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Goldman Sachs flexes its lobbying muscle

The investment bank has bolstered its Washington presence significantly, turning a low-key lobbying operation into a sophisticated, high-powered enterprise led by a well-connected former congressional staffer, Michael Paese.

July 05, 2011|By Jim Puzzanghera, Los Angeles Times
  • A pedestrian passes in front of 200 West Street, which houses the headquarters of Goldman Sachs Group Inc., in New York City.
A pedestrian passes in front of 200 West Street, which houses the headquarters… (Scott Eells / Bloomberg )

Reporting from Washington — Facing the wrath of the public and the government after the global financial crisis that hit three years ago, Wall Street titan Goldman Sachs Group Inc. has opened a new front for its aggressive business tactics — the nation's capital.

Increased federal oversight and the threat to its lucrative investment bank business from investigations and pending regulations have led Goldman to bolster its Washington presence significantly, turning a low-key lobbying operation into a sophisticated, high-powered enterprise.

Last month, for example, the company began fighting back against the results of one of those probes, a bipartisan Senate investigation that criticized Goldman for profiting from the real estate crash by making huge bets against the subprime mortgage market.

Goldman has told investigators the report overstated its investments and misstated its profits. The company has even floated some of the criticism to media outlets.

Going public is a departure from Goldman's usual, under-the-radar style. Befitting a firm that abhors the spotlight, Goldman has developed a stealthy Washington lobbying operation led by a little-known but well-connected former congressional staffer.

"The only thing that's transparent about their lobbying is their expense reports," said Ed Mierzwinski, who went up against Goldman during the financial overhaul debate last year as a lobbyist for the U.S. Public Interest Research Group. "To the extent that you can glean anything from those, they're spending a lot of money."

Operating from offices a stone's throw from the U.S. Capitol, Michael Paese, 43, leads a Washington team that spent $4.6 million lobbying the federal government last year, more than any other company in the securities industry, according to the Center for Responsive Politics, a nonpartisan organization that analyzes the influence of money in Washington.

Goldman's lobbying expenses were four times what they were in 2005, when the firm was sixth in industry spending in Washington, behind such companies as Morgan Stanley and Charles Schwab Corp.

And Goldman is on pace to set a new high this year after spending $1.3 million on lobbying from January through April, according to its most recent disclosure statement.

A key reason is that government officials are creating rules to implement the massive overhaul of financial regulations passed into law last year. Goldman and every other financial firm have a stake in the rules because their bottom lines are likely to be affected.

The shifting regulatory landscape has forced Goldman to become more engaged in Washington. The company already was known for its generous campaign contributions and a knack for placing former executives as Treasury secretary and in other powerful Washington positions, prompting the nickname "Government Sachs."

Now, under Paese, Goldman has developed what a former Senate staffer described as a "very sophisticated" lobbying operation.

Goldman rarely has gone public with its positions — even as federal agencies draft hundreds of rules this year — preferring to let trade groups such as the Securities Industry and Financial Markets Assn. highlight key issues.

The company almost never circulates documents outlining its views, except on the rare occasions its executives testify before Congress.

But by many accounts, Goldman has become an influential, behind-the-scenes player in Washington. Its quiet lobbying, for instance, is widely believed to have helped water down some key provisions of the financial reform law that would directly affect its business.

Those provisions include a broader exemption for the continued use of some unregulated financial derivatives and a weaker ban on so-called proprietary trading — known as the Volcker Rule — to allow Goldman and other banks to invest up to 3% of their capital in hedge funds and private equity funds that have been huge money-makers for the industry.

Several current and former congressional staffers described the company's way of spreading influence but did not want to be quoted for fear of crossing it.

Goldman often sends top officials to Washington to meet privately with lawmakers and regulators. For example, its executives have held 55 separate meetings with staff at the Commodity Futures Trading Commission alone since last summer as the agency works to craft new regulations covering the complex financial derivatives that are Goldman's lifeblood.

The securities industry overall has boosted its spending over the last five years as well. But Goldman's increase far outpaces the industry's. The company had eight in-house lobbyists and 41 outside lobbyists in 2010, compared with five in-house lobbyists and 31 outside lobbyists in 2005, according to the Center for Responsive Politics.

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