Your guide to the region's top events, mixed with some commentary about life, media, gossip and politics in Washington, DC.

Surprise! Lobbyists and Lawyers Will Be Winners

Share | Print

Bailout winners and losers.

By Kimberly Palmer Published Monday, October 27, 2008

Winner: Capitol Hill eateries like Johnny’s Half Shell did good business from all the dealmaking. Photograph by Matthew Worden

It was a fairy tale brought to life: Wall Street had been trapped in a dungeon by evil mortgages, and it was up to Washington to save them. Legislators, lobbyists, and administration officials struggled to slay the dragons of bad debt while being hailed as the only ones who could save the day.

President Bush, Treasury secretary Henry Paulson, and Fed chair Ben Bernanke warned that the entire financial system would grind to a halt unless Congress spent hundreds of billions of taxpayer dollars to buy distressed loans from banks—even as the government seized two of Washington’s biggest institutions, Fannie Mae and Freddie Mac.

Here are some winners and losers from the financial crisis:

Local Winners

Lobbyists

During intermission in Wolf Trap’s Sunday-matinee performance of Les Misérables, Scott Talbott—chief lobbyist for the Financial Services Roundtable, which represents some of the nation’s largest banks—had to leave his pregnant wife alone in her seat so he could join a conference call with the Treasury Department to learn more about the takeover of Fannie Mae and Freddie Mac. It was the first of many such calls.

Talbott, along with other financial-industry lobbyists, worked overtime to shape the government bailout. As Congress negotiated over the rescue plan, Bruce Josten, executive VP for government affairs at the US Chamber of Commerce, focused on talking to reporters to get the chamber’s perspective out.

As Talbott and Josten waited to find out how they’d do, lobbyists at the American Bankers Association were already celebrating—they got the government to add a provision limiting its insurance on money-market accounts to money already invested after a push by Wayne Abernathy, executive director of regulatory affairs for the ABA.

Law Firms

While the rest of America settled in for a further slowdown, DC lawyers geared up for a golden time—at least in the short run. Although many firms will likely see a long-term loss from the collapse of Wall Street titans, untangling the messy collapses and takeovers will be an immediate plus. “It’s going to be a tsunami,” says Joe Hoffman, head of the business group at the law firm Kelley Drye. Anticipating new levels of financial oversight and banking regulation, Hoffman says his clients—mostly financial institutions—are going to need a lot of help navigating the new terrain.

Consultants also have found their services in demand. “We’ve got more business than we can shake a stick at,” says former FDIC chair William Isaac, head of the Secura Group. Alexandria-based banking consultant Bert Ely says he’s been getting calls from reporters he hasn’t talked with since the savings-and-loan crisis of the 1980s.

Johnny’s Half Shell

As lawmakers, Treasury officials, and lobbyists descended on Capitol Hill to hammer out a deal, the neighborhood’s restaurants started working overtime. “They’re over here renting rooms, huddling up, whispering, doing big things,” says John Fulchino, co-owner of the seafood restaurant Johnny’s Half Shell.

Over at the closest Pennsylvania Avenue Starbucks, manager Carl Banks was serving an average of 100 more people a day. “A lot of assistants come in and get eight or nine specialty drinks and bring them back to the office,” he says.

Kaplan

On September 18, just days after Lehman Brothers filed for bankruptcy, Washington Post Company–owned Kaplan sponsored an MBA fair in Washington for people interested in applying to business school—and it drew a crowd 20 percent bigger than last year’s. “There’s a lot of interest in going back to business school in the DC area,” says Jennifer Kedrowski, a director of business programs at Kaplan. That means more business for the test-prep company. Nationwide, she says, there’s already a 7-percent increase in GMAT test takers this year.

Executives at Veritas Prep—an MBA-prep and consulting company that also has a strong local presence—joked that they had engaged in some “morbid accounting” by adding up at least a dozen new customers with Lehman Brothers e-mail addresses. According to the company, local GMAT-prep enrollment for the last week of August through the third week of September was up almost 50 percent from the same time last year.

The desire to escape the troubled job market also benefits local graduate schools. Reena Aggarwal, professor of finance and former deputy dean of Georgetown University’s McDonough School of Business, says the school had already seen a spike of about 20 to 25 percent in applications for this fall.

Robert Reich

After Treasury announced it would bail out AIG, the Bill Clinton–era Labor secretary was flooded with calls from members of Congress, reporters, investors, and union heads. “They were all asking, ‘What’s going on and what should be done?’ ” says Reich, who now serves as an economic adviser to Barack Obama.

For Reich, the controversy provided a way to focus attention on the need for greater regulation of financial institutions. “From Ronald Reagan onward, the public has been sold on the notion that the government is the problem, and yet now we are seeing that private markets don’t function well unless the government is a watchdog,” he says.

Ron Paul

Texas congressman Ron Paul, whose libertarian roots made him a surprisingly strong candidate in the Republican primaries, has long spoken out against the dangers of a growing national debt. He now is finding a lot more support for his ideas. He was one of the first members of Congress to react negatively to the proposed rescue effort, and he grilled Fed chair Bernanke when he testified before the Joint Economic Committee.

Local Losers

Loser: The Half Street project involved Lehman. Photograph by Chris Leaman

Chris Cox

Carly Fiorina, former chief executive of Hewlett-Packard and now a John McCain adviser, called SEC head Cox “asleep at the switch” as the financial crisis began to unravel. A few days later, McCain said he would fire Cox for betraying the public’s trust. Cox quickly became the public scapegoat for Wall Street’s woes.

Then, in the midst of congressional debate over the $700-billion bailout plan, the SEC inspector general released a report saying that under Cox the SEC had “failed to carry out its mission in its oversight of Bear Stearns,” which collapsed in March.

Congress

Several lawmakers earned praise as they encouraged colleagues to support the bailout proposal. Senator Chris Dodd was dubbed the “wonk stud du jour” by the media gossip site Gawker. Representative Barney Frank, one of the first lawmakers to suggest an independent panel to oversee Treasury’s rescue efforts, was featured in a Washington Post profile highlighting his initiative and colorful style.

The fizz faded when the first House vote defeated the bill, triggering 9-percent declines in stock-market indexes. Bloggers and commentators jumped on Speaker Nancy Pelosi for making what was characterized as a political speech just before the House vote. GOP leader John Boehner took flak from both sides—both for supporting the bailout and for not managing to get his colleagues to pass it.

Local Charities

For Mary Funke, executive director of N Street Village, a shelter for women, the bailouts and bank takeovers couldn’t have come at a worse time. She was in the midst of preparing for a Fannie Mae–sponsored walkathon scheduled for the Saturday before Thanksgiving, which raised $250,000 last year—a good chunk of the shelter’s $3-million annual budget. National and local banks and other corporate sponsors have been slower to offer financial support this year. “I think they’re waiting to see how their companies are going to shake out,” says Funke.

Together, Freddie Mac and Fannie Mae give far more—some $40 million—than any other source to local nonprofits, says Chuck Bean, executive director of the Nonprofit Roundtable. “If they suddenly disappeared, there would be scores of unmet needs,” he says.

The Class of 2009

Joe Foster, a second-year student at the University of Maryland Smith School of Business, says his classmates feel nervous. “People are looking for more commitment [from employers] right now, even if it means taking less money,” he says.

Murat Tarimcilar, associate dean for graduate programs at George Washington University, says his school’s career center is urging MBA students with a focus on finance to select a backup field. Because the school’s curriculum emphasizes globalization, he’s encouraging students to consider financial jobs in Mumbai or Tokyo while they wait for the US job market to make a comeback.

Georgetown’s Aggarwal tells students to look more closely at government contractors with large area operations, such as Lockheed Martin and Raytheon. Several students with offers from Lehman Brothers and Bear Stearns already had them withdrawn, she says.

Real-Estate Developers

When it filed for bankruptcy, Lehman Brothers was partnered with Washington-based Monument Realty on 15 area real-estate projects. The investment bank helped Monument develop the Odyssey, a luxury condo in Arlington, and Half Street, a shopping center along with condos and office space near the new Nationals Stadium. Monument quickly affirmed its commitment to funding the ongoing projects.

Other developers have been hurt by the credit crunch. “There’s no capital available to move projects forward,” says Richard Bradley, executive director of the Downtown DC Business Improvement District.

Who do you think are the bailout winners and losers? Sound off in the comments!

This article first appeared in the November 2008 issue of The Washingtonian. For more articles from that issue, click here.

More>> Capital Comment Blog | News & Politics | Society Photos

Social Web
E-mail

| Washingtonian.com Blogs

Comments

The mortgage and consumer credit giants, Fannie Mae and Freddie Mac, were given enormous stimulus packages a couple months ago in order for them survive during the economic meltdown. In Washington DC on Tuesday, December 9th, the mortgage firms were subject to a hearing by the House Oversight Committee where they were grilled by Congress over their corporate strategies that led to the near destruction of their companies. What had apparently happened was that the leadership of those companies had invested in mortgage backing for their cash flow. So they basically bought other people’s debt, thinking that it meant instant cash flow, especially when they raised the interest rates on the mortgages that they purchased. Borrowers who had borrowed money from irresponsible lenders started defaulting on their loans, thus, the companies that had bought their debt began to stagger towards the brink. House Oversight Committee Chairman Henry Waxman called their action irresponsible, especially after senior risk managers had questioned the call to make and invest in such loans. This shocking incident emphasizes the importance of being extremely responsible with your finances. Budget properly, practice smart spending habits, save money, and don’t put money into anything that looks too good to be true. If you need some help with a sudden emergency expense, payday loans are available at a reasonable rate to keep your finances above water until your next payday. Click to read more on <a title="READ MORE about Fannie Mae and Freddie Mac" rev="vote-for" href="http://personalmoneystore.com/moneyblog/2008/12/10/payday-loans-made-to-the-two-largest-lending-firms-in-the-us/">Fast Payday Loans</a>.

Posted by: Franrose O, Dec 15, 2008 02:17:54 AM

I voted for Bob Barr, but writing in Ron Paul or voting for Chuck Baldwin are all fine choices.

Posted by: Vake, Nov 09, 2008 02:11:32 PM

Do not give your vote away! Dr. Ron Ernest Paul is an excellent wrtie-in candidate. Who cares if they do not count it! My fanchise to vote is worth the right write-in, and that is Dr. Ron Ernest Paul. Many other votes will not be counted also. No loss no gain! We all lose anyway. the International Trade Cartel is in charge through the lame stream media which they own, and control.

Posted by: William Henry Harris, Oct 29, 2008 02:48:32 PM

I know who the real losers are in the unconstitutional $700 billion dollar bailout.
It is the American people!

Posted by: toanea, Oct 29, 2008 12:52:38 PM

I would love to vote for Ron Paul if he was on the ballot but since he’s not, I’m voting for Chuck Baldwin.

Posted by: Rico, Oct 29, 2008 07:15:00 AM

I am writing in Ron Paul in TX!

Posted by: David Graham, Oct 29, 2008 07:08:54 AM

I’m writing in Ron Paul. I would have gone Libertarian, but they made the grievous mistake of nominating a washed-up drug warrior looking for one more turn in the spotlight instead of a man of principle.

-jcr

Posted by: John C. Randolph, Oct 29, 2008 05:24:50 AM

Loser? Liberty. The American Experiment loses. Big time. Is there any recovery from this? Free markets made this mess? What a joke. What is worse, that people are saying this or that many Americans actually believe it? It’s true what Ben Franklin had to say regarding liberty-- only a virtuous and educated people are worthy of it.

Posted by: Diana Jorgensen, Oct 28, 2008 08:19:51 PM

I’d love to write in Ron Paul, too. Since I knew him more than a year ago, I couldn’t have considered anyone else whom I would elect for President, either in 2008, 2012, 2016, etc. Any other candidates must have proved themselves to be equal to or better than Dr. Paul to win my vote.

Posted by: Katie, Oct 28, 2008 08:14:38 PM

Ron Paul is awesome!

Posted by: Ben Straub, Oct 28, 2008 07:19:52 PM

The bigest losers is the American Constitution!
And the American people!

Posted by: Anna, Oct 28, 2008 07:13:19 PM

The bigest loser is the American Constitution!!!!!!!!!!!! And the American people!!!!!!!!

Posted by: Anna, Oct 28, 2008 07:09:44 PM

Writing in Ron Paul

Posted by: tite681, Oct 28, 2008 05:56:21 PM

Ron Paul has been right from the beginning and he is still on the right side of this thing. The quicker we start listening to him, the quicker the country will get back on track.

Posted by: Manuel, Oct 28, 2008 05:30:09 PM

I wrote in Ron Paul on my ballot :)

Posted by: Mitch, Oct 28, 2008 05:26:06 PM

"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure." -Thomas Jefferson

Posted by: CapFal, Oct 28, 2008 05:25:47 PM

I’d go even further than the American people as the losers. I’d include the citizens of the world since this major recession/depression will
affect us all thanks to the American government.
The Chinese governemnt recently accused the American government of stealing the world’s wealth which is true of course since the world deals with the American dollar, but that time is close to an end.
I’d also add my support for Ron Paul, this man is my hero and has been since I got to know him over a year and a half ago.

Posted by: Eric, Oct 28, 2008 03:51:26 PM

Ron Paul will be written in by MILLIONS of voters.

Posted by: Louis Nardozi, Oct 28, 2008 03:45:58 PM

Bravo! to Kimberly Palmer for including Ron Paul. I only hope more people will educate themselves on "why" he is correct.

Posted by: Paul U., Oct 28, 2008 03:34:29 PM

FROM OKLA A 2 BALLOT STATE: I WILL WRITE IN RON PAUL & while McCain tries to look for a way to win
he should remember that there was a more qualifed Repubican than him RON PAUL
Ron Paul was the first to speak out against the bail out. He predicted the crash over a decade ago (its docmented on you tube so Cramer shut up about donald trump’s perdiction ...he got his info from RP).
The other losers are the Republicans..but 65% percent deserve it due to their "DELEGATE" games.
They sowed dishonesty & cheating & they reaped OBAMA.
RON PAUL SHOULD BE APPOINTED SICKENING PAULSON’S PLACE. IF MCCAIN COULD GUARANTEE THAT, HE’D WIN NO DOUBT ABOUT IT.

SOME OF YOU PEOPLE STILL DONT GET IT THE UNDECIDED ARE THE RON PAUL PEOPLE ... DUMMIES

Posted by: chere, Oct 28, 2008 03:32:27 PM

American Citizens are definetely the losers of this one. Im glad you included Dr Ron Paul in the list of winners. He may be the only rightful benefactor of such an occurence.

Posted by: Jim F, Oct 28, 2008 03:07:03 PM

The biggest loser of all is the American people!!!

We’re the ones who have to pay for the darn thing while the Wall Street and political fat cats reap all the benefits. All the while our jobs are leaving by droves thanks to our government’s encouragement of outsourcing. So our debt is increasing (by the day) and jobs are leaving (by the day) and our tax-load is becoming a bigger burden.

If this situation does not change, and I fear it will only get worse, we will all be in a seriously troubled situation.

I’m seeing a systematic loss of our voice in our representation and it is a very very scary thing.

Posted by: Courtney, Oct 28, 2008 03:04:15 PM

The irony of it all is that Ron Paul & Co. have been dead on everytime. This quote seems to fit many of our leaders (dare i use that word!)& lawmakers very well:"commonsense ain’t that common."

Posted by: JJR, Oct 28, 2008 02:09:47 PM

MAXIDEX WARNING

I had eye surgery and in

Posted by: WEL, Oct 28, 2008 01:44:41 PM

I will also be writing in Ron Paul. He seems to be the only one with any sense, and the only candidate that had the ability to respond to a question without referring to a script.

Posted by: Daniel, Oct 28, 2008 12:51:11 PM

I will write in Ron Paul. They laughed and ridiculed him because of his common sense. They’re not laughing now. The losers? The United States of America. When you print money, you destroy the currency. When you destroy the currency, you destroy the country. We have no money. So they will print it. If I have one Babe Ruth baseball card, it’s worth a LOT of money. If I print 4 trillion Babe Ruth cards, they are worthless. You in the media better wake up! Fools. You’re all fools.

Posted by: xdream, Oct 28, 2008 11:43:31 AM

Bravo for Ron Paul.

Posted by: Marilyn, Oct 28, 2008 10:20:32 AM

I’m with you Jane. The biggest loser, no matter how you slice it will be the American people.

Posted by: Robert, Oct 28, 2008 10:01:58 AM

Does anyone know, or even question where the money for the bailout will come from? More than likely it will come out of the Federal Reserve, and guess what, all the people who own these PRIVATE banks will line their pockets with money from the interest that WE will have to pay out of our pockets. I found it kinds interesting that Bill Bernake was insistent that congress pass the bailout because he knew that once passed even he will get money from it. Afterwards, he said it would take 1 to 2 years for the economy to fix itself, what a bunch of baloney. People WAKE UP!

Posted by: Jesse H. , Oct 28, 2008 09:48:03 AM

My opinion is that the G20 should identify and prosecute the guilty before taking any reformatory actions. Clear out
the mud before the waters will run clear again!

"Rob Kirby, writing in LeMetropoleCafe on September 9, observed that there are laws and stiff penalties against market collusion.
The U.S. antitrust laws impose fines of up to $10 million and jail terms of up to 3 years for unfair practices that inhibit competition or monopolize
markets in restraint of trade. "I admire [Coxe’s] candor," said Kirby, "but my take on this is that all the perpetrators should face a firing
squad, or worse, for treason."8"

Link: http://www.webofdebt.com/articles/manipulation.php

THE NOT-SO-INVISIBLE HAND:
HOW THE PLUNGE PROTECTION TEAM
KILLED THE FREE MARKET

Ellen Brown, October 25th, 2008
www.webofdebt.com/articles/manipulation.php

“We’re now no different from any of those Western European semi-socialist welfare states that we love to deride. Italy?
Sure, it’s had four governments since last Thursday, but none of them would have allowed this to go on; the Italians know how to rig an economy.”

– Bill Saporito, “How We Became the United States of France,” Time (September 21, 2008)

Posted by: Robin Chase, Oct 28, 2008 09:27:03 AM

Losers? You forgot the American people.

Posted by: Jane, Oct 28, 2008 09:00:49 AM