There are even some administrative perks from regulated industries that want to stay on their good side. While most Americans grapple with busy airlines and airports, politicians line up special privileges that allow them to sidestep such headaches. For example, Capitol Hill schedulers make reservations on dedicated phone lines that Delta and other airlines have set up especially for them. Ever have trouble with canceling a flight and getting a refund? Airlines permit members of Congress to reserve seats on multiple flights but pay only for the trips they take. And they never have trouble getting a seat. “We get on every single flight,” one congressional aide told Roll Call.10 Why do airlines pamper them? Precisely because they know that getting on the wrong side of the Permanent Political Class can cause their industry serious problems.
When politicians leave Washington on a flight, whether they are going back to their district for meetings, going golfing in Florida, or heading overseas for vacation, the Metropolitan Washington Airports Authority provides free parking in a private lot. There are ninety-seven reserved spaces set aside for them at Dulles International Airport, and eighty-nine at Reagan National.11
Senator Saxby Chambliss of Georgia loves to play golf. Over the course of his career, his leadership PAC has helped him dramatically improve his game. The so-called Republican Majority Fund has picked up the tab for golf outings at the best and most expensive golf resorts in the country: Pebble Beach Resorts, the Inn at Spanish Bay, and others. One year almost one-third of Chambliss’s entire leadership PAC expenditures went for golf, including transportation: limos and at least one private jet.12 During the 2012 election cycle, Chambliss’s PAC dropped a cool $107,752 at the Breakers in Palm Beach. That’s three times what he gave to the National Republican Senatorial Committee to elect other Republicans. He also spent $26,814 at Ruth’s Chris Steakhouse, and $10,344 at Pebble Beach. Who contributes funds to Chambliss’s leadership PAC? The largest three groups are lobbyists, followed by the tobacco and insurance industries.13 All three groups, of course, need protection. So all three groups subsidize the lifestyle of a United States senator.
Congressman John Conyers of Michigan isn’t such a big golfer, but he loves his sports. His PAC is called America Forward, but what mostly advances is the congressman’s lifestyle. During the 2012 election cycle, for example, he raised $99,300, which is a small total by leadership PAC standards. (In 2010 he did much better, raking in more than $200,000.) But of that nearly $100,000 he raised, Conyers gave only $1,430 to other candidates, which is the stated purpose of his PAC. Instead, he spent more than six times that amount on the National Football League ($6,595) and ESPN ($6,900) to attend award events. Conyers spent even more on limousine services for himself ($1,500) than he did on candidates. (At least he was using a car service called Limo 4 Less.) The congressman also dropped serious money at the Rock Bottom Brewery ($1,300).14 Conyers is the ranking member of the House Judiciary Committee. The vast majority of the money he raised came from corporate PACs and lobbyists.
These are hardly exceptions to the rule. Senator Roy Blunt of Missouri runs a leadership PAC called the Rely on Your Beliefs Fund. Like other leadership PACs, the vast majority of its money comes from PACs and lobbyists. Blunt’s biggest donor during the 2012 election was Goldman Sachs. (Blunt sits on the powerful Senate Appropriations Committee.) How does he spend their money? After the November 2012 election, Blunt retreated to the beautiful sanctuary at Kiawah Island on Johns Island, South Carolina. The PAC dropped $11,334 there on November 14 for “ PAC LODGING & EVENT CATERING.” Two months earlier, the PAC dropped $12,481 for “ PAC EVENT CATERING & FACILITIES FEE.” On December 7, 2012, there was another $1,584 expense for “ LODGING” at the resort, and on December 13, 2012, the PAC spent $11,684 on yet another event. In all, the PAC spent over $65,000 at this location during the 2012 election cycle.15 Indeed, Blunt spent more at the Kiawah resort through his leadership PAC than he transferred from that PAC to the National Republican Senatorial Committee to elect other Republicans. And while he gave other Senate candidates over $240,000, that was a small fraction of the $1.1 million he raised. Meanwhile, his political aide Keri Ann Hayes received $296,000 in salary and benefits from the leadership PAC during the 2012 election cycle, more than all the Republican candidates received.16
Frequently politicians will put family members in charge of running their PACs. Congressman Rob Andrews of New Jersey made his wife (a lawyer and an associate law dean at Rutgers School of Law–Camden) a PAC compliance officer. Mrs. Andrews has approved some interesting expenditures over the years. She approved the use of donation dollars to fly herself, her husband, and their two daughters to Edinburgh, Scotland, to stay at a five-star resort for a wedding.17 His leadership PAC paid $16,575 in airfare (including some business-class travel). The rest of the tab, a little less than $14,000, was picked up by his campaign committee. Andrews’s leadership PAC even picked up the tab for the wedding gift . . . china, from Bloomingdale’s.
It was quite the trip. The family tapped Andrews’s campaign committee for “petty cash” for Scotland in the form of two checks for at least $2,500. They stayed in two rooms at the luxury five-star Balmoral Hotel in Edinburgh. Campaign contributors also picked up the tab for dinners, the in-room bar, and other expenses.
The expenditure of these funds (particularly those from the more regulated traditional campaign committee) sparked an ethics investigation. In an email exchange, Andrews’s campaign treasurer laid out the fuzzy rules pertaining to the leadership PAC. “Aside from personal and official expenses exception [which are House rules, not federal law], there is wide discretion as to what expenditures further the Leadership PAC’s goals.” The treasurer cited the examples of politicians using leadership PAC money to buy tickets to Yankees games, travel to resorts, and golf at Pebble Beach. “As you can see, so long as the expense furthers the Leadership PAC’s goals, and is otherwise not prohibited, it appears to be permissible.” Although the Andrewses refunded the cost of the vacation, they did so only after ethical questions were publicly raised, according to the Philadelphia Inquirer.18
On another occasion, the Andrewses decided it would be nice to merge a campaign event with their daughter’s graduation. The invitation they sent out to donors and friends read: “We hope that you and your family will join us in celebrating Rob’s 20 years of serving in the House of Representatives and [the daughter’s] graduation from the Baldwin School.” Both events were held at the same time at their house, which allowed them to blend the costs of the two events, though the PAC did not pay for the entire evening. The graduating daughter apparently received congratulatory checks from people who came, but Mrs. Andrews insisted that “every single check that was given to her at the party, we shredded.”19
Congressman Ander Crenshaw of Florida spent 80 percent of his leadership PAC money on expenses during the 2012 cycle. Americans Nationwide Dedicated to Electing Republicans (ANDER PAC) spent more money on expenses than it did on contributions to Republican campaigns: $72,000 on travel, hotels, resort fees, and the like, and only $17,500 on other candidates. Much of the PAC’s money went for a lavish trip through the wine country of Napa, California. Tens of thousands of dollars went for the AVIA Hotel, for a reception at the Caldwell Winery, another at the Joseph Phelps Vineyards, and still another at the Palmaz Vineyards, and for a meal at a restaurant in Napa called Tuscany. The PAC also spent money at the Caves Valley Golf Course outside of Washington (including $185 for caddy fees).20 Who was in Napa with Crenshaw? It’s unclear, but what is clear is that his donation records show that defense contractors from BAE Systems, Boeing, Northrop Grumman, and Nextera Energy gave to Crenshaw’s leadership PAC on the same days he took these trips.21 Did I mention that Crenshaw sits on the defense subcommittee of the powerful House Appropriations Committee?23
Newly elected congressman Joaquin Castro used his Toward Tomorrow PAC to pay $10,000 for what is listed as a “Visa business” credit card payment.23 Senator Chuck Schumer used his leadership PAC
(Impact) for limousine services and tens of thousands of dollars for exclusive tickets to New York Yankees games. There are also large reimbursements for non-itemized credit card payments.24 Senator John Thune of South Dakota used his Heartland PAC for lavish events at Pebble Beach, the Greenbrier Resort ($84,197), and Kiawah Island.25
Congressman Charlie Rangel paid $64,500 from his leadership PAC funds to commission a painting of himself.26 Rangel also paid one of his sons to develop a website. Steven Rangel’s Edisonian Innovation Works received $79,560 to make a website for the National Leadership PAC. The website was not exactly a great investment. As reported in a story in Politico, it looked as if it had been slapped together in a couple of hours. It even included numerous spelling errors, such as “Give Contribuition.” There was an apology that the site was not finished but undergoing “routine maintenace.” One web designer said the website was so bad that the fee should not have been more than $100.27
Congresswoman Rosa DeLauro has represented Connecticut since 1991. Along with her husband, former Clinton pollster Stanley Greenberg, she has regularly used her leadership PAC like a Diners Club card over the years. Several times a month she has tapped her Democratic Future leadership PAC to cater wine and food events at her house, using top-drawer caterers and wine companies. Many of the expenditures during the 2010 election were made to Schneider’s, an exclusive liquor store that boasts eight full-time wine consultants. The food comes from high-end caterer Federal City Caterers. In the 2010 election, only 25 percent of the money raised for her leadership PAC went to other candidates, which was the ostensible purpose of the PAC when she formed it in 2005. Instead, two-thirds of the money raised went to operating expenses and what she describes as elaborate “policy dinners.” Former congressman Toby Moffett, who is now a Democratic consultant working in government affairs, has contributed to DeLauro’s leadership PAC and has attended these catered events. He calls them “a little bastion of enlightenment and intellectual discourse.”28 No doubt policy ideas are discussed at times. But it’s a really cushy way to advance an agenda.
What about members of Congress who retire with leadership PAC money? Amazingly, they can continue to spend as they see fit, or they can even convert the funds to personal funds (after paying taxes on them). In 2012 the Federal Election Commission called on Congress to expand the ban on the personal use of political committee funds. “The Commission has seen a substantial number of instances where individuals with access to the funds received by political committees have used such funds to make unauthorized disbursements to pay for their own personal expenses,” the FEC’s legislative recommendation said.29
Don’t expect Congress to pass such a law anytime soon. It would mean less golf.
7
Trust Me
You’re Gonna Need to Pay Me
If we walk in the woods, we must feed the mosquitoes.
—RALPH WALDO EMERSON
THERE IS ONE BIG DIFFERENCE between the Permanent Political Class and the Mafia. In the world of organized crime, the bosses are permanently in opposition to law enforcement. They might use bribery or extortion to control judges, witnesses, and the police, but they are always on the side of crime. If a member of a Mafia family decides to cooperate with law enforcement and become an informant, the Mafia will do anything and everything to kill him. You cross the lines at your mortal peril.
For the Permanent Political Class, by contrast, line-crossing is an art form. The name of the game is to make money and to extract it from the private sector, but you can do that from both sides of the public-private divide. You don’t have to be a member of Congress—you can be a lobbyist or a lawyer. Better yet, you can pass back and forth between political office and this private-public sector of Washington, always working to extract wealth from various industries that fear the laws and regulations you help create.
In 2010 Congress passed, and President Obama signed, the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was allegedly designed to provide new safeguards for financial markets by further regulating investment banks and other financial market participants. The trouble? No one can actually understand it. As one banker, publicly supportive of the law, told The Economist, when asked about the “Volcker Rule,” a centerpiece of Dodd-Frank, the rule is “unintelligible any way you read it.”1 Sheila Bair, the former head of the Federal Deposit Insurance Corporation (FDIC), has called the Volcker Rule “extraordinarily complex” and says, “Regulators should think hard about starting over again with a simple rule.”2
But that won’t happen for one simple reason: Dodd-Frank was designed to be indecipherable by mere mortals. For the Permanent Political Class, the regulatory minefield creates a lucrative opportunity for extortion.
Part of the problem is the law’s massive size. At 2,319 pages, it is dramatically larger than previous financial reform laws and approaches the monstrous length of the Obamacare bill. By comparison, the Federal Reserve Act of 1913, which established the Federal Reserve banking system and the single national currency, was 31 pages long. The Glass-Steagall Banking Act of 1933, which overhauled the entire banking system in light of hundreds of bank failures, was 37 pages long.
Dodd-Frank is also remarkably complex. Even seemingly basic principles are expanded and twisted to make compliance with them nearly impossible. For example, the so-called Volcker Rule, which grew out of a three-page memo from former Fed chairman Paul Volcker to President Obama in 2009, morphed into a 298-page description with 383 questions that break down into 1,420 subquestions.3
The cost of filling out the complex paperwork is enormous. The forms required by sections 404 and 406 of the law (which require the collection of systemic risk data from private funds, including hedge funds) will cost hedge funds approximately $100,000 to $150,000 to complete the first time, and then $40,000 a year after.4
The law was written to create more rules. As Jonathan Macey of the Yale Law School puts it, “Laws classically provide people with rules. Dodd Frank is not directed at people. It is an outline directed at bureaucrats and it instructs them to make still more regulations and to create more bureaucracies.”5 For example, the law requires 243 rules and sixty-seven studies by eleven different agencies.6 The law also requires the creation of multiple new government entities, including the Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB).7
It’s not that government officials and bureaucrats can’t make things simple. At the height of the financial crisis in 2008, government officials produced a simple two-page application for banks to use in applying for federal Troubled Asset Relief Program (TARP) money. It was “the model of simplicity,” with only four clear, concise bullet points. Federal officials used this document to lend nearly $50 billion to the biggest banks.8 When a true crisis arises and time is precious, Washington can cut to the chase.
Government bureaucrats and law-writers can make things simple, but apart from dire emergencies, they generally choose not to. Complexity is a useful and lucrative method of legal extortion for politicians because, as University of London economist Anthony G. Heyes puts it, “it is precisely the complex, opacity and user-unfriendliness which underpin the value of their expertise.” And that translates into “selling advice to those they previously regulated.”9
George LeMieux was appointed to the U.S. Senate to represent Florida in 2009 after Senator Mel Martinez stepped down. LeMieux jumped in quickly and saw immediately the complexity of a lot of bills. “Complexity always creates opportunities for those who know the details,” he told me. “I tried to read Dodd-Frank, and it was incomprehensible.”10
Consider, for example, how lucrative the indecipherable Dodd-Frank law has become for the members of the Permanent Political Class who actually wrote it.
Amy Friend was a chief aide to Senator Chris Dodd in crafting the Dodd-Frank financial reform bill and served as the chief counsel to the Senate Banking Committee. After the bill passed and became law, she left Capit
ol Hill and became a managing director at Promontory Financial Group, which describes itself as “a premier global financial services consulting firm.”11 This Washington-based consulting firm is headed up by many people like Friend—people who were once responsible for erecting or interpreting arcane financial regulations in public service and then joined the group, where they can charge high fees to help firms interpret and comply with these befuddling regulations. The firm is a “major power broker in Washington,” says the New York Times, “helping Wall Street navigate an onslaught of new rules and regulatory scrutiny” (many of those rules having been written, of course, by those now working at Promontory). Banks complain about Promontory’s high fees, which can run $1,500 an hour. Eugene Ludwig, the former comptroller of the currency under Bill Clinton, reportedly makes $30 million a year running Promontory. He lives in one of the most expensive houses in Washington, a 13,000-square-foot home on a three-acre estate.12
When Ludwig announced that Amy Friend was joining his firm, he boasted about the fact that Friend had played a key role in shaping the Dodd-Frank bill and that at Promontory she would help clients with “the regulatory implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which, at 2,300 pages, is one of the most complex and wide-ranging overhauls of the financial regulatory framework in decades.”13
Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets Page 11
