By Zach Carter and Ryan Grim
Gwen Moore does not seem like anybody’s idea of a corporate stooge. The Milwaukee Democrat, a single mom who once survived on welfare, has sponsored efforts to boost public housing, reproductive freedom, food-stamp benefits, Social Security payments, environmental protection, veterans’ benefits, and the minimum wage. And that’s just in the past year.
So it’s strange to see Moore associated with one of the more noxious campaigns underway on Capitol Hill: the Wall Street effort to unravel key sections of Dodd-Frank. After all, the 2010 financial reform was meant to curb the very same excesses that, not so long ago, devastated the economy and put many of Moore’s constituents out of their jobs and their homes.
The assault on Dodd-Frank relies on support from three different groups. The GOP isn’t shy about its antipathy to government regulations, and a pro-business coalition known as the New Democrats has come to its aid. But there is also a third, lesser-known faction: the Congressional Black Caucus (CBC). Moore, along with colleagues like New York’s Gregory Meeks, Georgia’s David Scott, Missouri’s Lacy Clay, and Alabama’s Terri Sewell, has pushed for a host of seemingly arcane measures that would undermine Dodd-Frank’s rules on financial derivatives, the complex contracts at the heart of the 2008 meltdown. She is the co-sponsor of multiple measures that would once again allow Wall Street to shift its riskiest transactions out of the view of regulators.
The CBC is not an organization known for airing its dirty laundry in public. But over the last year, the tawdriness of its pro–Wall Street votes has become so blatant that several members have started to push back, led by Maxine Waters, the veteran Los Angeles legislator who serves as the top Democrat on the financial services panel. To many in the CBC, it feels like a battle for the storied caucus’s soul—and the result could dictate the direction of economic policy for the Democratic Party at large.
“People are sick about what they’re doing,” says one CBC member. “Some things are just uncharacteristic of certain people. Everybody here has a brand. If your brand is down with the people, standing up for the little guy, then all of a sudden you’re on some bills that have got you helping Goldman Sachs have looser regulations on derivatives? It’s like—wait, what the hell is that?”
Today, the organization—now known as the Washington Government Relations Group—is a significant nexus of influence. At its regular policy gatherings, lobbyists can interact with lawmakers and staffers. Last year’s annual gala was held at the French Embassy.
But Capitol Hill is still overwhelmingly white, and even with a former CBC member in the White House, the power class is far from fully integrated. One white former representative told us he was stunned the first time he attended a black colleague’s fund-raiser during President Obama’s first term. “It was very much a standard fund-raiser in a townhouse on Capitol Hill, probably on South Capitol Street, nicely catered, everything was identical, except I was the only white guy there,” he recalls. “There were lots of African American lobbyists, most of them had probably worked as a staffer for somebody, and then they were hired by whoever it was they lobbied for specifically to lobby the CBC.”
The corporate world, by contrast, has been paying close attention. The CBC represents roughly 10 percent of the House and about a fifth of the Democratic minority. That alone makes it an attractive target for lobbyists. But two characteristics have helped it amass particular power. Its aura of moral credibility, earned during the Civil Rights era, can provide valuable progressive cover for controversial measures. And its tradition of voting as a bloc, forged in its early years to avoid marginalization, means that persuading the right CBC member can secure dozens of additional votes.
For the most part, the CBC has used its influence to keep progressive policy priorities on the Democratic agenda. In 2008, it broke with fellow Democrats to kill the first version of the Wall Street bailout. “The poor—poor blacks, poor whites, Native Americans, Latinos—get little help, little assistance,” John Lewis said at the time. “And then they come in here and ask us to bail out Wall Street. I’m not prepared to do that.” The bill only passed after a number of CBC members, led by Waters, extracted a promise from Obama for a major foreclosure-relief program (a promise that was ultimately broken).
However, as one bank lobbyist put it, “Sophisticated companies have sophisticated lobbying operations.” He explains, “Almost every big bank has a lobbyist who has experience and can work with the Congressional Black Caucus.” The industry’s term for these lobbyists: CBC specialists. And by targeting the ten CBC members who sit on the financial services panel, these lobbyists can potentially win over the entire caucus. “We defer to them for advice,” Marcia Fudge, the CBC’s chair, says of the members on the committee. “We don’t really talk about [financial issues] in the [weekly lunch] meetings at all. . . . It’s not an issue that’s of grave importance to the caucus. We know that we have people on the committee that we trust.”
The lobbyist knows first hand how effective this tactic can be. “We go right to the CBC because they are open-minded and they often vote as a bloc,” he says, asking for anonymity because he frequently relies on CBC members for support on deregulation bills. “And the professional left is scared of them. Every white liberal—media, politician, advocacy group—knows better than fucking with a CBC member.”
Outside Washington, people tend to assume that lobbyists are primarily interested in passing—or killing—legislation. But in a divided government where few bills are signed into law, the real action is the tug of war between Congress and the agencies that write rules and implement laws. An interest group can exert pressure on regulators by pushing for a bill that doesn’t even pass—simply assembling the right mix of co-sponsors can send an strong message. Sometimes this method functions as an informal threat: Unless you craft a weak rule, we have the clout to force your hand.
But there’s also a Washington cultural element at play. When a policy looks and feels bipartisan, it becomes tougher for an agency commissioner to take on the supposed consensus. A mere letter supporting or opposing a regulatory policy can have a formidable effect if the right names are on it. When it comes to bank reform, the ideal mix of backers, say lobbyists, is an even split of Democrats and Republicans, with a healthy contingent of CBC members to blunt the ideological edge. Or, if it’s obvious that an issue has full GOP support—any bank-reform repeal, for instance—a letter from Democrats alone will suffice.
After the GOP gained control of the House, the financial sector, according to one senior bank lobbyist, initially relied on a coalition of Republicans and the Democratic Party’s “Three J’s”—Jim Himes, who represents Greenwich, Connecticut, the epicenter of the hedge-fund world; Maryland’s John Delaney, a former banker; and John Carney Jr. of Delaware, a state dominated by the financial services industry.
But Wall Street needed more liberal support. Once everybody got wise to the fact that the Three Js always voted with the GOP on banking, they no longer lent legislation the same bipartisan sheen. (A couple of years ago, we wrote a story in The Huffington Post that framed a Himes bill as a sop to his fellow former bankers, and he left us a furious voice mail that illustrated this dynamic perfectly: After lambasting us for describing him as a “ ‘former Goldman Sachs executive’ as opposed to, say, ‘former affordable-housing, nonprofit guy,’ ” he added, “I will deal for the next couple of weeks with the left of the Democratic Party now thinking that I’m looking to deregulate derivatives.”)
And so bank lobbyists turned to legislators like Moore, the daughter of a factory worker, and herself a former activist for affordable housing. The Three Js now regularly team up with Moore and a handful of other CBC members.
In February 2013, Moore and Fudge joined three Republicans to introduce H.R. 677, a bill that would allow corporate conglomerates to trade derivatives among their myriad subsidiaries without follow-ing Dodd-Frank’s trading rules. The bill infuriated financial reform watchdogs, who say it makes it much harder for regulators to see risks accumulating in the system and could facilitate international tax-dodging. Moore’s measure probably won’t ever get a vote on the House floor, but it doesn’t need to. After proposing a relatively robust rule on the topic, the Commodity Futures Trading Commission switched course last year and finalized a regulation that adheres closely to Moore’s language.
From sources inside Congress and government agencies, we obtained a satchel full of CBC letters sent to various regulators. These aren’t the types of missives that are blasted out as press releases—there aren’t many politicians who want public credit for championing the rights of Wall Street bankers.
In June, 28 CBC members sent a letter to the Department of Labor, urging it to reconsider a rule requiring retirement account managers and investment advisers to act in their clients’ best interests—what is known in finance as a “fiduciary duty.” Fudge told us she was worried the rule would limit minority access to financial advice. But the letter was actually written by Robert Lewis, a lobbyist at the Financial Services Institute, who forgot to scrub his metadata from the document before circulating it around the Hill.
In 2012, meanwhile, a flurry of letters focused on a key component of Dodd-Frank: the Volcker Rule, which bans banks that receive taxpayer perks from making speculative trades for their own accounts. One letter, signed by banking committee CBC members Meeks, Scott, and Sewell, among other Democrats, hinted that regulatory agency funding could be cut if regulators didn’t delay implementation and ensure that it be “flexible.” Another, signed by Moore, Meeks, and Clay, asked for Volcker Rule exemptions for bank investments in venture-capital and private-equity funds. A Moore letter to Federal Reserve Chairman Ben Bernanke hit the same subject, emphasizing that she is “committed to Dodd-Frank and to the Volcker Rule,” but saying she wanted to ensure the provision would not be applied to foreign banks doing business with affiliates of U.S. banks. Yet another letter she joined sought to make sure regulators didn’t rope venture-capital funds in with hedge funds and private equity when implementing the rule. Each effort was different in its technical details, but the theme is consistent: Go easy on this sector of Wall Street; loosen the rules around this risky activity.
When the caucus doesn’t back banks, Democrats don’t, either. During the current congressional session, Republican Majority Leader Eric Cantor introduced a slate of bills designed to disempower the Consumer Financial Protection Bureau (CFPB). Nobody from the CBC supported the bid, and no Democrats signed on as co-sponsors. In the end, only ten Democrats joined 222 Republicans in voting to cut pay for CFPB regulators and create new red tape for the agency.
When asked why Moore had become such a reliable ally of the banking industry, more than a half-dozen sources pointed to her chief of staff, Minh Ta. There is a certain kind of Hill staffer—inspired by “House of Cards” and other fictional glorifications of backroom dealers—who strives to be a “player.” Working for a Democrat who votes the party line is no way to become a player. Another veteran of Moore’s staff, Andrew Stevens, moved in 2012 from the Hill to a job lobbying for Allianz, a German financial services firm, which had been keenly interested in a 2011 Moore bill that would exempt it from having to put up collateral on its swaps. Several sources said Stevens had worked closely on that bill.
One Democrat who worked closely with Moore as a member of Congress explained, “She has an ambitious staff, and they want her to move up in leadership, and they think the way to do that is to raise money.” Since the 2008 cycle, Moore has raised more than $930,000 from the financial sector. That’s roughly 50 percent more than she has brought in from organized labor, which had previously been her biggest backer. After Dodd-Frank passed in 2010, Moore joined the rollback efforts in 2011; for the 2012 cycle, her biggest donor was Bank of America.
Moore’s staff says that she is only interested in the technical merits of her derivatives bills, and Moore herself bristles at the suggestion that she’s undermining Wall Street reform. “I think that a lot of it has been hyperbole,” she says. “I’ve only worked around the fringes. I have done nothing to undermine Dodd-Frank.” But there’s a critical contradiction embedded in that defense. If Moore truly believes her bills will make the legislation better, there’s no need to assure us that she’s only targeting the edges of the law.
In 2012, with Barney Frank set to retire, two Democrats were eyeing his position as the ranking Democrat on the Financial Services Committee: Carolyn Maloney, who represents the Upper East Side, and Maxine Waters, who represents Watts. Most bank lobbyists assumed that Waters’s reputation for petty corruption in Washington and machine-style politics in Los Angeles would disqualify her. “She is wacko,” one bank lobbyist described her to the New York Observer. “She is very flamboyant, very old school. She is not one of these younger, sophisticated members of Congress. She has no grasp of the technical side of finance. She was elected during a different time in history, and she hasn’t read a book since.”
But the bank industry had underestimated Waters, who had been making some fairly obvious political sacrifices in her effort to get the gavel. She had worked within the system, cutting deals, casting a few pro-bank votes, and generally not comporting herself like a bomb-thrower. But while bank lobbyists had been courting CBC votes on legislation, the idea that a black woman might actually get the top slot on a powerful committee apparently hadn’t occurred to them. “They never thought she was going to be ranking member, so they didn’t do the work they needed to do when she was working her way up the dais. Now they’re in a position of, ‘Oh my goodness, I’ve ignored her for twelve terms,’ ” says one former CBC staffer who is now a well-connected financial industry lobbyist.
Waters, who refused to participate in this story, makes for an unlikely hero. Even her moments of righteous indignation come infused with a certain cynicism. To give one example: In 2011, she had an epic argument with Alcee Hastings at a CBC lunch, blasting him for sponsoring a measure that was seen as a gift to shady for-profit colleges. What was more embarrassing than selling out, Waters told her assembled colleagues, was selling out cheap to nickel-and-dime scammers like the for-profit college industry. If you’re going to sell your soul, she admonished, have some self-respect and sell high. (Hastings didn’t dispute the conflict, but he did dispute Waters’s point. “It would be a mistaken premise,” he says, smiling. “There are a hell of a lot of for-profit schools.”)
All the same, Waters was determined to protect the administration’s financial reforms. “Let me let you in on a secret,” she told a California Democratic convention in 2012 before she became the ranking member. “I am the senior-most person serving on the Financial Services Committee. Barney Frank is about to retire, and guess who’s shaking in their boots? The too-big-to-fail banks and financial institutions and all of Wall Street.”
In January of last year, she took over from Frank. “I certainly don’t want Democrats to be seen as deregulating and opposing and undermining Dodd-Frank,” she told us last year, when interviewed for a separateHuffington Post story. “It’s critically important that we understand the significance of that reform, that we send the message that we’re about protecting our taxpayers and investors.” Before long, she and Moore were on a collision course.
The tension between the two spilled into the open during an otherwise snoozy markup session last May. The committee turned its attention to H.R. 677—the bill that carved a loophole for companies that want to trade derivatives with themselves. Waters had previously objected to the measure in a private meeting with Moore, and the pair had cut a deal: Waters would vote for it, ensuring broad bipartisan passage. In return, Moore would present an amendment that would significantly narrow the scope of her bill. But Moore’s GOP co-sponsors had balked—and Moore had caved.
At the hearing, Moore struck a joking tone to defend her position. “There’s been a lot of speculation as to why I’m a co-sponsor of this bill, that perhaps I’m just naïve and I don’t understand the law,” Moore said. “Or that I have made so much money from Wall Street sources—I guess I better go check my bank account a little bit more, because it doesn’t feel like that has happened.” A few seats to Moore’s left, Waters stirred. She was not laughing. “Ms. Moore is very much aware of my concerns about the legislation,” she said tartly. “Now I am even more concerned that you have decided to drop the amendment.” She also reminded her colleague that Treasury Secretary Jack Lew had just sent Congress a letter urging lawmakers to leave Dodd-Frank’s derivatives rules alone.
Under Capitol Hill’s rules of etiquette, publicly admonishing a fellow Democrat for bucking the Obama administration is no small thing. (Unlike Frank, Waters has generally followed those rules.) Months later, other committee members remember the incident with a tug of the collar. Moore backed down and introduced the amendment, blaming a procedural misfire. But the set-to, as brief as it was, dented the façade of bipartisanship and liberal support that the banks had worked so hard to build.
There is a case to be made that condemning the CBC for its pro–Wall Street votes holds them to an unfair standard, one that white lawmakers aren’t required to meet. Members of Congress accrue standing with their colleagues by raising huge sums of money and spreading it around. Even Democrats with progressive priorities need campaign cash to amass power, to move up the committee ranks, to become part of leadership and advance an agenda. And banks, as Willie Sutton once said, are where the money is. “We say we want African Americans represented in leadership,” says former Democratic Representative Tom Perriello. “So is it fair to ask them to always lead the fight against corporate abuses while white members bank big donations to rise through the ranks?”
But the CBC has a unique power, won by years of history: More than almost any other bloc in Congress, it can bestow, or take away, the impression that something is fair. And it’s why the struggle over the organization’s ties to big banks will remain crucial to the ideological future of the Democratic Party.
That struggle is unresolved, but thanks to Waters and a handful of her allies, at least there is a struggle. In April, after former committee member Mel Watt was confirmed to head Fannie Mae and Freddie Mac, CBC member Steven Horsford of Nevada, a labor-backed skeptic of Wall Street, was appointed to replace him. The reformers notched up another win last fall, when the House voted on a Himes bill that would have provided taxpayer backing for derivatives trades. It had breezed through the House in a prior session and, this time, had sailed through committee on a 53-6 vote. Nearly all the panel’s Democrats voted with Republicans, with the notable exception of Waters and two CBC members. Moore, Meeks, Scott, and Sewell sent around a letter urging support, but in the end, the CBC remained neutral on the legislation, according to an official caucus “whip line” we obtained. Waters had battled the CBC to a draw. And when the whole House voted, the bill was rejected by a majority of the Democratic caucus.
The bill still cleared the House thanks to heavy GOP backing, but Himes knew it wasn’t really a victory. Without more robust endorsement from Democrats, the measure would get no hearing in the Senate and would have less resonance in regulatory halls. “What is different from what passed happily in a bipartisan fashion last Congress?” he asked, genuinely perplexed, from the floor after the vote.
The turmoil within the CBC was part of what had changed. Not so long ago, the moral dimensions of the battle over Dodd-Frank had been obscured, in part, by the perception that the changes were simply technical, amendments so inoffensive that they’d been embraced by legislators representing some of America’s most vulnerable districts. When that illusion is threatened—when it looks like the votes of Moore or other deregulation fans are just so much transactionalism—a different storyline emerges. As Himes put it, “In Dodd-Frank today, we have a morality play.”
Ryan Grim is the Washington bureau chief for The Huffington Post. Zach Carter is the senior political economy reporter for The Huffington Post. Caitlin MacNeal and Shahien Nasiripour contributed reporting. The piece was produced as part of a partnership with The New Republic.
