By Alex Distefano
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Cory Strupp, whose securities association bio in 2008 described him as JPMorgan's "lead" on Gramm-Leach, began attending Lazio events as early as his 1995 swearing in for a second term. At one point, in 1997, he sent a Lazio aide "three sets of talking points," stressing concerns that the bill, as framed by the Republican committee chair, would require too much SEC oversight over the securities, derivative, mortgage, and other asset-backed obligations.
The draft bill actually contained 16 exemptions that permitted banks to engage in wide-ranging non-bank activities without coming under SEC supervision, but that wasn't enough as far as the lobbyists were concerned. SEC chairman Arthur Levitt expressed "serious concern about the number and nature" of these 16 exemptions, but Lazio was the driving force behind efforts to expand the list, saying that 16 only "sounded like a large number."
Lazio wanted banks to have even more freedom to take risks, "unhindered by unnecessary regulation." Strupp and other bank lobbyists pushed Lazio to maximize the ability of banks, through "operating subsidiaries," to do a "full range" of securities deals, and Lazio added an amendment to that effect, using, almost word for word, the language they faxed him. Lazio's expanded exemptions and subsidiary positions were largely embedded in the final bill.
Lobbyists like Citigroup's legendary Roger Levy also sent Lazio memos, asking that banks be allowed to take part in non-financial activities that totaled up to 10 percent of their gross revenues. Such a loosening of rules would have permitted banks to buy substantial interests in everything from General Electric to start-ups, a startling new power. (Banking alone, apparently, was too staid for 1990s go-go bankers.) Lazio adopted the position Levy and others urged as his own.
Citi ($41,000 to Lazio) and Levy ($2,000) were widely reported to have been the prime force behind the law that finally passed in late 1999. The Federal Reserve had granted the bank a two-year waiver to complete its giant merger with Travelers Insurance, and the passage of Gramm-Leach retroactively legalized what was then the biggest bank deal in history.
Gramm-Leach has since put Phil Gramm, its Senate sponsor, on Time's list of the 25 people to blame for the financial crisis. Nobel Prize–winning economist Joseph Stiglitz has assailed the law for "helping create the current economic crisis," saying it led to the market-wide "dominance" of the "high stakes, high-return culture of investment banks" over the previously more measured reserve of traditional banks and insurance companies. Lakshman Achuthan of the Economic Cycle Research Institute charged Gramm-Leach with "setting up this bonfire years ago." Barack Obama said the Republican-controlled Congress let "the special interests set the agenda" when it passed this bill—though with significant Democratic support—and we are now "paying the price" for it.
Not Lazio. He's milked it. Four months after he left the House, he took over the reins at the Financial Services Forum, a just-formed amalgam of the 19 to 21 top beneficiaries of Gramm-Leach, which Lazio noted "was organized following the enactment" of the law. The Forum's purpose, as Lazio himself described it, was to harness the power of the CEOs of these companies (who made up the Forum's only actual members) and to push other deregulatory and pro-industry policies, making sure that Gramm-Leach "was not an end but a beginning."
Morgan Stanley and JPMorgan Chase—whose CEOs picked him to lead the association they chaired—had already combined to donate $286,161 to Lazio's campaign committee since 1998, more than any other House member and 10 times as much as the combined total they gave DeLay and Dick Armey, the House leaders who had named Lazio a deputy whip and an assistant majority leader. In fact, Lazio's next employer after he left the Forum, JPMorgan Chase, particularly benefited from Gramm-Leach. JPMorgan and Chase merged a year after it passed and subsequently acquired Bear Sterns, Bank One, and Washington Mutual, with help from the new law.
Having never worked in the banking or insurance business, and requiring lesson-plan memos from his congressional staff and others on the substance of financial service bills, Lazio's appointment to head the Forum was nakedly political.
"I see it as a logical extension of my work in Congress," said Lazio when he started his Forum job. In subsequent op-eds and speeches, he reminisced about "the work that went into" Gramm-Leach, noting that it "looms very large in my recollection of my time in Congress." He called the law a "monumental achievement." William Harrison—the same JPMorgan Chase CEO who, together with Morgan Stanley's CEO, handpicked Lazio for the Forum—brought him to the bank a few years later and put him in charge of the lobbying operation. Harrison was chair of the Forum in 2004 (Hank Paulson of Goldman was vice chair) when he transferred Lazio to his own bank, continuing a relationship that began while Lazio was in the House.
After a July 1999 meeting, Harrison and Lazio exchanged letters, with Harrison reminiscing about how he and Chase had worked with him in supporting Gramm-Leach, and Lazio replying that he looked forward to working with Harrison. The bill finally passed that November, and Harrison personally gave $2,000 to Lazio shortly before Chase's merger with JPMorgan in 2000, and added another $10,000 for the current gubernatorial race. Chase executives contributed another $36,100 to Lazio. The far friendlier JPMorgan kicked in more than $141,000 during Lazio's final four years in Congress, its highest contribution total in the House. The bank has given another $2,500 for the current gubernatorial campaign, and several of its high-ranking officials have pitched in another $25,000, combined.