Will campaign cash influence financial reform?

The connection between campaign contributions and public policy is more subtle than most cynics acknowledge. But as the Senate considers reform of the financial system, the opportunities -- and motives -- for abuse are mounting.

David Frum

As the Senate opens a debate on financial reform, let’s consider these fun facts:

· In 2008, Wachovia bank’s main political action committee gave 62 percent of its money to Republican candidates; CEO Robert Steel donated $100,000 to candidates over the 2004, 2006, and 2008 cycles, 95 percent of which went to Republicans.

· Meanwhile, the Center for Responsive Politics, which tabulates such things, estimates that Democrats have collected more than 70 percent of the money donated by hedge fund PACs and executives since 2001.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

I don’t want to encourage cynicism here.

But if you had to guess:

Which party is more likely to oppose limits on ATM fees and credit card interest rates?

And which party is more inclined to give Congress greater say over emergency aid to financial firms deemed "too big to fail?"

Oh -- you guessed.

I’m not going to propose that campaign contributions determine politicians’ positions.

The relationship is subtler than that.

First, a politician decides on a general outlook -- more conservative, more liberal; more sympathetic to regulation or more skeptical of it. He may reach his conclusions as a matter of conviction, or based on the prevailing views or interests of his constituents. But there he is.

Once he arrives at a general point of view, he seeks money from people who agree. (The political science literature strongly supports the view that money follows political positioning, it does not drive it.)

As the politician and the interest find each other, a symbiosis occurs, where the interest tends to shape the politician’s thinking, and he in turn maneuvers to extract donations from the interest.

A perfect example of this is tort reform. Isn’t it fascinating how major tort reform legislation is always on the verge of being enacted by Congress – but never quite makes it over the finish line? No doubt that outcome accurately represents the balance of forces in the nation. But by splendid coincidence, it is also exactly the outcome that keeps maximum contributions flowing to each party.

Or look at an issue being actively debated today: the creation of a financial consumer protection agency. That’s an easy call for Democrats, who tend to favor regulation. It’s especially easy since their investment-banking constituency does not deal much with individual consumers. It gets easier still when you recognize that the investment bankers have an uneasy relationship with the Federal Reserve (they suspect the Fed of favoring commercial banks), and that creating a new regulator outside the Fed is a way of cutting the Fed down to size.

Often, politicians collect donations by threatening their donors rather than by serving them. The seesaw battle over tort reform is one example. The financial reform bill crafted by Senate Banking Committee chairman Christopher Dodd is another. It contains proposals that even Dodd’s friends in the investment banking community are sure to dislike. But just as a very expensive restaurant charges a higher price for smaller portions, so a crafty politician can collect larger donations by removing policies than by enacting them.

As contentious items one by one disappear from proposed legislation, the crafty politician multiplies his opportunities to collect while minimizing his vulnerability to criticism. After all, it’s hard for an opponent to produce a negative ad denouncing a vote that has never been cast!

Senator Dodd faces the political fight of his life in 2010, when he is up for reelection. Not only is 2010 shaping up to be a Republican year, but the senator has been wounded by well-publicized ethical controversies, including his acceptance of a low-interest VIP mortgage from Countrywide Financial. Credible Republican candidates are lining up to challenge Dodd. So perhaps he sees his financial reform plan as the last grand monument of a career at its end. But could it be that he also hopes that this same plan, carefully managed, might yield sufficient funds to keep his endangered career alive?

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.