Money from Wall Street

Cheques and imbalances

Financial firms bet on Republicans to fight for their interests

NEW YORK

THE recession may have hurt, but re-regulation could hurt almost as much. So in the first quarter of this year the financial services, insurance and property industries spent nearly $125m on lobbying, up more than 11% from last year. The Centre for Public Integrity, a non-partisan research group, reckons the financial-services industries alone hired more than 3,000 lobbyists to influence the financial reform bill now before Congress. On June 14th came news that the Office of Congressional Ethics has launched a probe into the fund-raising activities of eight lawmakers who sit on the House Financial Services or Ways and Means Committees. They are thought to have held fund-raisers days before they voted on financial reform.

The bill has passed both House and Senate, but the two versions still have to be reconciled. Lobbyists hope to water down some of the more contentious provisions, such as a requirement for banks to spin off their derivatives units. They are making their appeals to familiar faces. The senators on the conference committee, which will meld the bills, are some of the biggest recipients of contributions from the financial services, insurance, and property industries, reckons the Centre for Responsive Politics. The 12 senators in question have received over $57m from these sectors during their careers.

If the final bill comes out tough, Wall Street may punish the Democrats. Already, many financial firms have started to spurn Democrats in favour of Republicans. In March 2009 they gave only 37% of their contributions to Republicans. But in March of this year the proportion jumped to 58%. Money-men want to reward Republicans, but they are also betting that Republicans will pick up seats in November’s election, says Jim Thurber, director of the Centre for Congressional and Presidential Studies at American University.

It is not just the reform bill that has prompted financial firms to storm Congress. A provision in the jobs bill, which the House has passed and the Senate is still considering, would hit private-equity shops, property firms and some hedge funds that pay capital-gains rates, rather than income tax, which is higher, on their profits. Congress wants to change this, and has proposed taxing 75% of their profits as income and 25% as capital gains.

On June 8th the Senate Finance Committee threw the industry a bone and proposed that government should tax only 65% of their profits as income. Some cynics note that the third-largest contributor to Max Baucus, the senator who heads the Finance Committee, were, collectively, employees at KKR, a big private-equity firm.