Wall Street Windfall

Democrats are hoping to make one word synonymous with Bush administration policy in Iraq, and judging by the generally reliable political barometer of late-night comedy writers, their strategy may be working. ​“President Bush is asking Congress for $80 billion to help rebuild Iraq,” David Letterman quipped in a September monologue. ​“And when you make out that check, remember there are two Ls in Halliburton.”

A big fuss has been made — and rightly so — about the multibillion-dollar, no-bid contracts handed out to a subsidiary of Dick Cheney’s old firm. The most comprehensive study to date, released in late October by the Center for Public Integrity, identifies 71 companies and individuals who received a total of $8 billion worth of contracts in postwar Afghanistan and Iraq. These same interests have contributed more money to George W. Bush than to any other federal candidate since 1990.

But the truly surprising thing about the report wasn’t how much these companies gave to Bush, but how little. Combined they gave Bush $500,000, an average of just $7,000 each. That’s hardly enough to get a table at a Bush fund-raiser, let alone establish a quid pro quo.

This is not to say that companies don’t make campaign contributions to influence policy and seek out special favors. Or that these firms didn’t benefit from cronyism and insider access. Some companies — especially military-industrial contractors — have more effective and efficient ways of securing government business. These include keeping the vice president on the company payroll. Halliburton has paid Cheney hundreds of thousands of dollars in deferred salary since he took office.

Industries without such close ties must demonstrate their loyalty in other ways. The financial services industry is a good example. Initially, Wall Street — which tends to hedge its bets by giving equally to both parties — had little access to the Bush administration. No Wall Street CEOs were invited to Bush’s business leaders forum held a few weeks before his inauguration, and none participated in his August 2002 economic summit.

But times have changed. Since June, Wall Street has given the Bush campaign $3.8 million, according to the Center for Responsive Politics. Merrill Lynch, Bush’s top contributor, has given as much as all 71 postwar contractors combined. At least a dozen top Wall Street executives have joined the ranks of Bush’s ​“Rangers” and ​“Pioneers” by bundling hundreds of thousands of dollars in campaign contributions. (Only one of these rainmakers was ranked among Bush’s top fund-raisers in 2000.) Shortly after Bush’s September speech to the United Nations, the president met behind closed doors with a small group of top Wall Street execs.

There’s a chicken-and-egg debate over whether contributions influence policy or policy influences contributions — but it works both ways. The investment community’s outpouring of support stems largely from the Bush administration’s tax policies, which slashed dividend and capital gains tax rates. Wall Street led the fight for Bush’s plan, which the Securities Industry Association declared to be ​“the number one issue on our advocacy agenda.” These cuts not only benefited the industry’s richest customers — Wall Street CEOs stood to personally save millions.

There’s a lot more on the industry’s legislative and regulatory wish list. But to accomplish any of it, Wall Street must first shake off the taint of corporate scandal. Apparently, their strategy has nothing to do with reforming the practices that have bilked investors out of billions. Instead, Wall Street is whining about being over-regulated. Merill Lynch CEO Stan O’Neal, a Ranger, wrote an op-ed in the Wall Street Journal last spring warning, ​“If we attempt to eliminate risk — to legislate, regulate or litigate it out of existence — the ultimate result will be economic stagnation, perhaps even economic failure.”

O’Neal’s article was a thinly veiled attack on New York Attorney General Eliot Spitzer — who launched the investigation that led to a $1.4 billion ​“global settlement” by Merrill Lynch and nine other big Wall Street firms over allegations of fraudulent conflicts of interest between investment bankers and stock analysts. Executives from seven of those firms are now Rangers or Pioneers.

U.S. Rep. Richard Baker (R-La.) introduced a bill last summer to prevent state regulators like Spitzer from forcing structural changes in the securities industry, an idea shopped around the Hill a year earlier by Morgan Stanley. Morgan Stanley is not only Baker’s biggest campaign contributor, but the firm’s managing director has become a Ranger. The bill — endorsed by the chairman of the SEC — was shelved after attracting too much negative press. But it is sure to resurface.

Since then, Spitzer has further humiliated Wall Street — and the lapdogs at the SEC — by going after hedge and mutual funds for fraudulent trading practices. In the latter case, firms allegedly allowed select wealthy investors ​“to bet today on yesterday’s horse races,” as Spitzer put it. The industry’s calls to muzzle him have only intensified.

Despite the president’s pledge after the collapse of Worldcom ​“to usher in a new era of integrity in corporate America,” Wall Street knows a good investment when it sees one. Bush’s tax cuts are just the first step in a push toward making all investment income tax-free. Wall Street hopes to deter further regulation of hedge funds, derivatives trading and arcane, highly profitable tax-avoidance schemes. The industry also aims to remodel the retirement and pension systems, limit class-action lawsuits and privatize Social Security.

The handouts to investment bankers and their wealthy clients during a second Bush administration won’t be as easily quantifiable as the postwar contracts. But the Democratic presidential contenders — and the rest of us — would be wise to remember that there also are two Ls in Merrill Lynch.