Dodd’s Decision to Retire Likely Doomed Financial Reform Bill

When Sen. Chris Dodd (D-Connecticut) announced last January that he would not seek reelection, some media outlets declared that Dodd’s retirement would actually increase the chances that robust financial regulatory reform would be enacted (for example, see articles by The Washington Post and BusinessWeek). Such analyses demonstrate a near total ignorance of the processes of lobbying and campaign financing that dominate Congress. In reality, Dodd’s announcement likely signaled that the aggressive reform of the finance industry widely called for at the height of the crisis will not become law; at least not while Dodd remains Chairman of the Senate Banking Committee.

The notion that the decision to retire “freed” Dodd from political pressure, allowing him to concentrate on drafting legislation that would become his legacy, greatly underestimates the strength of the ties between Wall Street and Senators like Dodd.  During his many years in the Senate, Dodd cultivated his ties to Wall Street and the industry’s K Street lobbyists to the extent that he essentially has two constituencies: the citizens of Connecticut, and the finance industry. Having freed himself from accountability to the former, he can now focus on serving the latter.

For an idea of just how important the finance industry has been to funding Dodd’s campaigns, take a look at his profile on OpenSecrets, which shows that he’s taken in over $6 million from the securities and investment industry in the past twenty years. Additionally, several former staffers to Dodd now occupy prominent positions lobbying for the finance industry, including Roger Hollingsworth, now a top lobbyist for the hedge fund industry, and Alexander Sternhell, whose lobbying clients include Citigroup, the American Bankers Association, and ISDA.

Just what could cause Dodd to alienate his friends and associates at banks and hedge funds? Presumably, had he pursued reelection, he may have supported the CFPA proposal in a desperate attempt to appeal to voters. However, such a move would likely have led his former friends to cut off his campaign funding and instead support his opponent. Given the nature of the campaign finance system, a born-again populist Chris Dodd might still have lost his reelection bid, and would have found himself both friendless and unemployed.

Having decided to retire, his future now seems much more secure (at 65, Dodd still has plenty of life ahead of him). Come next year, Dodd’s friends on Wall Street will likely reward him with a cushy job, as well as some directorships, and he will likely enjoy a higher level of income than ever before. In light of Dodd’s past behavior and his future career prospects, the notion that he would reject wealth and abandon his entire social network for the sake of his legacy seems quite naive.

Consider this excerpt from a January 6th New York Times editorial:

“Impending retirement frees him from having to woo donors or listen to anyone or anything other than his own best instincts. He is free to criticize and, if need be, condemn the working groups’ proposals — to contrast their proposals with his own and challenge them to explain how anything less than sweeping reform will be enough to protect Americans.

(We would be disappointed if he decided to go through the revolving door and seek a job in the industry he now oversees. But if that is his eventual choice, he would be doing Wall Street a real favor if he works now to save the financial industry from its own excesses.)”

The New York Times seems to be hoping that even if Chris Dodd does not care to protect the American people from the excesses of the finance industry, he still might push financial reform because he cares about the long-term fate of his friends and future employers on Wall Street.  Given that the revolving door has repeatedly trumped any such “best instincts” , it seems appropriate that the New York Times and other publishers abandon their faith in the ultimate benevolence of individual politicians, stop hiding Congressional cronyism between parentheses, and start giving more than passing references to the economy of corruption that reigns in Congress.