When speaking about lobbyists and lobbying firms former lobbyist Jack Abromof said, “I was participating in a system of legalized bribery. All of it is bribery. They all participate, all of them.”
There are over 11,000 registered lobbyists in Washington alone. Name any big political issue and you’ll find a wave of millions of lobbying dollars rolling in behind it. In 2009 3.5 Billion dollars was spent on lobbying – these dollars went to everything from agriculture and defense to finance and health care.
Financial corporations, like banks, hire lobbyists by the dozens to make sure legislation stays in favor of their business model. Outside the financial sector the petroleum industry has a huge presence as well. After the infamous BP oil spill in 2010 the giants of the petroleum industry spent $75 million in lobbying over a 6 month period to stall any overhaul of the oil industry and to make sure they stayed in business. (opensecrets.org)
However when it comes exemplifying the power of the lobbying industry over politicians we’ll look at the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This law not only kicks the American consumer to the curb but then continues to kick him while he’s down. Under this law (which by the way passed by a vote of 74 to 25 in the senate) student loan and credit card debt became non-dischargeable during bankruptcy. Essentially making you enslaved to the bank for life because of your debt.
It is glaringly obvious that banks love this law – in 2009 the credit card debt per household with a credit card was $15,788, with an average interest rate just under 15% (creditcards.com). And today the nationwide student loan debt is approaching $1 Trillion, representing the biggest consumer debt in America.
So how did this happen? I picture it going something like this: Banks grew tired of consumers filing for bankruptcy and being relieved of a portion of their credit card and student loan debts. Instead of redefining their investment risk and qualification requirements for credit, the banks hired hundreds of lobbyists and spent billions of dollars to make sure that the consumer paid them back…no matter what.
The pass of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is a prime example of Congress’ sentiment for banks not to mention the power and influence lobbyists have in Washington.
The purpose of bankruptcy is to discharge or restructure debt for those that cannot afford to pay it. This law clearly favored banks and left individuals behind that could no longer afford to pay their debts, not allowing bankruptcy to do its part.
The power of lobbying was also seen in the Pension Protection Act of 2006 as well as other financial regulation. Many of these decisions heavily favored large asset management groups and ultimately pushed American’s dollars into risk-based investments with no guarantees or safety. They have lobbied in their best interest, creating the ability to collect large amounts of money whether your investments perform or not.
Lobbying is giving more and more power to large corporations without any regard for the consumer. We are seeing a huge transfer of financial risk from corporations and banks to consumers – with government acting as the facilitator. It is important that we see and understand this shift and adapt accordingly.
Correct financial management has never been based on risk, it has been based on guarantees and safety (pensions, annuities, insurance), This shift of risk to the consumer is putting our finances backwards, and we need to revisit the safety and guarantees necessary for creating lasting wealth for us and our families.