be especially ironic since lawmakers have blamed the current crisis on financial malfeasance that was hidden from public view. Before the bailout proposal is considered by lawmakers, it must undergo an even more important test: evaluation and assessment by the public.

Today, Congress responded, and Speaker Pelosi and the House Financial Services Committee posted the bill they've designated as the final version.

From remarks Speaker Pelosi delivered at a press conference today:

Before I yield to Senator Reid, I just want to tell everyone that I am now informed that at this moment, you can find the plan on financialservices.house.gov, and then if not there, on speaker.gov. It's there for all Americans to see, for our Members to read so they can make the important decision they have to make tomorrow in the House. I also want to say that later when this bill passes and is implemented, all of the transactions related to this legislation will be on the Internet within 48 hours and that represents change. That transparency, that oversight, will be very important to the health of our economy.

In the midst of rare political urgency, as congressional leaders are pushed well beyond their comfort zones, facing the Bush Administration, unclear political consequences, a skeptical public, and posturing from the presidential candidates, Pelosi chose to assert the role of an empowered public.

Ellen identified two shortfalls in transparency; one real, helping cause the finance situation, and one potential, as Congress responds with legislation.  Speaker Pelosi's statement addresses both.

First, on finance data, Pelosi says "all of the transactions related to this legislation will be on the Internet within 48 hours..."  While I don't know finance well enough to speak to the details of publishing such data, I can say that this is the same sort of transaction tracking transparency that has made FedSpending.org (and USASpending.gov ) immensely successful -- the same transparency that the individual US states are experimenting with (as Grover Norquist recently noted on The Next Right ).

On the second point, Speaker Pelosi points the public to the two sites where the legislation had just been posted.  Now, putting legislation online is nothing new.  THOMAS has been around since the mid 1990s.  Referencing online access to legislation in the midst of intense negotiations, whipping, and public pressure, however, is.

The expectations here, of course, are much higher than with most legislation.  The dollar amounts are enormous, the legislative process has slipped into urgency-mode, and rank-and-file lawmakers are scrambling to establish a position.

Regardless of the incentives facing congressional leadership, and regardless of the substance of the bill, this episode shows one thing very clearly: the bar for public disclosure has been raised.

Ellen, in her post, also points out the distinction between public dialog and "compromises and deal making — the real stuff of urgent policy-making."  If public dialog is going to remain separated, to some degree, from "the real stuff of urgent policy-making," as it is sure to in a legislature controlled by centralized party leaders, then the role of the informed public needs to be clearly staked out, asserted, and defended.

Even if many Americans dislike this legislation, and even if much of the legislation was created in informal pre-legislative meetings, public scrutiny and input has been welcomed into that process.

The legislative process, just like finance regulation, depends on public scrutiny for stability and legitimacy.  It's good to see Congress recognize both.

You already know that the very same lawmakers who are deciding the fate of the financial bailout receive campaign cash from the industries they regulate. But did you know lobbyists in the financial sector have thrown more than 250 parties this year alone for members of the House Financial Services Committee, one of the committees making the decisions about this legislation?

On our Party Time site, Nancy Watzman guides you through a smorgasbord of sushi dinners, beer tastings, happy hours, football outings and more.

It’s almost impossible to get this information, because there is no official requirement that these party invitations be reported to the public. Though that doesn't stop us from finding and posting these invitations for you to dig through. (With thanks to all of you who have anonymously submitted your party invitations.)

Stay tuned to learn who's throwing parties for members of the Senate Banking Committee. Oh, and if you have any invitations you want to share, please send them here.