The Republican members on the FCIC released a Financial Crisis Primer that has been debunked by a number of observers (since so many of the old canards were hauled out, this was easily accomplished).   But the refusal to allow the phrase “Wall Street” in the final commission report  impelled me to quantify the attempts by Wall Street to influence financial legislation in the years leading up to the financial crisis.
Here are PAC contributions from the finance, insurance, and real estate (FIRE) sectors, to Democrats and Republicans, by election cycle, over the period in which the housing market bubble was developing.
Figure 1: Political Action Committee (PAC) contributions from finance, insurance and real estate sectors during 2002, 2004, and 2006 election cycles. Red portion, to Republicans; blue portion to Democrats. Source: Opensecrets.
Now, it might be wrong to aggregate FIRE (which includes for instance accountants). So I’ll just examine the time series for banks:
Figure 2: Political Action Committee (PAC) contributions from commercial banks during 2002, 2004, and 2006 election cycles. Red portion, to Republicans; blue portion to Democrats. Source: Opensecrets.
Both parties were recipients, with a particularly decided tilt to Republicans (65.6% over election cycles 2002-06), but I guess the issue is touchier for the Republicans on the Financial Crisis Inquiry Commission than for the Democrats.
In any case, this is what Atif Mian, Amir Sufi and Francesco Trebbi conclude:
But the story is more complex than just subprime lenders buying government support for subprime lending. Beginning in 2002, mortgage industry campaign contributions increasingly targeted US representatives from districts with a large fraction of subprime borrowers. To measure constituent interest we use zip code level data on consumer credit. Combining this with electoral data, we then compare this with campaign contributions, lobbying expenditure, and eventually congressional voting data.
During the expansion years, we find that both mortgage industry campaign contributions and the share of subprime borrowers in a congressional district increasingly predicted congressional voting behaviour on housing-related legislation. In 1997 and 1998, the fraction of subprime borrowers in a representative’s district significantly predicts the representative’s votes on only 30% of roll calls. By 2003 the fraction increases to 70%.
As the solid line in Figure 2 shows, beginning with the 107th Congress in 2002, there is a sharp relative increase in mortgage campaign contributions to high subprime share districts, while there is no such pattern for non-mortgage contributions. Our results suggest that a one standard deviation increase in the subprime share as of 1998 — before the expansion — leads to a relative increase in the growth rate of mortgage industry campaign contributions of 81%.
For my money, the financial sector (a.k.a. “Wall Street”) had a role in the episode we have come to call the financial crisis. And continues to have a role in hindering measures to address the root causes of the crisis.
I’ve been thinking about this issue as I’ve been copy-editing Lost Decades: The Making of America’s Debt Crisis and
the Long Recovery (W.W. Norton, Sept. 2011), co-authored with Jeffry Frieden. In the manuscript (which we completed back in November), we observed that passage of the financial reform bill (Dodd-Frank) was only the first step in preventing a replay of the financial crisis of 2008. Adequate funding of the regulators, a problem before the crisis, will be even harder to obtain, as certain groups work hard to defund financial regulation.   The dire conditions of the states’ finances will also hinder effective regulation .
Perhaps it won’t be that long before I hear that familiar rallying cry “self-regulation, now and forever”. If the opponents of financial regulation have their way, I fear we will be seeing a replay of 2008 in the not too far off future.
Returning to an explanation for the genesis of the “Financial Crisis Primer”, Figure 3, which depicts bank-related PAC contributions in the 2010 election cycle tells it all.
Figure 3: Political Action Committee (PAC) contributions from commercial banks during 2010 election cycle. Red portion, to Republicans; blue portion to Democrats. Source: Opensecrets.