Buying Political Influence is just another line-item expense for Wall Street. Large amounts of money from the securities industry are targeted for key influential politicians who can favorably influence legislation that is good for the industry and frequently bad for the small investor.
The overall political strategy for the industry is to have all securities matters at the federal level. There are several reasons this strategy is effective: 1) The body of securities law at the federal level is so skewed against the small investor, meaningful litigation against Wall Street is virtually impossible. 2) The regulatory apparatus, which in descending order is the SEC, the exchanges and the prime brokers, is seriously compromised. Top to bottom, they regulate in secrecy and the informal financial incentive system tends to reward those who look the other way. 3) The federal courts and the regulatory apparatus have bought into the securities industry's proposition that crooked trading is proprietary trading strategy and should be kept secret. They use this excuse to deny FOIA requests, seal court records, which means it is not available for subsequent cases and generally keep some egregious behavior out of the public spotlight.
This political strategy works because the benefit to politicians (money) is concentrated and specific, and the opposition (small investors) is unaware, unorganized, dispersed, apathetic and unfinanced. Legislation and rules promulgation that is actually flagrantly pro-industry and anti-small investor is spun to make it look like Congress and the regulators are actually doing something constructive when they are really obfuscating. Witness Reg SHO, which hasn't changed much except the hiding places for the counterfeit shares.
Political contributions from Wall Street cross party lines and are rarely done for altruistic reasons. It is to help politicians who are in a position to help the industry. The securities and investment industry — which includes brokers, hedge funds and private equity firms — had the sharpest increase in political giving of any sector since 2004, up 91%. In 2007, at the presidential/congressional level, keeping with their policy of backing the winners, Democrats received 57% and Republicans 43%. Presidential candidates Barack Obama, Rudy Giuliani and Hillary Clinton were the three largest recipients of Wall Street money. Senator Christopher Dodd, while not a real presidential contender, does chair the Senate Banking Committee, was right behind Mitt Romney, himself a former Wall Street investment banker, and ahead of John McCain. As of October 29, 2007, the largest securities industry contributors included Goldman Sachs, Morgan Stanley, UBS, Merrill Lynch and others.
The magnitude of the giving was reflected in 2006, an off-year election, when the industry gave $65 million. The reported giving is only a portion of the total, as federal election law, like federal securities law, is fraught with loopholes. Examples of unreported giving includes so called “soft money,” such as paying for the $4,000,000 Bush inaugural party.
The collapse of Bear Stearns, which was facilitated by the shorts, brought the short manipulation problem before the Senate Banking Committee. Televised hearings in April 2008 saw Chairman Christopher Dodd and ranking member Richard Shelby mercilessly grill Christopher Cox about the failure of the SEC to regulate the naked short abuse that triggered the collapse of Bear. Dodd and Shelby are among the largest congressional benefactors of Wall Street generosity, and Bear Stearns is one of Wall Street's most prolific counterfeiters. The hypocrisy was so deep the participants needed snorkels.