New rule would expand tight Obama lobbying rules to all federal workers
By Kevin Bogardus - 09/16/11 06:00 AM ET
A new regulation proposed this week by the Office of Government Ethics (OGE) would prohibit all government employees from accepting any gifts from lobbyists.
Originally, the absolute ban on lobbyist gifts was only applied to political appointees, per President Obama’s executive order on ethics that was signed early on in his administration. But if the proposed rule is finalized, it would expand the order’s tough restrictions on lobbyist gifts to career employees in the federal government as well.
The regulation also would codify the stringent lobbyist gift ban implemented by Obama’s executive order, meaning the strict limits on the interaction between lobbyists and the Obama administration would stay in place after Obama leaves the White House, unless Congress repeals them or the next president initiates another rule-making procedure to amend the regulation.
“What this means is that these broader restrictions will go beyond the Obama administration. They will exist even after he leaves office,” Kenneth Gross, a partner at Skadden, Arps, Slate, Meagher & Flom, told The Hill. Gross heads the firm’s political law practice and advises clients on campaign finance and ethics law.
OGE proposed the regulation because Obama’s executive order tasked the agency with expanding the lobbyist gift ban across the entire federal government. They are to consult with the attorney general and the White House counsel to craft the rule.
The move to expand the lobbyist gift ban by OGE has won praise from ethics watchdog groups.
“It is significant that they are putting these lobbyist rules into regulation,” said Meredith McGehee, policy director for the Campaign Legal Center. “With these regulations on the books, they can be administered and enforced like all other regulations on ethics.”
“The new guidance certainly strengthens the gift restrictions for all executive branch employees, and that clearly deserves praise,” Craig Holman, government affairs lobbyist for Public Citizen, said in an email.
Experts predicted the regulation’s impact on the daily lives of federal workers would be marginal. Nevertheless, it would put in place tough new restrictions on how they interact with lobbyists.
Career employees now can accept individual gifts from lobbyists worth $20 each, valued up to $50 in the aggregate for a calendar year. That exception, known as the “de minimis” exception, would no longer exist under this regulation.
“This would largely wipe that out. If you're a rank-and-file member of the executive branch, and you're attending a corporate event, you can't have wine, you can't have cheese,” Gross said.
The proposed regulation would also eliminate other exceptions to the lobbyist gift ban. Federal employees would no longer be able to go to functions sponsored by lobbying groups even if they are widely attended gatherings. They also would no longer be able to accept social invitations from lobbyists or accept meals and entertainment provided overseas by lobbyists.
Those on K Street often use receptions and parties to develop relationships with government officials to benefit their lobbying clients, according to the proposed rule.
“It is no secret that social events of this type sometimes are used as ‘lobbying tools,’ " the proposed regulation says. “The potential for harm, while perhaps latent, is nonetheless real.”
The proposal would maintain exceptions for the lobbyist gift ban laid out in Obama’s executive order, such as a birthday gift from a lobbyist spouse or a training course provided by a lobbying organization that gives a discount to federal workers — to "avoid potentially absurd results," in the words of OGE. Further, federal employees can attend events held by lobbying groups if they are asked to speak at the event.
The regulation would also exclude four different groups from its definition of a lobbying organization: 501(c)(3) nonprofit organizations, media companies acting in their news-making capacity, institutions of higher learning and professional associations that help with professional development.
Howard Marlowe, president of the American League of Lobbyists, said his group is studying the regulation and plans to file comments. The lobbyist was angered that the proposed rule continues to narrowly focus on individuals who are registered under the Lobbying Disclosure Act and exempts nonprofit groups.
“The proposed changes, however, continue this administration’s crusade against registered lobbyists while allowing advocates who operate without any public transparency to get a free pass,” said Marlowe, also president of lobby firm Marlowe & Co. “The proposal also appears to carve out an exemption for certain types of nonprofits. Creating distinctions among different types of groups or individuals who lobby would significantly reduce transparency.”
Watchdog group representatives mentioned similar worries. While a 2007 ethics law passed by Congress barred groups that lobby from paying for congressional travel, it exempted nonprofit groups — including some who fund lawmakers’ trips today and are tied to lobbying organizations.
“Any of the nonprofit carve-outs raise some of the issues and concerns that this is trying to address in the first place,” McGehee said. “The notion that the nonprofits are disinterested parties is just plain wrong. It's not in sync with reality.”
While the rule can be amended or repealed by congressional or regulatory action in the future, it would be politically tough for any president to weaken ethics rules. House Republicans, despite much animosity by lawmakers towards the independent Office of Congressional Ethics, have not defunded it since taking control of the lower chamber.
“Once you impose a more restrictive ethics rule, it's very hard to back away from it,” Gross said. “It's like the Roach Motel. Once you check in, you can't check out.”
OGE is accepting written comments on the proposed rule until Nov. 14.
The $2 Billion UBS Incident: 'Rogue Trader' My Ass
The entrance to UBS headquarters in Zurich. FABRICE COFFRINI/AFP/Getty Images
By Matt Taibbi POSTED: September 15, 8:39 AM ET
The news that a "rogue trader" (I hate that term – more on that in a moment) has soaked the Swiss banking giant UBS for $2 billion has rocked the international financial community and threatened to drive a stake through any chance Europe had of averting economic disaster. There is much hand-wringing in the financial press today as the UBS incident has reminded the whole world that all of the banks were almost certainly lying their asses off over the last three years, when they all pledged to pull back from risky prop trading. Here’s how the WSJ put it [ http://online.wsj.com/article/SB10001424053111904060604576572214077312174.html ]:
The Swiss banking giant has been struggling to rebuild trust after running up vast losses in the original financial crisis. Under Chief Executive Oswald Grubel, the bank claimed to have put in place new risk management practices, pulled back from proprietary trading and focused on a low-risk client-driven model.
"We reviewed the governance, standards and practices of certain of our firmwide operating committees," the bank wrote, "to ensure their focus on client service, business standards and practices and reputational risk management."
But the reality is, the brains of investment bankers by nature are not wired for "client-based" thinking. This is the reason why the Glass-Steagall Act [ http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act ], which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.
Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on.
In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.
Nonetheless, thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on.
These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term "rogue trader," which is always tossed out there when some investment-banker asshole loses a billion dollars betting with someone else’s money.
They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.
The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).
In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.
In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.
There is a movement in the UK for a thing called “ringfencing” that would separate investment bankers from commercial bankers. Some people think this UBS incident will aid that movement [ http://www.ft.com/intl/cms/s/0/3c1bf678-df7c-11e0-845a-00144feabdc0.html ], even though UBS can apparently absorb the loss without necessitating a bailout or endangering client accounts.
The U.S. missed its own chance for ringfencing when a proposal for a full repeal of Gramm-Leach-Bliley was routed during the Dodd-Frank negotiations.
That means we’re probably stuck here in the states with companies like Bank of America, JP Morgan Chase and Citigroup, giant commercial banks in charge of stewarding trillions in client bank accounts and consumer credit accounts who also behave like turbocharged gamblers via their investment banking arms.
Sooner or later, this is going to blow up in our faces, and it won't be one lower-level guy with a $2 billion loss we'll be swallowing. It'll be the CEO of another rogue firm like Lehman Brothers, and it'll cost us trillions, not billions.
Matt, I USED TO BE A MARKET MAKER IN DERIVATIVES>>> Please contact me at onehundredtrees@gmail.com.
THE REAL SCANDAL behind this story is "synthetic ETFs" which are going to be the next big thing to blow up on our faces after the "synthetic CDOs" blew up.
Tens of millions of Americans have invested in exchange traded funds (ETFs) WHICH THEY THINK represent purchase of baskets of securities to track a given economic trend such as the price of gold or technology stocks.
That USED TO BE THE CASE.
But now with "synthetic" ETFs, traders like this fellow are NOT investing in gold futures or tech indices. FAR FROM IT.
WHAT THEY are doing is investing in "proxy" indicators for those indicators in the form of NAKED credit default swaps (oh no, not AGAIN), whose CORRELATION to the underlying asset is CHOCK FULL of stupid assumptions.
CDOs based on subprime mortgages were clearly harmful to the financial system; what made that whole experience CATASTROPHIC was when "synthetic" CDOs exploded on to the scene and into the value of our mortgages.
Same thing with synthetic ETFs, which is what this guy was trading in.
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