Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Detroit News, the Guardian, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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Exposing the Big Bank Lobby

| Tue May 11, 2010 11:41 AM EDT

There's plenty in the news about the latest push by the financial industry's formidable lobbying armada, a coalition of banks' own outfits, ad hoc front groups, and powerful advocacy organizations speaking for all of Big Finance. It's also pretty well-known that many of these influence peddlers are well-connected to very people they're now lobbying. Even so, a new report from the Public Accountability Initiative, "Big Bank Takeover," uncovers some pretty startling statistics about the finance lobby, a powerful force that's shaped financial regulation for decades and, more recently, has spent $600 million on lobbying since early 2008.

For instance, the report (pdf), released today, says that 243 lobbyists for the six biggest banks—Bank of America, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, and Citigroup—and their trade groups used to work in either Congress, the White House, the Treasury, or another federal agency. That comes out to 40 lobbyists per bank who've spun through the Wall Street-Washington revolving door. And those 243 lobbyists weren't paper pushers or interns, either: 33 are former chiefs of staff; 54 used to work for the House financial services committee, which led the House's effort to write new financial regulation; and 28 were legislative directors for members of Congress. Citigroup, the report states, leads the biggest bank with 55 lobbyists that once worked for the government.

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The Closed-Door Derivatives War

| Tue May 11, 2010 10:51 AM EDT

The most heated fight in the financial reform battle right now involves a provision blandly named Section 716. This provision, introduced by Sen. Blanche Lincoln (D-Ark.), is arguably the most aggressive of the reform bill's crackdowns on the $600 trillion over-the-counter derivatives market, the home to the opaque yet lucrative financial products that allow big banks and gutsy traders to bet on swings in the financial market. More than 90 percent of derivatives trading occurs within the walls of the five largest commercial banks. Lincoln's Section 716 would essentially force these big banks to carve out their derivatives, or "swaps," desks into separate subsidiaries—a proposal that's anathema to Wall Street, many Republicans, some Democrats, and even the White House.

So far, Lincoln has managed to keep 716 in the bill, despite a lobbying onslaught to kill the provision. But as the New Republic’s Noam Scheiber reports, an unlikely opponent to Lincoln's aggressive plan has emerged: former Federal Reserve chairman and reform advocate Paul Volcker. In a May 6 letter, Volcker wrote to Sen. Chris Dodd (D-Conn.) that commercial banks "should not be prohibited" from dealing in derivatives as a normal part of doing business. Volcker justified his opposition—which more or less aligns him with the Wall Street lobbyists fighting to gut Lincoln's derivatives overhaul—by saying that the "Volcker Rule," a provision he helped create that would wall off commercial and investment banking, would render moot Lincoln’s 716.

But academics and outside experts say the Volcker Rule is no substitute for spinning off swaps desks. Jane D'Arista and Gerald Epstein of the Political Economy Research Institute at the University of Massachusetts, Amherst write today that Section 716 would go a long way toward breaking up the anti-competitive monopoly on derivatives trading held by the five largest commercial banks, "encourage new entrants, and bring the benefits of competition to end users in all sectors of the economy." D'Arista and Epstein add that breaking off swaps desks will actually increase transparency "by bringing derivatives out of the shadows so that dealers can be more easily regulated." Not separating swaps desk will only cement the too-big- or too-interconnected-to-fail status of the biggest commercial banks, they argue.

Nonetheless, with Volcker in opposition, the odds are now stacked heavily against Lincoln's provision. Later this week, Sens. Judd Gregg (R-NH) and Saxby Chambliss (R-Ga.) are expected to offer an amendment that would do away with 716, and it's unclear whether any new lawmakers will come to its defense—or whether the proposal will be left, like other tough provisions, on the cutting room floor. 

 

Sell Green, Buy Coal

| Mon May 10, 2010 6:49 PM EDT

May/June 2010 Issue

JPMorgan Chase, the powerful denizen of Wall Street, recently announced yet another lucrative quarter for the bank. $28.2 billion in revenue. $3.3 billion in profit, a 55 percent increase from a year ago. The results laid to rest any lingering doubts about JPMorgan's health and rebound from the financial crisis, and when considered alongside the resurgent profitability at, say, Goldman Sachs, showed that the Street has in many cases come full circle since the Crash of 2008.

All but forgotten in the banks' fight to scramble back into the black was an agreement forged earlier in 2008, a pact among big banks to shine a light on their financial deals involving dirty investments and to potentially move that money into greener, sustainable projects. The agreement was called the "Carbon Principles," and it has essentially fallen by the wayside in the past two years. Whether these banks renew their pledges to shift financing to renewable projects remains to be seen, but in the interim, as I report below, lucrative financing for dirty energy projects throughout the world continues unabated.

ABN AMRO
(Equator Principles)
MOUTH: "Among the achievements of the Equator Principles is the demonstration that competitors are willing, able, and happy to collaborate for the health of the planet." Huibert Boumeester, managing board member (2006).
MONEY: After signing Equator Principles, became lead arranger for a $2 billion loan to Russian energy giant Gazprom's vast Sakhalin II oil and gas project; later, helped finance a $1 billion loan for a new coal plant in Chile, built by American power company AES.

Bank of America
(Carbon and Equator Principles)
MOUTH: "Helping our nation reduce greenhouse gas emissions is not only the right thing for our planet, but it is also smart business—and Bank of America is proud to be at the forefront." Kenneth Lewis, chairman and CEO (2008).
MONEY: A leading lender for Australia's giant Hazelwood coal plant, which the World Wildlife Fund called "one of the dirtiest power stations in the world," and key financier to coal giant Massey Energy.

Citigroup
(Carbon and Equator Principles)
MOUTH: "Our success will be measured not only by our financial results, but also by the impact we have on the communities we serve." Charles Prince, chairman and CEO (2006).
MONEY: In 2006, the same year it helped produce an update of the Equator Principles, Citigroup financed more coal projects than anyone else in the world. After signing the Carbon Principles, opened a $62 million line of credit for Arch Coal, the nation's second-largest coal producer and a major funder of the lobbying battle against climate legislation.

JPMorgan Chase
(Carbon and Equator Principles)
MOUTH: "What is earthshakingly different between now and two years ago is the focus on CO2." Eric Fornell, vice chairman, natural resources banking division (2008).
MONEY: Has continued to fund 5 of the top 10 mountaintop-removal companies in Appalachia; in 2009 underwrote more than $1 billion in financing for Massey Energy, which mined more than 21 million tons of coal in 2008 via mountaintop removal.

Morgan Stanley
(Carbon Principles)
MOUTH: "I don't think [the Carbon Principles] will inhibit the financing of new coal-fired projects." David Albert, managing director, project and structured finance (2008).
MONEY: Indeed. Morgan Stanley joined with Citigroup last year to underwrite $700 million in debt for NRG Energy, which owns all or part of nine coal plants. Also part of a consortium financing $4.5 billion in loans for TXU, a Texas power company that tried to build 11 new coal-fired power plants (eight were ultimately scrapped due to public pressure).

This piece was produced by Mother Jones as part of the Climate Desk collaboration.

Dems Try to Beef Up Finance Bill

| Mon May 10, 2010 3:13 PM EDT

In Washington, usually the longer lawmakers haggle and debate and offer amendments to a piece of legislation, the weaker the bill gets. On financial regulatory reform, a group of Senate Democrats today touted plans to buck that trend and improve the Senate's bill that would reimagine the guidelines and regulations of our financial markets.

In an afternoon press conference, Sens. Carl Levin (D-Mich.) and Jeff Merkley (D-Ore.) introduced an amendment to break off banks' proprietary trading desks—the riskier operations where traders bet for their own company's gain, not for a client. The Levin-Merkley amendment draws on the "Volcker Rule," a provision popular with the Obama administration that would redivide investment and commercial banking. The Levin-Merkley amendment would ban banks from making high-risk investments involving bonds, stocks, derivatives, and other financial products; it would also block them from sponsoring or investing in hedge and private equity funds, both riskier operations that lie outside the purview of federal regulators. Levin-Merkley would also try to eliminate the conflict of interest inherent in a firm like Goldman Sachs, which both advises on and executes trades for clients while also investing to pad its own bottom line. The conflict of interest is at the heart of SEC's ongoing securities fraud suit against Goldman. "Maybe we can’t stop the extreme greed that lies behind these conflicts, but we can act to end the conflicts which have allowed big payoffs," said Levin.

Meanwhile, Sen. Jack Reed (D-RI) is another Democrat looking to beef up the financial reform bill. Reed said that an amendment he introduced today will crack down on the hedge, private equity, and venture capital funds that operate almost entirely unregulated. In Reed's amendment, all private funds will be required to register with the Securities and Exchange Commission. (The existing Senate bill requires funds larger than $100 million to register, with exemptions for certain types of funds.) Reid told Politico, "This amendment will shut down loopholes and provide the SEC with long-overdue authority to examine and collect data from this key industry."

While both amendments boast Democratic support, it's unclear whether they can garner 60 votes. Last week, an amendment from Sen. Ted Kaufman (D-Del.) and Sherrod Brown (D-Ohio) that would've capped the size of banks and the leverage they use, seen by many as an improvement to the bill, fell considerably short, 60-33. The Senate resumes talks on the financial bill tomorrow, and soon enough we'll see whether these amendments have the support or not.

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