The Payoff: Why Wall Street Always Wins by Jeff Connaughton

Author:Jeff Connaughton [Connaughton, Jeff]
Language: eng
Format: epub
Tags: Political Science, Commentary & Opinion
ISBN: 9781935212973
Publisher: Prospecta Press
Published: 2012-08-16T00:00:00+00:00

10:

THE BLOB

A KING HAS HIS RETINUE, a celebrity his entourage, and Pig-Pen his cloud of dirt. Washington has The Blob. The Blob (it’s really called that) refers to the government entities that regulate the finance industry—like the Banking Committee, Treasury Department, and SEC—and the army of Wall Street representatives and lobbyists that continuously surrounds and permeates them. The Blob moves together. Its members are in constant contact by e-mail and phone. They dine, drink, and take vacations together. Not surprisingly, they frequently intermarry. Indeed, a good way to maximize your family income in DC is to specialize in financial issues and marry someone in The Blob. Ideally, you and your spouse take turns: One of you works for a bank, insurance company, or lobbying firm while the other works for a government entity that regulates, or enacts legislation for, the financial industry. Every few years, you reverse roles: “Sally Striver, staffer on the Senate Banking Committee,” so might read a typical notice in Roll Call, “today announced her departure to work for the Financial Services Roundtable”; inevitably, she’s replaced with someone from the financial industry because, so runs the justification, the committee needs people familiar with the issues. What you and your spouse do all the time is share information. After all, no lobbying restrictions yet promulgated can prevent pillow talk between Blob spouses. Actually, marrying The Blob isn’t even necessary. A Blob member can simply take his or her non-Blob spouse to Blob parties—convivial gatherings of lobbyists and Wall Street emissaries, SEC and Treasury Department officials—to help gather and disseminate intelligence. It’s a weekly, and sometimes nightly, occurrence in Washington.

Ted and I quickly learned that, when you take on Wall Street in Washington, you take on The Blob. We were fighting deeply entrenched interests and a deeply ingrained institutional culture. Serendipity gave us some help. Ted, a religious man, faithfully attended the Wednesday morning Senate prayer breakfasts. It was here that he developed close friendships with a number of Republican senators, who responded to the sincerity of Ted’s faith. Senator Johnny Isakson (R-GA) was one of them. Isakson and Ted shared an interest in financial issues, and both had recently received complaints from constituents about the naked short selling of stocks by hedge funds and about the SEC’s rescission of the uptick rule.

If you think a stock is undervalued, you can buy in the belief that its price will rise over time. If you think a stock is overvalued, you can sell it short in the belief that its price will drop over time. Selling short involves selling shares you don’t own. If the price does drop, you can make a profit when you buy the stock to cover your short sale (if it rises, you make a loss). For example, you might sell Citigroup at $4.20 in the belief that you can later buy the stock at $4 to cover the trade and make a twenty-cent profit. Hedge funds and other traders are constantly engaged in short selling, which accounts for as much as 50 percent of the daily stock trading volume.

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