With the financial reform bill likely to hit President Barack Obama’s desk in coming weeks, Wall Street’s top political players are warning Democrats to brace themselves for the next phase of the fight: the fundraising blowback.
Democrats who backed the bill are finding big banks far less eager to host fundraisers and provide campaign cash heading into the tightly contested midterm elections this fall, insiders say.
Some banks, in fact, have discussed not attending or hosting fundraisers at all for the next few months. Goldman Sachs is already staying away from all fundraisers, according to two sources. The company would not comment.
“I think at least in the short term there is going to be a great deal of frustration with people who were beating the hell out of us — then turning around and asking for money,” said a senior executive of a Wall Street bank.
One member coming in for special criticism: Sen. Kirsten Gillibrand (D-N.Y.), viewed as largely unwilling to publicly defend her home state’s top industry but who continues to make fundraising requests, according to Wall Street insiders.
“Sometimes their chutzpah just has no bounds,” an executive said, referring to Gillibrand, who is on the ballot this fall. “People like her who didn’t stand up for us at all during the debate are certainly going to feel some pushback.”
Gillibrand’s office didn’t respond to requests for comment.
“The fact is that the ink is not even dry on this bill, and everyone in town is still getting fundraising requests from members of the conference committee and all sorts of other people who were beating up on Wall Street,” an official at a large bank said, citing Reps. Carolyn Maloney (D-N.Y.) and Paul Kanjorski (D-Pa.) as two conference committee members who recently sought Wall Street contributions. Maloney and Kanjorski would not comment.
“It’s unseemly at best, and right now we are just not inclined to say ‘yes,’” the official said.
While the final Wall Street reform bill turned out to be less onerous than banks feared, there are still hard feelings, especially over the rhetoric used to slam banks such as Goldman Sachs, Morgan Stanley and JPMorganChase.
And that’s threatening to blunt further the fundraising inroads Democrats have made into the financial community, which historically has steered more money to Republicans.
Signs of the shift of Wall Street cash away from Democrats this election cycle began to emerge this spring. In an analysis in April, the Wall Street Journal found that 52 percent of political giving by the 12 largest banks on Wall Street went to Republicans, a reversal from last year.
In the first 15 months of the most recent midterm cycle, in 2006, the Democratic and Republican parties — including candidates and campaign committees — each received $20 million from employees of securities and investment firms, according to an analysis done for POLITICO by the Center for Responsive Politics.
During the first 15 months of the current cycle, Democrats raised close to $27 million from the industry — an increase probably attributable in part to the fact that Democrats hold the White House and both houses of Congress. But, despite being largely shut out of power, Republicans have raised $19.5 million this cycle, the CRP study found.
According to the center’s executive director, Sheila Krumholz, the Democrats’ recent advantage with Wall Street money could shrink further because the GOP is now viewed as having a better shot at taking back the House and because of blowback from the financial reform bill.
The Dodd-Frank bill would, among other things, limit banks’ ability to make money trading with their own capital and would require them to spin off a portion of their lucrative derivatives businesses into separately capitalized subsidiaries.
“Financial reform is happening at an interesting time, when Republicans are already feeling the winds in their sails,” Krumholz said. But she added that the effects of financial reform on fundraising could be temporary. “This could be the [GOP’s] opportunity and once it’s passed, things should kind of return to normal, which is the majority party having a slight advantage.”
Still, feelings in the financial industry are very raw, especially toward moderate and New York-area Democrats who, the industry feels, did not do enough to ease the potential impact of the financial overhaul.
Some of those Democrats are clearly aware of the danger. After the House passed financial reform, Rep. Mike McMahon, a Democrat who represents Staten Island and part of Brooklyn, issued a statement highlighting his work to make sure the bill would “benefit New York City.”
“I have consistently stated that we need to reform our financial markets to provide greater stability, accountability and oversight, but this does not mean crippling those very markets which are vital to New York City and to the entire country’s economy,” McMahon said.
McMahon was one of the leaders of an effort by New Yorkers and moderate Democrats to water down Arkansas Democratic Sen. Blanche Lincoln’s tough derivatives provision — and his statement said he was pleased to partner with House Financial Services Committee Chairman Barney Frank (D-Mass.) to create a “workable” compromise in the bill.
That compromise hasn’t stopped the financial community from singling out Lincoln for scorn.
“She told us she knew Congress had to be sensible in its approach to dealing with derivatives, and then she went and hit us with her amendment,” a financial executive said. “It was pretty amazing.”
Lincoln says she’s not worried, despite facing a difficult reelection fight this fall.
“Sen. Lincoln has made it clear that campaign contributions do not govern her public policy decisions, and she is unconcerned about Wall Street reform’s impact on her fundraising efforts,” Lincoln’s spokeswoman, Katie Laning Niebaum, said. “She has led the fight to rein in Wall Street banks’ reckless behavior because fixing our nation’s broken financial system is critical to getting our economy back on track and putting Arkansans back to work.”
Since 2005, Lincoln has raised $511,482 from employees of securities and investment firms — second among her contributors only to lawyers and law firms, according to CRP figures. In that period, Gillibrand has raised $789,800 from the securities industry, also her second-biggest contributors after lawyers and law firms, the CRP data show.
Other industry officials said the distaste can go both ways. Some members of Congress, especially Democrats pushing for strong financial reform legislation, have been reluctant to take money from financial firms, wary of being seen as in the back pocket of an industry in serious disfavor with the public since the meltdown of 2008 and the subsequent recession.
For instance, after Goldman Sachs was charged with civil fraud by the Securities and Exchange Commission, the bank’s support for Democrats from the president on down became a significant and uncomfortable issue. Lincoln said at the time she would take no more contributions from Goldman.
“You have a combination right now where some members are wary of taking our money, while many in the industry are now reluctant to give money to people who are trying to inflict such damage on us,” said a senior financial industry lobbyist. “Those two factors together will just reduce the amount of industry money going to policymakers.”
Other industry officials said they did not see much reluctance on the part of members who supported the Dodd-Frank bill to ask for contributions — especially ahead of the recent deadline for second-quarter fundraising.
The second-quarter numbers, due out later this month, could give an early look at whether the Democrats’ zeal for financial reform has hit them in the wallet.