Making Government Transparent and Accountable
The Sunlight Foundation uses cutting-edge technology and ideas to make government transparent and accountable. Underlying all of our efforts is a fundamental belief that increased transparency will improve the public's confidence in government
The Sunlight Foundation Blog
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Not My Bank, Not My Problem Part II
Yet another member of Congress has been found pushing the Treasury Department for TARP funds despite having a long-standing relationship with that bank. One year ago, Rep. Luis Gutierrez wrote to Treasury urging them to consider bailing out the Puerto Rico-based Banco Popular labeling it a special and urgent case. This was without revealing that Gutierrez had received tens of thousands of campaign contributions from bank executives over the years and that his wife worked as senior vice president from 2005 to 2007 until she was abruptly fired. The Hill has the full story:
The financial crisis erupted last fall, and Popular recorded a $700 million loss in the fourth quarter alone. The firm had an annual loss of $1.2 billion in 2008.
In October 2008, the bank sent letters to several lawmakers, including Gutierrez, “to ensure participation” in TARP, said Teruca Rullan, senior vice president of corporate communications at Popular. “Communicating directly with members of the U.S. Congress was a prelude to secure capital in this historic financial juncture,” she wrote in an e-mail to The Hill.
Popular was no stranger to Washington’s ways. Gutierrez received close to $15,000 in campaign contributions since 1997 from the bank’s executives, according to the Center for Responsive Politics. The last donation came in 2004.
Apart from the contributions to Gutierrez, bank officials have given more than $113,000 to both Democratic and Republican lawmakers since 1989, according to the center.
As the bank grew, it also hired some of the most prominent firms on K Street, spending close to $2.9 million on lobbying since 2003.
New lobbying rules for TARP funds promulgated on September 10, 2009, state that members of Congress cannot lobby Treasury for funds out of the TARP program. Instances like Gutierrez’ (or those of Rep. Maxine Waters or Sen. Daniel Inouye) may have been the catalyst for prohibiting Congress from lobbying for specific bank bailouts.
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The TARP Lobbying Rules: What They Say And What They Mean For Transparency
In September, the Treasury Department released its TARP lobbying disclosure rules, nearly eight months after a press release heralding their creation, and a month after an Inspector General report bluntly urged Treasury to promulgate the rules. The rules require that the Treasury Department document communications through which companies lobby for TARP funds. Commonsense rules that increase transparency regarding lobbying communications can have the beneficial effect of reducing the likelihood and appearance of corruption, fostering better dialog, and enhancing the public’s faith in the political process.
The rules promulgated by the Treasury Department attempt to meet the great challenge of improved transparency, but fall short of their potential. They are hard to understand, difficult to apply, and full of contradictions and omissions that undermine stated policy objectives. The rules should be clarified, rewritten, simplified, and broadened.
My initial review of the rules identified some key differences between the TARP lobbying rules and the stimulus lobbying rules, which were issued over the summer and document lobbying over recovery dollars. In the following sections, I analyze the TARP lobbying rules in considerable detail. Before doing so, here are two measures the Treasury Department should consider.
First, Treasury should implement an online searchable lobbying database of all disclosures required under the rules, which is updated in real-time. The public database should be searchable by date, communicant, subject matter of the conversation, and so on. The burden of collecting that data could be reduced by allowing staff to submit reports online.
Regardless of whether this database is built, all of the documents that the lobbying rules require be disclosed should be available in an easy-to-find place online. So far, I have been unable to find the lobbying communication reports on Treasury’s website. The rules require that those reports be made available online within 3 days of a disclosable communication taking place. A phone call to Treasury seeking assistance with finding the disclosures has not yet been returned.
Second, Treasury (and the administration generally) should reconsider the format it uses to promulgate rules. Short, terse, lawyerly language, such as that contained in the TARP lobbying rules memo, is difficult for most people to follow. Treasury should use straightforward language, and define all key terms. Moreover, linguistic sign posts, such as improved headings and sub-headings, would provide a welcome roadmap. Furthermore, adding charts and decision trees to help explain the rules would provide a welcome complement to dense prose.
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Treasury Releases TARP Lobbying Rules
According to the Hill, yesterday the Treasury Department released its rules regarding “Communications With Registered Lobbyists And Other Persons About Emergency Economic Stabalization Act Funds.” The rules are available on Treasury’s web site, but there’s no press release and no obvious hyperlink as of the time I am writing this blogpost, nearly a day later.
In late August, I wrote about the Special Inspector General’s report that dinged Treasury for taking so long to release its rules for TARP (financial bailout) lobbying. It took Treasury 226 days to release these rules, since January 27th when the agency issued a self-laudatory press release announcing its plan to “develop new rules to increase transparency and curtail potential lobbyist influence.”
Having now (quickly) read the TARP lobbying rules, they pretty much follow the Recovery Act lobbying rules initially promulgated on April 7 and revised on July 24.
Here are a few differences between the TARP lobbying rules and the final stimulus lobbying rules that I’ve noticed so far:
- The TARP lobbying rules permit communications regarding a specific project once it has received preliminary approval, whereas the stimulus lobbying rules don’t allow those communications until the project has been awarded. Thus, the TARP rules leave open a window of opportunity for lobbying between “preliminary” and “final” approval. I don’t have a sense of how long that window is open or the “final” approval process.
- The TARP lobbying rules are a bit unclear (at C(iii)), but seem to permit oral communications with Treasury employees regarding applications for financial assistance that, instead of encompassing all federal employees, encompass only federal executive agency officials. The stimulus lobbying rules are much broader, and permit communications with more federal and some state officials. Treasury’s closing these exceptions may have the effect of reducing the amount of outside pressure placed upon the agency to spend money. These rules have also cut Members of Congress out of the lobbying picture — reducing the ability of lobbyists/financial interests to get Members of Congress to lobby for them. It is unclear (but unlikely) that doing so raises Constitutional questions regarding Congress’ oversight powers.
- Both sets of rules allow oral communications regarding particular projects right up until a formal application is filed, as contrasted with the interim version of the recovery act lobbying rules that stopped oral communications when the government official thought that a proposal would be filed. As a result, both the final stimulus lobbying rules and the TARP lobbying rules allow lobbying right up until the last moment. This may allow more give and take between the government and those engaged in lobbying, but may also increase the possibility of undue influence.
Considering the nearly-identical nature of the TARP lobbying rules with the stimulus lobbying rules, it is curious why it has taken so long for Treasury to promulgate these rules, and why it seems to have done so in such a quiet manner.
The similarities also cause me to wonder whether this iterative process of producing lobbying rules may lend itself to creating regulations that could ultimately have much broader applicability.
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Former Treasury Official Thought TARP Lobbyist Rules Were Political
Not sure what I think about this, but former TARP czar Neil Kashkari, appointed under President Bush, told the TARP Inspector General that he thought that the lobbying rules announced earlier this year for TARP recipients were political in nature. The lobbying rules have yet to be fully written and implemented, but are expected to closely track those imposed on lobbyists seeking stimulus funding. It appears that this is simply Kashkari’s opinion on the rules and not any admittance of fact.The Washington Times reports the statement by Kashkari in a way that makes it seem that he is revealing something more than his own opinion. (This makes me think of this great post by Michael Scherer at the Time Magazine blog on the media’s obsession with simulacrum.) That being said, Kashkari’s opinion on the rules does raise questions considering the Treasury Department has yet to announce a full set of rules for lobbyists and has yet to implement them nearly eight months after announcing them.
Considering that the administration also announced rules for the stimulus spending that were met with intense opposition from lobbyist groups, the likelihood that these rules were announced solely for political purposes seems doubtful. What I’m really wondering is: why has the Treasury Department slow-walked the implementation of lobbying rules and who is behind that?
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Potential New Banking Committee Chair Has Ties to Financial Sector
With the passing of Sen. Ted Kennedy, the gavel he wielded as chair of the Senate Health, Labor, Education & Pensions Committee must pass as well. The senator next in line to chair the committee is an old Kennedy friend, Sen. Chris Dodd. Sen. Dodd, however, currently chairs the Senate Banking Committee and would have to relinquish that gavel if he were to replace Kennedy and shepherd through the health care reform bill championed by his departed friend. A switch in committees may be just what the Connecticut senator needs right now. As negative feelings have increased about bank bailouts, Sen. Dodd has come under withering criticism for his close ties, and large campaign contributions from, the financial sector. Unfortunately, he may be replaced by another senator with similar conflicts. Sen. Tim Johnson of South Dakota is next in line to replace Sen. Dodd and has similarly close ties to the financial sector.
According to Open Secrets from 2003-2008, Sen. Johnson has pulled in $1,407,958 from the finance, insurance and real estate sector. While this pales in comparison to Sen. Dodd’s $9,097,107 over the same period of time, it accounts for 20% of the South Dakota senator’s campaign haul. Sen. Johnson’s finance contributions are aided by the importance of South Dakota to the finance and credit industries. These companies only need to abide by the regulations of the state within which they are incorporated and South Dakota has some of loosest regulations for bank holding and credit card companies. This has led to a large number of credit and banks companies locating in the small plains state, providing for tens of thousands of jobs.
The support Sen. Johnson receives from the industry, and their importance to his state, is reflected in the senator’s recent voting record. Donny Shaw at Open Congress (Friend of Sunlight) looked at Sen. Johnson’s recent votes and showed that he stands out among Democrats in his support for the credit card industry. The senator was the only Democrat to oppose a recent law, sponsored by Sen. Dodd, to “restrict unfair credit card rate increases, penalties and fees, and bans deceptive and predatory practices.” He was also one of a handful of Democrats to oppose a series of amendments meant to impose tougher regulations on credit card companies.
Sen. Johnson isn’t just connected to the finance sector through his campaign contributions and his votes, but also by his former staffers turned lobbyists. Two of Sen. Johnson’s former staffers currently work for firms representing financial clients or companies in the financial world. In 2005, Naomi Camper left her position as staff director for Sen. Johnson on the Senate Financial Institutions Subcommittee to become co-head of Federal Government Relations at JPMorgan Chase, one the biggest banks in the United States. Dwight Fettig, a former staff director of Sen. Johnson, became a partner in the almost exclusively finance-related lobbying shop, Porterfield, Lowenthal & Fettig. Clients at Fettig’s firm include the American Bankers Association, the Coalition of Private Investment Companies, NASDAQ and the National Association of Mortgage Brokers.
These connections and contributions should be of concern to anyone who is already alarmed by the relationship that Sen. Dodd has with the financial sector. As the government continues to determine it’s role in the financial sector, through bailouts and Federal Reserve lending, it may be better to reserve committee chairs for those without the conflicts that Sen. Johnson may bring with him.
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Are the Inspector General’s Financial Bailout Recommendations Out of Date?
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. (Continue reading…)
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They Don’t Call It TARP For Nothing
You can’t see under it.
While we might be a bit concerned about Recovery.gov’s reporting practice for a bunch of ham, the problems with the TARP bailout program are so much worse. Witness the testimony that Neil Barofsky, Special Inspector General for TARP, plans to give on the overall lack of transparency in the program:
In particular, SIGTARP highlights four specific areas in which recommendations for making the financial industry bailout more accountable and open, have gone unheeded. Treasury has not committed itself to providing taxpayers with updated information on the financial performance of its TARP investments, according to Barofsky’s prepared statement. It has not acted on a recommendation that [Term Asset-Backed Securities Loan Facility] borrowers who fail to repay their loans be identified. It has not required the disclosure of “all trading activity, holdings, and valuations of assets of the PPIF” on a timely basis. And perhaps most significantly, Treasury has declined to require all TARP recipients to report on the actual use of TARP funds — notwithstanding a few agreements with Citigroup, Bank of America and AIG.
“Treasury has declined to adopt this recommendation, calling any such reporting “meaningless” in light of the inherent fungibility of money,” Barofsky will testify. “SIGTARP continues to believe that banks can provide meaningful information about what they are doing with TARP funds.”
“In rejecting SIGTARP’s basic transparency recommendations, TARP has become a program in which taxpayers (i) are not being told what most of the TARP recipients are doing with their money, (ii) have still not been told how much their substantial investments are worth, and (iii) will not be told the full details of how their money is being invested,” Barofksy adds. “In SIGTARP’s view, the very credibility of TARP (and thus in large measure its chance of success) depends on whether Treasury will commit, indeed as in word, to operate TARP with the highest degree of transparency possible.”
The TARP program has been in effect since last October and over two administrations and we have seen hardly any progress towards more transparency in the program. Pretty lame. Maybe they’ll actually listen to Barofsky’s suggestions for once.
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Not my bank, not my problem
But this is his bank, so it is his problem.
Sen. Daniel Inouye pressured the Treasury Department and the FDIC to approve a bailout contract with Central Pacific Financial, a bank Inouye founded and where he held most of his wealth. The bank was also in trouble with the FDIC and did not appear to meet criteria for bailout funds:
The bank, Central Pacific Financial, was an unlikely candidate for a program designed by the Treasury Department to bolster healthy banks. The firm’s losses were depleting its capital reserves. Its primary regulator, the Federal Deposit Insurance Corp., already had decided that it didn’t meet the criteria for receiving a favorable recommendation and had forwarded the application to a council that reviewed marginal cases, according to agency documents.
Two weeks after the inquiry from Inouye’s office, Central Pacific announced that the Treasury would inject $135 million.
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The bank faced long odds. More than 1,600 banks submitted applications to the FDIC in the three months after the program was announced, according to a report by the FDIC’s inspector general’s office. The agency forwarded 408 applications to Treasury, which approved only 267, or roughly 16 percent of the total.
Central Pacific’s situation was even bleaker because it was in trouble with the FDIC. Regulators had raised concerns about the bank earlier in the year. The bank would soon sign an agreement with its state regulator and the FDIC requiring it to raise an additional $40 million in capital and to improve its management practices.
Not the greatest endorsement of the bailout process. Of course, they aren’t going to tell you how this contract was approved on FinancialStability.gov.
Also, why does it seem that all senators who’ve been in office for 30 or 40 years act like they can do whatever they want.
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Lunchtime Link Round-Up
The Federal Reserve is hiring a former Enron lobbyist in an effort to fix its image. I would say that whoever came with this brilliant idea will wind up in those “jobs lost” statistics next month, but these kind of things do tend to work in the confines of Washington. For the rest of America, this doesn’t look so great.
Guess what? Banks are still lobbying and are getting exactly what they want. It’s like nothing happened at all. “Bailout? What bailout?”
Some things change, some things stay the same. Ambassadorships are still going to big campaign donors.
If you’ve ever spent any time looking at congressional web sites you know the unspeakable horror of poor design. Politico gathered together some designers and had them critique the worst of the worst. Favorite line: “There’s enough fonts for a ransom note.”
Sen. Max Baucus is spending time meeting with health care and business lobbyists to discuss the forthcoming health care bill. Considering the number of former Baucus staffers who have gone to work as health care and business lobbyists this must have been something of a staff reunion.
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Why Transparency?
One way that transparency can directly affect outcomes is when information is released in ways that preempt bad decisions. In the case of the federal bailouts, the possibility of transparency averting the impolitic decisions of bonuses and bogus assertions seems particularly acute. Transparency could also help consumers by providing information prior to and during a decision-making process, like purchasing a home. I thought this quote from Timothy Day, vice president of government affairs with data analytics firm Teradata, in this NextGov post summed it up pretty well:
“If a bank had shown more information [last year] as it relates to their mortgages, people making $100,000 salaries would not be getting $500,000 mortgages,” he said. “The government is never really going to have true transparency and true accountability unless there is more data in a centralized database.”
