Monday, December 7, 2009

Put a Sock in It

Ooh, this is getting fun.

An unnamed bloggist at has picked up my anti-Constitutional ball and is running with it. In a post this morning entitled "It's time for Wall Street to just shut up," (s)he gives more background on the reasoning behind the first proposal from the reformist agenda I posted here recently:
Yes, constitutional freedom of speech protections apply even to banks. But the system is clearly broken

The Epicurean Dealmaker has posted a ten-point manifesto for regulatory reform. Everything on it makes sense to me, starting with point one:
1) Ban political campaign contributions by the financial industry.
At The Baseline Scenario James Kwak observes that "there is at least one constitutional problem and possibly two" involved in the recommendation. That's a non-trivial issue.

But the financial industry's influence on legislation is equally non-trivial. There's got to be a better way. Check out the bombshell in Michael Hirsh's new Newsweek piece on Barney Frank and the perils of crafting new regulations for derivatives trading
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.
An industry that would not even be functioning without massive government help is now spending money at a record pace to prevent legislators from fixing the system so as to avoid a repeat. Set aside conflict of interest issues. The sheer gall of banker arrogance and self-interest is inexcusable. As none other than Treasury Secretary Timothy Geithner told Bloomberg News on Friday, even Goldman Sachs' protestations that it would have weathered the financial crisis without government assistance are nonsense.

There is more.

Now, I am no constitutional lawyer (thank God), but it does strike me that one can draw a useful distinction between "freedom of speech" and "freedom to influence policy through direct and indirect bribery," which is what a very large portion of our current lobbying and campaign contribution system seems to encourage. This problem is not limited to the financial services industry, either, but rather permeates the entire political and legislative process in this country.

I think few people would deny that the current system encourages undue influence and bad policy.

Is there a solution? (The lawyers may now speak.)

Sources: It's time for Wall Street to just shut up at


  1. I'm not sure that you can draw a distinction between freedom of speech and the freedom to influence. What are the contours of each, where is the line drawn? It seems to me that the distinction is like obscenity’s - you know it when you see it. And this only works post hoc (those peddling obscenity / political influence vigorously assert the legitimacy of their efforts before undertaking their respective ventures).

    Given the inability to draw a real distinction beforehand, you can't really pass rules/regs that will allow legitimate expressions of free speech through while screening the illegitimate bribes. Even if such rules were in place, we'd have the smartest guys trying to figure out how to subvert them (a problem, I think, you have written about before, TED).

    It seems to me that the best bet would be some kind of radical transparency regarding lobbyists' and Senators'/Representatives'/Regulators' activities. Maybe we could also make lobbying not tax deductible as an ordinary business expense.

  2. @Slab -- I like your idea of transparency. I agree that sunlight is usually the best disinfectant.

    I also agree that the line between speech and influence is hard to draw, but perhaps the problem is more tractable if we distinguish between the exchange of ideas and the exchange of money or its equivalent. Surely that gets us closer to my goal, no?

    Also, perhaps we can further clarify the situation by distinguishing between gifts of money or equivalent economic value by natural human beings and those by other legal "persons," like corporations, which our current system sees fit to grant individual protected rights.

    Anyway, I think the problem is clear enough--and, like I said, widespread enough outside of finance as well--that we should not simply shrug our shoulders and declare a solution "unConstitutional."

  3. TED,

    It seems to me that there are a couple of problems with "exchanging ideas"

    1. Ideas are so incredibly numerous and varied in quality that it’s difficult to come up with some kind of heuristic to sort through them. For instance, the SEC is proposing banning flash trading. You can see the submissions here:
    Regardless of what people think about the subject, surely they would realize that the there is more noise than signal in these submissions. And it is still an open question whether the “signal” in these submissions is something useful.
    The exchange of money/equivalent has usually been pretty useful to figure out who has a relevant, thought out idea. Unsurprisingly, the submitter’s financial resources is a pretty good way in my Flash Order example to find the best submissions to the SEC – Surely Goldman, NYSE, CBOE, et al. spent more on lobbying than Joe Blow (or Mr. Miroshnychenko for that matter).
    Money seems to act as a signal about how seriously someone/thing takes the particular issue and their/its willingness to discuss/develop/whatever proposals. We want to listen to people who take their issues seriously and have substantial ideas (with the obvious caveat that the disinterested marginally-effected public is perennially underrepresented).

    2. Are we any more comfortable with our legislators/regulators exchanging “ideas” with the (purported) public? Just a little while ago there was the story about Rep. Terry’s speech being written by Big Pharma. I’m not sure whether I’m any more comfortable with this than if some lobbyist took him out to a nice dinner (or sent him to some seminar in a nice tropical location, or donated to his PAC, etc). But this is the mere exchange of ideas (or doing the Rep’s homework for him, I guess).
    So, I guess I wonder how you feel about this TED, since my Humean moral sentiments aren’t much of a guide for me here.

    You draw out a good issue with the whole question of corporate personhood, but it seems to me as a less realistic route to reform. Those rights are already pretty well established, and etching them away seems to me to be more revolutionary minded than reform minded. I mean, you’d be taking away the rights of small businesses and their owners, both of which are the _drivers_ of our economy and its growth and all things good (just ask em, they’ll tell ya). It’d be political suicide.

    Chipping away the rights of “privacy” of lobbyists, legislators and regulators seems to me to be more realistic as a means of achieving reform (although personally I think some erosion of corporate personhood would be desirable and would love to hear some kind of realistic way of making this happen).

    You’re also right about shrugging off the “unconstitutional”-ness as a barrier thing… I think that is focusing on the wrong barrier. I’m more worried about the obstruction in Congress around passing a law. Such obstruction would prevent the law from being enacted/enforced and then being a contested law and then going to the Supremes in the first place.

  4. One approach to end such influence would be to retract the legal concept of corporate personhood. The populists of the 1890's fought hard against coprporate personhood becoming enshirned as law. They knew what was coming and they were right.

  5. @Slab -- It did not occur to me to consider the monetary emoluments connected with the presentation of a specific point of view to be a marker of the seriousness of the lobbying firm's ideas and/or intentions, but I see your point.

    Surely we should expect our politicians to be able to sort the intellectual and policy-making wheat from the chaff better than just by looking at the price tag, though, no? Isn't that part of their job? Shouldn't that be part of their job?

    Shouldn't any policy maker worth his or her salt have a better sense of who the committed, credible, and/or serious stakeholders in an argument are other than by looking at the size of their checkbooks? I would like to think so.

    I see the obstacles, but I still think the wedge into this issue remains that old debbil, money.

  6. The big question for me (that I'd like to hear a lawyer chime in on) is quite simple: Can the overt manipulation and corruption of the government be regarded as sedition? If so, when does it hit that point? Will it never hit that point so long as politicians are being paid?

  7. Transparency is useless (and possibly) dangerous in an apathetic society. We already have pretty decent transparency as to political donations, yet where is the mass outrage? Along with transparency comes legitamacy. Because it is out in the open collectively we think it is alright.

    Sometimes I wonder if given the same political donation rules, if secrecy may actually be better. At least secrecy fosters outrage and whats going on IS indeed outrageous.

    The process itself needs to be reformed. There needs to be limits on the amount of money that any politician in general can raise as well as strict Chinese Walls set up between politicians and lobbyists.