The House Financial Services Committee is currently holding a hearing on the implementation of new rules for the trading of derivatives by financial and nonfinancial companies as required under the Dodd-Frank financial reform law. Conversation may turn to a study released yesterday claims that derivatives regulations, as proposed by government oversight agencies, would cost billions for companies and lead to the loss of millions of jobs. The study, sponsored by a corporate coalition known as the Coalition of Derivatives End Users, is already coming under fire.

According to Andrew Ross Sorkin:

The study was conducted by Keybridge Research, a seemingly independent economics and public policy consulting firm. The firm’s bona fides include an all-star roster of academics, including Joseph E. Stiglitz, a Nobel laureate in economic science; David Laibson, a professor of economics at Harvard, and Stephen P. Zeldes, a professor of economics and finance at Columbia’s Graduate School of Business.

But a closer look at the report raises some serious questions. For one, the findings seem oddly out of step with the views of some of the group’s luminaries, including Mr. Stiglitz, who is advertised on Keybridge’s site as an adviser.

How could that be?

Well, it appears that Mr. Stiglitz and many of the firm’s advisers are not advisers at all.

“This is the first I have heard about it,” said Mr. Stiglitz, who just returned home on Sunday after a five-week trip abroad. He said he was surprised to be listed on the group’s Web site. After reading the study, he said, “It’s not a very good report.”

The more Sorkin poked around the more "advisors" he found who did not know that they were listed on the firm's web site and wanted their names off of it immediately. Sorkin notes that the study "was strategically released for high impact," with its release just before today's hearing.

As Barry Ritholtz points out, this is just another form of astroturfing. Ritholtz writes, "Those with a financial stake in maintaining the status quo about Derivatives are engaging in a phony lobbying campaign to protect their highly lucrative fiefdoms. This includes imitating judges in their astroturfed letter writing campaigns, and now claiming affiliations with well regarded economists and Nobel Laurelates where none exists."

Groups can organize to fund a study through a firm with the appearance of neutrality, in this case, the listing of well known economists against their wishes, to help their lobbying efforts on Capitol Hill. The study is currently being touted by the Chamber of Commerce, Business Roundtable, and, of course the Coalition of Derivatives End Users.

Craig Reiners of MillerCoors will be testifying on behalf of the Coalition of Derivatives End Users at the hearing on derivatives regulations today. The study will no doubt feature in Reiners testimony and in the arguments of supportive lawmakers.

The Commodity Futures Trading Commission (CFTC) has been tasked, along with the Securities and Exchange Commission (SEC), with setting new rules governing the transparent trading of derivatives for the first time.

On July 26, 2010, five days after President Barack Obama signed the most sweeping reform of the financial sector into law, the CFTC was already meeting with industry groups to hash out new rules for the trading of the complex financial instruments known as over-the-counter derivatives.

Disclosures made available under the CFTC's new policy of disclosing contacts made by outside organizations regarding the implementation of the Dodd-Frank financial reform bill show that the CFTC has held 192 meetings or discussions with outside groups since the bill was signed. The large proportion of these groups are those who will be most affected by new rules governing the trading of over-the-counter derivatives including major derivatives traders, clearinghouses and the industry groups that represent them. (View the database of contacts by clicking here or scroll to the bottom of this post.)

The market in derivatives, particularly those known as over-the-counter derivatives, is murky at best and the best source of information for the new regulators may be the very industry they are seeking to reign in. Two of the biggest banks to emerge from the 2008 financial meltdown were tied as the most frequent visitors to CFTC meetings as of October 6, 2010.

Morgan Stanley representatives attended sixteen meetings, according to the disclosures. Morgan Stanley recently decided to move parts of its derivatives trading desk from the outside broker-dealer where it is currently housed to the larger umbrella of the bank itself. The bank is also viewed as the bank least hurt by any new regulation of derivatives trading.

The other bank which is expected to feel little pain from new regulation is Goldman Sachs. Goldman representatives also attended sixteen different meetings with the CFTC. Among all bank holding companies, Goldman Sachs is the most dependent upon trading for revenue with estimates that $11.3 billion to $15.8 billion of their 2009 revenue—$45.2 billion—came from derivatives trading alone. Goldman's representatives were often accompanied by Peter Malyshev, a former CTFC staffer-turned-lobbyist.

Prior to the passage of new rules in the Dodd-Frank financial reform bill, derivatives trading relied on a self-regulatory set of trading rules that were established and maintained by the National Futures Association (NFA). Organization representatives are currently in talks with the CFTC—with whom they have met ten times—as to whether the government regulator will cede regulation of electronic trading systems, known as Swap Execution Facilities (SEF), to the NFA.

The CFTC must also determine what defines an SEF and which organizations will be required to register as one. It is highly likely that the major banks, including Morgan Stanley and Goldman Sachs, along with other major companies will become SEFs. In competition with the large banks in the SEF market will be the clearinghouse that has held the banks as clients in the derivatives trading world.

Intercontinental Exchange (ICE) announced that it would seek to become a registered SEF putting it in direct competition with the banks that it has serviced for clearing millions of dollars worth in trades. ICE has met with CFTC officials on ten different occasions. These ten meetings have, unlike meetings held by Morgan Stanley, Goldman Sachs and the National Futures Association, been meetings solely reserved for ICE employees and lobbyists and did not include representatives meeting for other purposes.

Another major issue of discussion meetings with outside groups is which entities will be required to registered as swap dealers. CFTC Chairman Gary Gensler recently stated, “Initial estimates are that there could in excess of 200 entities that will seek to register as swap dealers.”

Many business groups are concerned over the possible regulation of the trading of derivatives by end-users. “End users” are usually companies that are purchasing derivatives contracts to hedge against risks in their market place. This could include an airline hedging against oil price spikes or a large farm hedging against volatility due to weather or energy prices.

Business groups have pushed for an exemption from regulation for these types of derivatives traders. The U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers have aligned to form the Coalition for Derivatives End Users to advocate for a broad end-user exemption. Coalition members have met with the commission three times according to disclosures.

During debate over the Dodd-Frank bill in Congress Gensler stated his opposition to an end-user exemption, “we should ensure that every transaction between Wall Street banks and their financial customers, such as hedge funds, insurance companies or leasing companies, be subject to a clearing requirement.”

While most of the meetings held by the CFTC were with industry representatives staffers also met a few times with consumer and labor groups. This included meeting with representatives from Americans for Financial Reform, the American Federation of State, County & Municipality Employees, the Teamsters, SEIU, AFL-CIO, Public Citizen and the Consumer Federation of America. The CFTC held five meetings with these groups – accounting for less the 3 percent of the meetings held by the commission.

Four key lawmakers on the financial reform conference committee are seeking to create loopholes in the so-called Volcker Rule and the derivatives section of the bill, according to Talking Points Memo.

The four lawmakers are Reps. Luis Gutierrez, Greg Meeks, Dennis Moore and Mel Watt. They have received a combined $5.5 million from the finance, insurance and real estate sector (FIRE) over their careers. All but Gutierrez received over 20% of their total career campaign contributions from the finance, insurance and real estate sector making them heavily reliant on the industry to fund their campaigns. Gutierrez received 19% of his contributions from the finance sector.

Lawmaker	Party	FIRE Contributions	Total Career Contributions	Percent from FIRE
Gregory Meeks	D	$1,461,292.00	$4,350,723.00	33.59%
Mel Watt	D	$952,138.00	$4,204,301.00	22.65%
Dennis Moore	D	$2,339,991.00	$11,551,282.00	20.26%
Luis Gutierrez	D	$772,407.00	$3,990,337.00	19.36%

The loopholes that would be created are being suggested in a letter sent by the 68 members of the New Democrat Coalition, a group of moderate Democrats who have opposed many of the tougher regulations proposed for derivatives trading. TPM obtained a draft of the letter, which can be viewed here.

Meeks and Moore are both members of the New Democrat Coalition.  The Hill reported earlier this week that the New Democrats are drafting a letter urging the conference committee to drop a provision proposed by Sen. Blanche Lincoln requiring banks to spin off their derivatives trading desks into separate units.

During debate in the House over financial reform in 2009 the New Democrats played a key role in exempting a wide-swath of end-users from derivatives trading oversight and limiting the number of trades that will occur on an open clearinghouse.

Multiple stories point to a huge lobbying effort on the part of the financial industry as the Senate debates reform to the financial sector. Banks, hedges funds, derivatives clearinghouses, investment firms and all the major industry trade groups are all on the ground lobbying to try and change, alter and weaken the coming reforms. And that's pretty much where our knowledge of the efforts to influence our elected representatives ceases. Lobbying disclosures do nothing to provide the public with information regarding who lobbyists meet with and what exactly their lobbying relates to.

This brings up a serious point when we consider the reason for a transparency or disclosure policy. Who benefits from the cursory information released in current lobbying disclosures? What disclosures would better benefit the public? Does the issue that the transparency policy seeks to address require a tougher response?

The Senate is currently debating financial reform, one part of which is the requirement that all derivatives be traded in the open. This is an application of transparency and disclosure to a particular problem: opacity in the derivatives trading market led to a lack of knowledge across the financial world as to the level of risk that many firms were taking on. Another argument, equally as valid, would be that the actual product of over-the-counter derivatives and specific types, i.e. credit default swaps, were so risky that they were one of the direct causes of the economic crisis. You're likely to support a different response depending on what your narrative of problem is. If these products are viewed as so dangerous as to have been a direct cause of the crisis a considerable option would be to ban them. If the problem is simply under the radar trading and a lack of knowledge among traders, banks and regulators then transparency would seem more appropriate.

One could view lobbying the same way. Did financial sector lobbying lead to a deregulation of the industry, particularly around derivatives? And then wasn't that lobbying part of the root cause of the current economic crisis? If that is the narrative then stricter regulations on lobbying might be in order. Whenever I read the comment threads of stories or posts about lobbying they are riddled with ordinary people stating that lobbying should be banned. Same thing goes when I talk about politics at the bar. The only issue is that, unlike with credit default swaps or any other dangerous product, lobbying cannot be banned.

The First Amendment provides for the right to petition the federal government. Of course, companies, individuals or organizations with a lot of money can hire a bunch of people to do it for them. Short of a constitutional amendment altering the First Amendment or an amendment ending corporate personhood (I doubt this would matter in terms of lobbying), there is no way to ban lobbying.

Transparency in the lobbying profession, along with regulations governing types of practices (which are often applied to targets of lobbying and not the lobbyists themselves), is likely the sole means to assuage the public's fears about the profession. Current disclosure policy provides for the following: names of lobbyists, client name, issues lobbying on, amount spent/amount contracted, government entity contacted, some revolving door disclosure and voluntary listing of bill numbers, names and policies. This is all very cursory information that does little to inform the public of how outside interests are attempting to influence government policy.

The one significant change in disclosure that goes to the root of the public fears of lobbying would be immediate disclosure of lobbyist contact with lawmakers, government officials and government offices. When people complain about banks lobbying Congress or health insurers lobbying Congress they are feeling powerless because they have no idea what the level of influence is and where the influence is directed. There an informational valley here that creates extreme distrust and fear.

Representative democracy suffers when people don't trust their elected representatives when they are in Washington. The best way to alleviate this dilemma is to increase the information flow out of Washington. To paraphrase John Adams, knowledge diffused through the people can provide opportunity to prevent abuses of the system of representative democracy.

Concerned about seeing their huge profits cut, six big banks are leading the charge to weaken or block new financial regulations being considered in the United States Senate. To push their cause these banks have hired 145 former government officials--congressmen, staffers and executive branch officials--to lobby on Capitol Hill and in the executive branch.

The top six bank holding companies engaged in lobbying on financial regulation include Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. According to the Center for Responsive Politics, these banks spent a combined total of $23.8 million lobbying Washington in 2009.

[caption id="" align="alignright" width="320" caption="Click to enlarge"][/caption]

Former government officials accounted for seventy-one percent of all lobbyists hired in 2009 by these six banking companies. The company with the highest percentage of former government officials working as lobbyists is Goldman Sachs. Eighty-two percent of the lobbyists hired by Goldman Sachs previously worked in government.

Fifty-five of the 145 former government employees previously worked in the Senate, the current point of lobbying in the financial regulation debate. Fourteen of these former staffers turned lobbyists previously worked for the Senate Committee on Banking, Housing and Urban Affairs or members of the committee. The senator with the most former staffers working as lobbyists for these big banks is Sen. Max Baucus with four former staffers who have gone through the revolving door.

One chief concern of the major bank holding companies is the derivatives language introduced by Sen. Blanche Lincoln and passed out of the Senate Agriculture Committee. Lincoln's legislation would require these banks to spin off their derivatives trading desks into separate entities. This would slash the profits that these companies currently make from derivatives trading.

According to the Office of the Comptroller or the Currency, five of these big banks -- JPMorgan, Bank of America, Citigroup, Merrill Lynch and Goldman Sachs -- account for 97% of the derivatives holdings of United States commercial banks. The investment of millions of dollars in lobbying could save the companies billions of dollars in lost revenue.

Jamie Dimon, JPMorgan's chief executive, stated earlier that derivatives reform could cost his company "$700 million or a couple billion dollars," depending on how tough the regulations were. This calculation likely excludes the possibility that banks would spin off their derivatives trading desks, which could, according to some analysts, lead to the banks getting out of derivatives trading entirely.

The former staffers turned big bank lobbyists worked in other parts of government aside from the Senate. Sixty-five of the 145 previously worked in the House of Representatives. Forty-two worked previously in the executive branch in some capacity and of those with executive experience eight previously worked for either the Treasury Department or the Securities and Exchange Commission.

Despite the fall-out from the Cornhusker Kickback in the health care reform debate, Sen. Ben Nelson is, at best, creating the perception that he is seeking another parochial deal or, at worst, acting on behalf of the richest man in the United States to help protect his bottom line. News reports detail that Nebraska-based Berkshire Hathaway Chairman and CEO Warren Buffett--richest man in America--lobbied Nelson to include an exemption for previously written derivatives contracts from the derivatives regulation legislation crafted in the Senate Agriculture Committee. The committee did not include the provision despite Nelson's support for it.

According to the Center for Responsive Politics, Nelson has received $75,550 in campaign contributions from Berkshire Hathaway, Warren Buffett and Berkshire employees. Nelson also owns between $500,000 and $1,000,001 in Berkshire Hathaway stock, according to his most recently filed personal financial disclosure. The provision sought by Buffett would have saved Berkshire Hathaway between $6 and $8 billion.

One would think that, after the embarrassment of the Cornhusker Kickback, Nelson would consider that bartering his vote, or appearing to barter his vote, for parochial interests, especially when said interest is the richest man in America, not only will not work, but makes the senator appear rather petty.

The Senate Agriculture Committee will take up a bill to regulate trading in derivatives in a markup today. The committee is a primary location for companies and individuals employed in the finance, insurance and real estate sector (FIRE) to send their campaign contributions. In 2009, members of the committee received a total exceeding $4.7 million, according to data obtained from the Center for Responsive Politics.

The leading recipient of contributions from the FIRE sector in 2009 is the junior Senator from New York, Kirsten Gillibrand. Gillibrand pulled in $1.2 million from the FIRE sector in 2009. Since New York is the home to the majority of finance and insurance companies, this comes as little surprise. Gillibrand is also raising money for her first Senate election campaign in 2010.

Appointed Senator Michael Bennet, of Colorado, received the second largest amount with a yield of $782,846 from the FIRE sector. Bennet faces a tough election race in both the primary and general elections. He also serves on the Banking Committee, which is the other Senate committee with oversight of financial regulation.

Committee chair Blanche Lincoln received the third most money from the FIRE sector with a haul of $691,500. Lincoln is facing one of the most difficult roads to reelection in the country this year and has been rapidly raising money. The bill being marked up in committee today was introduced by Lincoln, much to the dislike of the financial sector, last Friday.

South Dakota Senator John Thune pulled down $445,500 from the FIRE sector in 2009, making him the fourth biggest recipient on the committee. Thune pulled in this exceptional amount of money despite South Dakota Democrats not fielding a candidate to run against him.

Rounding out the top five is another candidate for reelection in 2010, Iowa Senator Chuck Grassley, who received $324,949 from the FIRE sector.

The Agriculture Committee occupies a special place in the world of finance as it maintains jurisdiction over the Commodity Futures Trading Commission (CFTC), which oversees and regulates futures and derivatives trading.

Senator	FIRE Contributions (2009)
Gillibrand, Kirsten (D-NY)	$1,216,500.00
Bennet, Michael (D-CO)	$782,846.00
Lincoln, Blanche (D-AR)	$691,500.00
Thune, John (R-SD)	$445,500.00
Grassley, Chuck (R-IA)	$324,949.00
McConnell, Mitch (R-KY)	$168,175.00
Stabenow, Debbie (D-MI)	$143,929.00
Nelson, Ben (D-NE)	$138,950.00
Leahy, Pat (D-VT)	$126,100.00
Baucus, Max (D-MT)	$117,469.00
Cornyn, John (R-TX)	$112,100.00
Brown, Sherrod (D-OH)	$99,600.00
Casey, Robert (D-PA)	$79,800.00
Klobuchar, Amy (D-MN)	$70,450.00
Conrad, Kent (D-ND)	$64,250.00
Harkin, Tom (D-IA)	$34,060.00
Lugar, Richard (R-IN)	$30,350.00
Roberts, Pat (R-KS)	$28,650.00
Johanns, Mike (R-NE)	$27,250.00
Chambliss, Saxby (R-GA)	$23,250
Cochran, Thad (R-MS)	$2,500

[caption id="attachment_14073" align="aligncenter" width="580" caption="Derivatives trading as featured in the 1983 movie "Trading Places.""][/caption]

The final piece of the financial regulatory reform puzzle is about to come into place as Sen. Blanche Lincoln released language last Friday that would impose rules on the unregulated world of over-the-counter derivatives trading. Lincoln's bill, the Wall Street Transparency and Accountability Act, is more far reaching than proposals from both the Obama administration and the House of Representatives. This comes as somewhat of a surprise from the moderate and previously bank-friendly senator who has benefited from finance industry contributions in her post as chair of the Senate Agriculture Committee.

The Agriculture Committee occupies a unique place in the oversight of the nation's financial markets. With legislative jurisdiction over the Commodity Futures Trading Commission (CFTC)--historically futures trading began as a trading mechanism for farmers--the committee maintains jurisdiction over futures and derivatives trading. This unique arrangement provides committee members the ability to pull campaign contributions from the most prolific giver of contributions, the financial sector.

What are derivatives?

Examples from the financial meltdown

How did some derivatives escape regulation?

In 2009, Lincoln raised $693,500 from the finance, insurance and real estate sector, according to data obtained from the Center for Responsive Politics. Those with a specific stake in derivatives reform did not begin contributing to her campaign until she ascended to the chairmanship of the committee after the death of Sen. Edward Kennedy caused a a shuffling of committee seats. Since ascending to the Agriculture Committee chair Lincoln raised $256,900 from the finance, insurance and real estate sector. She also raised over $44,000 from financial companies with a major stake in derivatives reform--almost twice as much as she raised in the previous eight months from similar companies.

In total these major derivatives players contributed approximately $70,000 to Lincoln's reelection campaign. These companies include fifteen members of the International Swaps and Derivatives Association (ISDA), an international trade association that writes the rules for derivatives trading that remains unregulated. Some of these contributors include  JPMorgan Chase, Goldman Sachs, Bank of America, Credit Suisse, Deutsche Bank and UBS.

Despite all of the money and lobbying power—Credit Suisse employs Lincoln's former chief of staff as a lobbyist—expended to deflect new regulations, Lincoln has unveiled unexpectedly tough regulations. (Click here to see Lincoln's reforms.) While these tougher rules will set up a fight in the Senate, they will assuredly create a massive industry showdown if they pass the Senate and move to conference with the House to reconcile the two bills.

Finance influence in the House

Unlike Lincoln's bill, which goes against the wishes of her financial sector fundraisers, the House bill is a reflection of the finance sector's enduring influence in Washington. Throughout the process, the derivatives section of the House bill was consistently amended in favor to the finance industry as efforts to toughen the bill were defeated.

The Obama administration has argued that the majority of over-the-counter derivatives be traded out in the open on exchanges or cleared through clearinghouses. The banks and others have argued for broad exemptions for which over-the-counter derivatives would be required to be traded in the open. The House bill, however, wound up riddled with exemptions.

The bill began under the control of Rep. Barney Frank, the chairman of the House Financial Services Committee. The Financial Services Committee is a cherished post for congressmen to raise money and for staffers to gain knowledge for a future lobbying job. Since 2000, nearly half of the 126 committee staff who left the committee became lobbyists, according to a report by The Huffington Post. The committee is also the chief conduit for financial sector campaign contributions with the 71 committee members, or 16% of the 435 member body of Congress, accounting for 33% of all financial sector campaign contributions to members of the House in 2009.

In October 2009, Bloomberg reported on the crucial role that members of the New Democrat caucus played in helping add exemptions and loosening regulations on over-the-counter derivatives. Many of these members, along with their ideological counterparts, the Blue Dog Democrats, received inordinate amounts of campaign contributions from the financial sector.

Financial Services Committee member Gregory Meeks pulled in over 50% of his 2009 campaign contributions from the financial sector. Rep. Melissa Bean, another committee New Dem, raked in over 47% of her contributions from the financial sector, as did Rep. Dennis Moore. Committee members Jime Himes and David Scott pulled in over 30% of their campaign haul from finance companies and Rep. Charlie Wilson and Ron Klein pulled in over 25% of their total contributions from finance.

A major point of contention is what kinds of exemptions should exist for the over-the-counter derivatives that will be pushed onto exchanges and into clearinghouses. Both the Financial Services Committee and the House Agriculture Committee carved out large exemptions for “end-users”--a wide-swath of companies that may include mutual funds, insurance companies, hedge funds and private-equity capital. The exemptions also aid the top five banks in the United States—Citi, JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs—which hold approximately 95% of the over-the-counter derivatives exposure among the top 25 banks, according to the Comptroller of the Currency.

CFTC Chairman Gary Gensler, speaking on behalf of the Obama administration, declared the exemptions in the House bill unacceptable, adding, “we should ensure that every transaction between Wall Street banks and their financial customers, such as hedge funds, insurance companies or leasing companies, be subject to a clearing requirement.”

The loosening of the derivatives language continued when the bill hit the floor. An amendment widening the “end-user” exemption offered by Rep. Scott Murphy, a recipient of $525,015 in campaign contributions from the financial sector in 2009, passed by a wide margin with 131 Democrats in support—87 of them were New Dems or Blue Dogs. The House also voted down three amendments that would have placed tougher regulations on derivatives trading. The regulations that would have been imposed by these three defeated amendments mirror regulations proposed by Sen. Lincoln in her derivatives reform bill.

A lot of industry players came away from the House debate moderately contented. The coming showdown between the House and Senate over derivatives will reignite their engines and push them to pressure their allies in the House. One industry, specifically one company, will emerge from this debate with a windfall in profits, no matter which version of the bill passes.

Clearing and exchange trading requirements

Intercontinental Exchange, Inc. (ICE) operates derivatives exchanges and owns the biggest over-the-counter derivatives clearinghouses in the country. (See here for an explanation of exchanges and clearinghouses.) Both the House bill and Lincoln's bill would increase the number and type of derivatives that would be required to be cleared by a clearinghouse like the one ICE operates. The House bill has a series of exemptions and loopholes governing clearing and reporting, while the Lincoln proposal contains a strict requirement for clearing. Either way, this will pump up ICE's bottom line. It also would be a boon for the big banks as well.

In 2008, ICE purchased The Clearing Corporation, an over-the-counter derivatives clearinghouse from its owners. The owners included a who's who of major banks including JPMorgan Chase, Goldman Sachs, Bank of America, Citi and Morgan Stanley. ICE turned The Clearing Corporation into ICE Trust, which in March of 2009 became the first clearinghouse approved by the Securities and Exchange Commission (SEC) to begin clearing over-the-counter derivatives. If over-the-counter derivatives have to go onto an exchange, there is little option outside of ICE Trust.

When ICE purchased The Clearing Corporation they entered into a detailed profit sharing agreement with their partners, the big banks. The banks and ICE have a 50-50 profit sharing agreement for all profits that come from trades that are cleared by ICE Trust. As previously mentioned, these big banks account for over 90% of the over-the-counter derivatives market. A requirement, especially with a series of exemptions that the banks can take advantage of themselves, would increase profits for both ICE and the big banks. In the nine months that ICE Trust was open for business it processed $3.1 billion in trades and received $30 million in fees.

In testimony before Sen. Lincoln's committee in December, ICE general counsel Johnathan Short stated ICE's support for an increase in transparency in the market, but also voiced opposition to a requirement that all over-the-counter derivatives trades be cleared or be made over an exchange, much in line with the position of the big banks.

The big banks have an incentive to create as many exemptions in the clearing and exchange trading requirement as possible.This may seem counter-intuitive as ICE would benefit handsomely if all trades had to be processed by their clearinghouse for a fee. But it would not benefit the big banks who are partners with ICE in ICE Trust. The big banks have an incentive to create as many exemptions in the clearing and exchange trading requirement as possible. Previously, if an airline or a manufacturer wanted to purchase a derivatives contract they had to do it through a big bank, as the big banks had good credit ratings and were seen as a safe place to make these trades. This allowed the big banks to charge both the user and the trader fees for making the contract. If all derivatives contracts are required to be traded on exchanges or cleared then the users and traders could simply make contracts with each other rather than relying on a bank as a go-between. With a wide-range of exemptions to clearing and exchange trading, derivatives contracts could still be made within the big banks and then contracts made by big banks could cleared through a clearinghouse like ICE Trust.

Over the past three years, ICE increased its lobbying operation in Washington. Last year, ICE spent nearly $700,000 to lobby Congress and the executive branch. In their pursuit of lobbying talent, ICE poached a top member of the House Financial Services Committee staff, Peter Roberson. ICE picked well. Roberson had a hand in crafting the House bill's derivatives language, including its many exemptions. Roberson's job switch infuriated his former boss Barney Frank, who subsequently banned committee staff from talking to Roberson while he remains chairman of the committee.

ICE's campaign contributions increased as well. Sen. Lincoln was the recipient of $12,300 in campaign contributions from ICE's employees and political action committee. The only member of Congress to receive more in 2009 is Banking Committee Chairman Chris Dodd, who is no longer running for reelection.

Earlier this week, Peter Roberson, a top staffer on the House Financial Services Committee, jumped ship to lobby for Intercontinental Exchange, Inc., the owner of the largest credit-default swap house. Today, Financial Services Committee Chair Barney Frank issued a statement banning committee staff from talking to Roberson about financial regulation or financial matters until Frank is no longer chairman.

Roberson previously worked as a lobbyist for the financial services industry. From 2000 to 2006, Roberson worked for the Bond Market Association. In 2006, Roberson joined the Financial Services Committee as a senior advisor and worked as part of a team to draft rules in the financial reform bill to cover over-the-counter derivatives and credit-default swaps. Ryam Grim reported that the part of the bill that Roberson worked on "has been criticized as one of the weakest elements of the package. Since its passage, Frank has said that he would be pleased if the Senate is able to pass tighter derivatives regulation."

Roberson is one of the worst examples of the revolving door between government and the lobbying world. Both require expertise and those with that expertise can move in and out of either world to increase their market potential. Roberson began as a financial services lobbyist, went into Congress to write rules governing financial services companies and then left Congress to help a financial services company navigate and circumvent the very rules he helped write. There are fewer more striking examples of corruption than Roberson's spin through the revolving door.

One year after the biggest economic collapse since the Great Depression, Congress is still debating new financial regulations to protect consumers and prevent risk-taking in the financial sector. The House Committee on Financial Services is currently undertaking the important first step of writing, amending and voting on some of the pieces of the long-proposed financial regulatory reform. While debating these issues top committee members have been the recipients of disproportionate campaign contributions from the very industry that they are tasked with regulating.

Twenty-seven committee members have so far received over one-quarter of their contributions from the finance, insurance and real estate (FIRE) sector. This includes Chair Barney Frank, Ranking Member Spencer Bachus, four subcommittee chairs and four subcommittee ranking members. Of the twenty-seven, twelve committee members received over 35% of their contributions in 2009 from the FIRE sector. All contribution data was collected from the Center for Responsive Politics' OpenSecrets.org.

Ranking Member Bachus, a crucial decision maker on the committee, received 71% of his campaign contributions from the finance, insurance and real estate (FIRE) sector so far this year. (These numbers run from January 1-June 30.) For his career, the Alabama congressman receives 45% of his contributions from the FIRE sector. Bachus leads the committee in his reliance on FIRE sector campaign contributions. Bachus has taking a position in opposition to most of the regulatory reforms. Bachus recently stated in a hearing, "this is absolutely the wrong time to be creating a new government agency empowered not only to ration credit, but to design the financial products offered to consumers."

Top Recipients of FIRE Campaign Contributions by % (2009)
Name	Party	FIRE Contributions	Total Contributions	Percentage
Spencer Bachus	R	$161,200	$226,930	71.04%
Kenny Marchant	R	$25,000	$46,043	54.30%
Paul Kanjorski	D	$215,200	$397,215	54.18%
Greg Meeks	D	$114,900	$218,340	52.62%
Mike Castle	R	$104,000	$200,027	51.99%
Dennis Moore	D	$139,097	$275,480	50.49%
Mel Watt	D	$23,000	$50,696	45.37%
Melissa Bean	D	$269,800	$634,535	42.52%
Ed Royce	R	$200,635	$504,418	39.78%
Randy Neugebauer	R	$146,810	$384,205	38.21%
Jeb Hensarling	R	$140,660	$371,731	37.84%
Nydia Velazquez	D	$58,100	$164,750	35.27%
View the bar chart

Pennsylvania Rep. Paul Kanjorski is the Chair of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and is tasked with crafting many of the initial bills for the proposed financial regulatory reform. While undertaking this important work Kanjorski has had enough time to raise large sums for his reelection. Of the $397,215 that Kanjorski has raised in 2009, 54% of it comes from the FIRE sector. For his career, Kanjorski received 44% of his contributions from the FIRE sector. Of all Financial Services Committee members, only Kanjorski and Bachus receive over 40% of their career campaign contributions from the FIRE sector.

Kanjorski has stated that he will be watchful of the influence the finance and insurance companies hold in the committee, “"We must ensure that special interests do not weaken particular solutions to the point of becoming toothless.” Earlier this year, however, Kanjorski held a fundraiser that was thrown by lobbyists for financial services organizations. Kanjorski refused to release a list of attendees to the fundraiser.

Recently, Kanjorski has introduced a series of bills to reform the regulatory structure for the SEC, hedge funds and insurance. Many trade groups and companies that have donated to Kanjorski and other committee members are organizing to oppose large sections of the bills.

The industry has already had successes this year. Committee consideration of a bill to create a proposed Consumer Financial Protection Agency was delayed after industry trade groups sent a letter to the committee demanding they delay consideration. The bill was later changed to be narrower in focus than the original language.

A Bloomberg report also notes that the derivatives lobby, headed by large banks JPMorganChase, Goldman Sachs and Credit Suisse, worked the New Democrats, including Rep. Melissa Bean, to get changes made to a bill aimed at filling holes in derivative regulation. Officials in the Obama administration stated that the resulting bill, released as a discussion draft, "created too many loopholes and had the potential to exclude all hedge funds and corporate end-users from oversight." Bean received 42% of her $634,535 in campaign contributions in 2009 from the FIRE sector.

While top committee committee members are seeing the FIRE sector make it rain on their campaign committees, a number of less senior members are pulling in more modest sums. Thirty-five committee members receive 20% or less of their 2009 contributions from the FIRE sector. Ten of these thirty-five members received 12% or less from the FIRE sector so far in 2009, half of the 24% committee average.

These bottom twelve include Rep. Maxine Waters, who has received no money from the sector, and Rep. Ron Paul who has pulled in only $1,000 or 3% of his 2009 campaign haul. The other members in the bottom ten are Reps. Steve Driehaus (8%), Keith Ellison (8%), Mary Jo Kilroy (8%), Frank Lucas (9%), Carolyn McCarthy (11%), Alan Grayson (12%), Adam Putnam (12%) and Al Green (12%).

All campaign contribution data is courtesy of the Center for Responsive Politics (OpenSecrets.org) A CSV of the research is available. Feel free to use it, but please cite Sunlight and CRP/OpenSecrets.