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Monday, December 15, 2008

New York's Widening Net of Corruption

A Champion of Wall Street Reaps Benefits
The New York Times by ERIC LIPTON and RAYMOND HERNANDEZ - December 14, 2008

“We are not going to rest until we change the rules, change the laws and make sure New York remains No. 1 for decades on into the future.”
— Senator Charles E. Schumer, referring to financial regulations, Jan. 22, 2007

WASHINGTON — As the financial crisis jolted the nation in September, Senator Charles E. Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping Congressional leaders nail down details of the $700 billion rescue package. The next day, Mr. Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry R. Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil. “We are not going to be a bunch of crazy, anti-business liberals,” one executive said, summarizing Mr. Schumer’s remarks. “We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust.” The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.

Senator Schumer plays an unrivaled role in Washington as beneficiary, advocate and overseer of an industry that is his hometown’s most important business. An exceptional fund raiser — a “jackhammer,” someone who knows him says, for whom “ ‘no’ is the first step to ‘yes,’ ” — Mr. Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent. That money helped the Democrats gain power in Congress, elevated Mr. Schumer’s standing in his party and increased the industry’s clout in the capital. But in building support, he has embraced the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.

Other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, which are widely seen as catalysts to the crisis. But Mr. Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees. He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations’ balance sheets more transparent.

“Since the financial meltdown, people have been asking, ‘Where was Congress? Why didn’t they see this coming? Why didn’t they provide better oversight?’ ” said Barbara Roper, director of investor protection for the Consumer Federation of America. “And the answer for some, including Senator Schumer, is that they were actually too busy pursuing a deregulatory agenda. Their focus was on how we have to lighten up regulation on Wall Street.” In recent weeks, Mr. Schumer has worked closely with the Bush administration to try to mitigate the damage to New York’s financial institutions. And as members of Congress and President-elect Barack Obama have called for new regulations to prevent future upheavals, Mr. Schumer has endorsed the need for reforms while still trying to make them palatable for Wall Street. Calling himself “an almost obsessive defender of New York jobs,” Mr. Schumer has often talked of the need to avoid excessive regulation of an industry that is increasingly threatened by global competition. At the same time, Mr. Schumer has cast himself as a populist who looks out for the middle class.

In an interview, Mr. Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. “It is a learning process, no question about it, an evolution,” he said, adding that he now believed that investors and homeowners must be better protected. But he defended his record. “Wall Street and Main Street are tied together,” he said. “Often times, they are not in conflict. When they are in conflict, I tend to side with Main Street.” While Mr. Schumer has taken some pro-consumer stances, his critics fault him for tilting too far toward Wall Street in balancing his responsibilities. “He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. “It has hurt the American investor first and the average American taxpayer.”

Navigating the Street

Brash and brainy (perfect SATs and double Harvard degrees), Chuck Schumer, now 58, learned early in his career how to talk to the financiers and chief executives who would become a vital constituency for him. Though he did not grow up in that world — his father owned a small exterminating business in Brooklyn — he quickly showed a keen grasp of complex financial issues. And, recognizing how central Wall Street is to the city’s economy, he committed himself to keeping it strong. “So much of what happens in this town is because we are the world financial center,” Mr. Schumer said at City Hall in January 2007. “It helps support our museums, it provides the tax base for schools and health care. If we lose being the financial center, the rest goes down the drain.” Soon after arriving in Congress in 1981, Mr. Schumer snared a seat on the Financial Services Committee, which he viewed as the best way to help New York. While reliably liberal on many social issues, he established himself as a pragmatic Democrat willing to align with powerful business interests. Mr. Schumer’s political rise — he moved in 1999 to the Senate, where he now has a party leadership post — paralleled Wall Street’s growing influence in Washington. As more Americans invested in the markets and financial institutions had a greater global reach, the industry came to rival the manufacturing sector as a driving force of the United States economy. And in the 1990s, Democratic officials developed close links to a new generation of Wall Street leaders — labeled “New Moneycrats” by one author — who shared a free-market agenda.

Mr. Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John J. Mack, the chief executive at Morgan Stanley; and Charles O. Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more. Donors describe the Schumer pitch as unusually aggressive: He calls repeatedly to suggest breakfast or dinner, coffee or cocktails. He enlists intermediaries to invite prospects to events and recruits several senators to tag along. And he presses for the maximum contribution — “I need you to max out,” he is known to say — then follows up by asking that a donor’s spouse and four or five friends write checks, too. “He was probably the kid that sold the most candy in grade school,” said Julie Domenick, a Democratic lobbyist who has given to the senatorial campaign committee. “He is not shy.” Mr. Schumer, in the interview, acknowledged his full-speed-ahead approach. “Any job I do, I work hard at and I try to succeed at,” he said. As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John F. Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics, which analyzed federal data. (By 2005, Mr. Schumer had so much cash in reserve that he shut down his fund-raising efforts.)

In the last two-year election cycle, he helped raise more than $120 million for the Democrats’ Senate campaign committee, drawing nearly four times as much money from Wall Street as the National Republican Senatorial Committee. Donors often mention his “pro-business message” and record of addressing their concerns. John A. Kanas, the former chief executive of North Fork Bank, said: “He would solicit my opinion, listen to my advice and he appeared to take it into consideration.” Lee A. Pickard, a lawyer representing clients including the Bank of New York, whose employees have been significant donors to Mr. Schumer and other Senate Democrats, turned to Mr. Schumer last year to successfully beat back a regulatory initiative by the Securities and Exchange Commission. “If you get Chuck Schumer on your side, you are O.K.,” he said. That may help explain why some of the wealthiest financiers in Manhattan attended the Sept. 22 breakfast hosted by Mr. Kravis at his office overlooking Central Park. A Republican with long ties to the Bush family, Mr. Kravis spent much of this year trying to help Senator John McCain, the eventual Republican nominee for president.

But last year, Mr. Kravis went to Capitol Hill to oppose a proposal that would have more than doubled taxes for executives at hedge funds and private equity firms like his, costing them up to $25 billion over 10 years. Mr. Schumer had said publicly he would support the measure only if it also applied to executives at energy, venture capital and real estate partnerships, and he introduced alternative legislation that would do just that. His position was identical to that of lobbyists for a group paid by Mr. Kravis and other finance industry executives.

The Schumer bill, called a “poison pill” by the leading Republican advocate of the tax increase, went nowhere after provoking opposition from an array of industries. At the breakfast meeting, Mr. Schumer, accompanied by fellow Senate Democrats Kent Conrad of North Dakota and Maria Cantwell of Washington, assessed the political landscape as debate over the bailout was beginning. “On the right, you have those who view any government intervention as a threat to free markets,” one executive recalled Mr. Schumer explaining. “On the left, you have people who choose to view this as a government handout to the rich. In the middle, you have everyone who knows and takes the Treasury secretary seriously and recognizes that if something is not done here, we could be staring into an abyss.” Within days, the businessmen sent out checks to the Senate campaign committee.

‘Their Go-To Guy’

To Christopher Cox, the Republican chairman of the Securities and Exchange Commission, the need for action was obvious in the spring of 2006. His agency, which would later be criticized for a 2004 ruling that let banks pile up debt, had grown deeply concerned about lack of oversight of the nation’s largest credit-rating agencies, like Standard & Poor’s and Moody’s Investors Service. Linchpins of the financial system, their ratings are vital to safeguarding investors by evaluating the risks of bonds and other debt. After the collapse of Enron and WorldCom, which had repeatedly been awarded favorable ratings, the agencies had agreed to meet voluntary standards.

But the S.E.C. concluded that those agreements were inadequate, so Mr. Cox urged Congress to give his agency oversight powers. “Without additional legislative authority, the S.E.C. will not be able to regulate in a thoroughgoing way,” he told the Senate banking committee at an April 2006 hearing. The plan drew broad, bipartisan support on Capitol Hill. But executives at the credit-rating agencies soon began pressing Mr. Schumer and other allies in Congress to block the proposal or at least limit its reach, according to current and former employees. “They knew Schumer would support them,” said one former Moody’s executive, who asked not to be named because he still works in the industry. “He was their go-to guy,” the executive said. While the Manhattan-based agencies were not significant campaign donors to Mr. Schumer or the Senate campaign committee, their lobbyists and many of their clients were.

At that time, revenues for the agencies were skyrocketing. The housing market was robust, and Wall Street investment firms were paying the agencies to rate various mortgage-backed securities after first advising the firms — and also collecting fees — on how to package them to get high credit ratings. It was an obvious conflict of interest, financial experts now say. Despite their high ratings, many of those securities, based on risky loans, would prove worthless, roiling markets and threatening financial institutions worldwide. But Mr. Schumer argued that the companies voluntarily met requirements to eliminate such possible conflicts. He suggested that regulators simply encourage competition and disclosure of agencies’ ratings methods. There was perhaps no need for an intrusive new law, he said in the spring of 2006. “They’ve implemented their codes of conduct,” Mr. Schumer told Mr. Cox at a Senate hearing. “They’re making good-faith efforts.”

Mr. Schumer could not stop the legislation from passing, but he managed to get the measure amended so that it explicitly prohibited the S.E.C. from regulating the procedures and methods the agencies use to determine ratings. Richard Y. Roberts, a former S.E.C. commissioner, said the amendment Mr. Schumer won was troubling, adding that it could block the S.E.C. from punishing a credit-rating agency that consistently issued unreliable ratings. Sean J. Egan, managing director of a small Pennsylvania agency, Egan-Jones Ratings, and a proponent of the tougher regulations, was more blunt. “The bill was eviscerated,” he said. “You have stripped away basic safeguards for the investors.” At times in Congress, Mr. Schumer has teamed up with Republicans, like former Senator Phil Gramm of Texas, who aggressively promoted a free-market agenda. Mr. Schumer pushed for the Gramm-Leach-Bliley law, passed in November 1999, which knocked down the walls between investment banks and commercial banks and allowed financial supermarkets to flourish. The law also weakened regulatory oversight by fracturing it among different agencies. 

In 2001, Mr. Schumer and Mr. Gramm jointly proposed legislation that would cut fees paid by Wall Street firms and others to the S.E.C. in half, or by $14 billion, over the coming decade. Their proposal included some extra money for salaries of commission employees. But with trading volumes high, Mr. Schumer argued, the government was collecting far too much money from those fees and using it to subsidize other government operations. “It is a tax, an unintended but very real tax, on all sorts of investors,” he said at the time. But some Democrats, pointing to the recent corporate accounting scandals, argued that the S.E.C. budget should be doubled or tripled so it could more effectively combat fraud that could lead to a major economic collapse. “We are making a tragic mistake,” Representative John J. LaFalce, Democrat of New York, warned in arguing for a much smaller reduction in S.E.C. fees. “We give the industry what it asks for unwittingly.” Mr. Schumer’s argument prevailed, and the fee cut passed overwhelmingly. Some consumer advocates laud Mr. Schumer for his stances on consumer finance issues, including combating high interest rates on credit cards, challenging predatory lending practices and advocating legislation to allow bankruptcy courts to force banks to accept lower interest rates so that families facing foreclosure could stay in their homes. “He is a strong advocate for families and homeowners to make sure they are not taken advantage of,” said Eric Stein, senior vice president at the Center for Responsible Lending, a nonprofit group that combats abusive lending practices.

But those efforts mostly affect commercial banks and mortgage lending operations around the country and in New York, not the securities and investment businesses in Manhattan. “He built his career in large part based on his ties to Wall Street,” said Christopher Whalen, managing director of Institutional Risk Analytics, which advises investors on the regulatory system. “And he has given the Street what it wanted.” Mr. Schumer, though, has a surprising defender in Alfonse M. D’Amato, the onetime Republican senator he ousted. “Don’t take someone to task simply because a group has supported him politically and now he supports legislation that helps them,” Mr. D’Amato said. “The question is, is the legislation good or bad? With Chuck, it is clear he tries to do what is best for the state and city as a whole.”

Doling Out Criticism

For Mr. Schumer, Wall Street’s crisis has been especially painful to watch. “It is horrible, just awful,” he said in the interview. “And it affects everybody.” And he has already begun identifying those he faults for the devastation. Subprime lenders top the list, but he has lashed out with particular fury at the credit-rating industry, which he once defended but now says misled him and the investing public. “The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis,” Mr. Schumer said earlier this month in response to an S.E.C. move that same day to tighten control over the agencies. “The lesson from this is that the three major firms’ stranglehold on the ratings industry must be loosened.” Mr. Schumer has also blamed the Bush administration for its push to ease rules. “After eight years of deregulatory zeal by the Bush administration, an attitude of ‘the market can do no wrong’ has led it down a short path to economic recession,” Mr. Schumer said on the Senate floor in September. He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street. “I wish I was omniscient,” he said. “I’m not.”

Since the economy began to fall apart, Mr. Schumer has joined others in calling for new regulations to combat abuses. He has proposed tougher rules for credit-rating agencies, even changing the way they are paid so they are compensated by investors, not by the companies they are evaluating. He has said he is open to imposing regulations on hedge funds, which currently operate with limited government oversight. And while he previously succeeded in limiting consumers’ rights to sue financial institutions, he says he now favors offering that remedy in certain circumstances. But he is also warning that any new rules must be carefully crafted so they don’t impose excessive burdens. “You need to provide safety and security to investors in order to attract them to the markets,” Mr. Schumer told Wall Street executives in a speech last month. “On the other hand, you must be sure that regulation does not snuff out the entrepreneurial vigor and financial innovation that drives economic growth and makes financial institutions successful and profitable.” And he is seeking some regulatory concessions for some Wall Street supporters. He has proposed, for example, that the government lift a cap on how big the giant banks can get, an issue important to institutions like JPMorgan Chase. Lifting the cap would allow the biggest banks to absorb weaker ones, but it would also limit competition and increase the risks to the financial system posed by failure of one of the giants.

Mr. Schumer is also calling for the adoption of European-style regulations that impose far fewer rules and instead require banks to meet certain performance standards, a system institutions generally prefer but some banking experts criticize as not rigorous enough. In recent weeks, Mr. Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley’s headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Mr. Schumer about possible changes affecting their industry. “People feel like he is going to be fair and reasonable,” said one Morgan Stanley executive, who asked not to be identified because the session was private. “He is mindful that this is a very big part of his constituency — Wall Street.” Griff Palmer contributed reporting from New York.


Anonymous said...

i heard that the king of 'give me money' charles schumer has been the target of a federal probe. anyone know anything about this?

Anonymous said...

Paulson (a Democrat) was Schumer's choice for Treasury Secretary. Schumer was i n charge of all the financial bailout bills in the Senate. Schumer was on the committee as either chairman or highest ranking opposition democrat. Schumer opposed all calls to investigate or oversee Freddie and Fannie. Schumer received money from the banks' officers receiving money dispensed by his chosen one (Paulson). The banking problems were or should have been known to the mental titan that Schumer is supposed to be. Schumer, being so smart, must have known that the sub prime mortgages would create a bubble in housing price, because the buyers couldn't pay back the loans. Schumer got plenty of money from all people being helped out in the bailouts. Schumer is not going to fix the problems he created and oversaw; he is going to bailout his paying friends. In Japan, Schumer would commit hari kari, but here he is going aggrandize himself. Schumer's message: I was in charge and I'm too big to fail.

Anonymous said...

Schumer is the prototype NY crooked lawyer tuned Senator. Money is the drug/fodder of his choice. Pay to Play was moved to the Senate and Schumer gives access to the US Treasury; power over laws and choice of judges on his other committee, unlimited money available, freedom from prosecution, you can not fail if you pay enough to Schumer, and no one can question Schumer's Evil actions on your behalf. Schumer's supposed intellect is used for the ultimate corruption. Schumer must assume there isn't as God, but his intellect may fail him when he is sent to the center of Hell.

Anonymous said...

Let us not forget that Sen.Chuck took a 250K contribution from The Sentosa/Avalon nursing group to lobby Philipine officials to re-instate the restrictions on Sentosa to recruit nurses to serve at Sentosa.

The Filipino nurses were promised the sky when they signed up with Sentosa and got a bag of coal instead. Those nurses complained to the Filipino Government of the abuses they experienced at the hands of Sentosa. The Filipino responded by prohibiting Sentosa from recruiting nurses from their country.

All this was reversed after Senator Chuckie received that 250K contribution and wrote four letters to the Philipine Government to reverse their just decision.

The upshot of it all was 10 nurses quit their jobs at Sentosa, and Sentosa went to the Suffolk County District Attorney and had the nurses arrested for quitting their jobs and placing their patients in danger.

The NYS Education Department ruled otherwise, and the OPC, followed suit declaring that the nurses did no wrong. At best it was a contractural dispute, not a criminal one.

That matter of the prosecution is before the NYS Appellate Court that is expected to rule on a defense motion to order a Writ of Prohibiton that will prevent the DA from prosecuting this case.

The DA had previously been given a $1500 donation from Sentosa.

Chuckie, for a man that said he is concerned about human rights, you allowed these Angels of Mercy to be forced into Involunatary Servitude when you petitioned the philipine government to change their original decision.

Anonymous said...

WOW...What an eye-opener...Thanks for this story and for all of your stories on this website..Is there anyone honest left in NYC? For the person who said, "MONEY is the ROOT OF ALL EVIL",boy, did you hit the nail right on the head..Senator Schumer,You have sold your SOUL to the DEVIL and you are going straight down to hell..But before you make that trip, please read 60 seconds in HELL.

Anonymous said...

that is a bad idea.
i guess we are going to have to start keeping money in the matress.

i guess schumer figures he is not running again and his carear is done. If he pass to lower the standards things like that hedge fund are going to happen every week.

Anonymous said...

Sorry, Bon Voyage, you got it wrong when you said Chuckie sold his soul to the Devil. HE IS THE DEVIL!! While you are at it use your considerable influence to take down DA Tom Spota with you. He was the one that made those malicious arrests of innocents and put you out there as the thief that you really are.

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