Bloomberg: Former SEC Chair and Current Lawyer for the Mega Banks Helped Mold Dodd-Frank

Washington is a place where influence can move mountains and make one millions.

In this fantastic bit of journalism from Robert Schmidt and Jesse Hamilton at Bloomberg we get a view into the emails exchanged between the head of the Security and Exchange Commission, Mary Shapiro; her deputy and general counsel for the SEC, David Becker; and one of the most powerful lobbyists in Washington, DC and former SEC Chair, Annett Nazareth, as the commission figured out how it would implement the massive Dodd-Frank financial law.

How a law is enforced by the pertinent agency is nearly as important as the law itself. The banks understand this all too well and made sure that on Dodd-Frank their point person was on it. Who better to hire than the former head of the SEC itself, to make sure nothing went too awry as Mary Shapiro and company worked things out with the law?

Would stock brokers have to adhere to fiduciary guidelines? What would the new “consumer protection agency” look like? Important questions and the financial industry had desired answers to these questions. Ms. Nazareth was to make sure the feelings of the banking industry were understood.

According to the emails she did a pretty good job, meeting often with decision makers at the SEC at the highest levels.

In fact Nazareth’s law firm provided an annotated version of the Dodd-Frank bill to the SEC as the agency worked through the language initially.

Nazareth… represents the biggest banks and securities firms as a partner in the Washington office of Davis Polk & Wardwell LLP. She attached an annotated copy of the measure to her June 27, 2010, e-mail, marking changes made during the wee hours. It could be an invaluable tool for an agency hard-pressed to analyze the bill on a tight deadline.

“In case you would find it helpful,” Nazareth wrote to the group, many of them ex-colleagues.

Two hours later, SEC Chairman Mary Schapiro responded: “Thanks. We have our work cut out for us.”

An annotated “cheat sheet” provided by a representative of the banking industry was used by the most important banking regulator to interpret banking regulations.

Let that sink in.

But that was just the start of the Dodd-Frank adventure for Nazareth.

Nazareth and her colleagues at Davis Polk played a central role as the financial industry shaped its Dodd-Frank priorities, helping write more than 80 comment letters to regulators. The firm’s clients, including Sifma, JPMorgan Chase & Co. (JPM) and Bank of America Corp., targeted rules such as the so-called Volcker ban on proprietary trading, arguing it could create excessive burdens on banks, choke off business and hurt the economy.

The Volcker rule has yet to be completed, along with other key Dodd-Frank components such as swap-trading and mortgage regulations, meaning the success of the banking pushback won’t be fully measured until next year at the earliest.

To be clear, through Nazareth, the banking industry was molding and manipulating the new financial laws to their benefit where they could. It’s all entirely legal of course. Ethical? Well you know it’s not ethical. They know it’s not ethical. But this is the game.

And Nazareth is a player. And everyone knows that a player needs to know how to party. She hosts one of the best Christmas parties around.

Nazareth is married to former Federal Reserve Board Vice Chairman Roger Ferguson Jr., now chief executive officer of TIAA-CREF, the manager of retirement funds for employees of nonprofits. Some e-mails refer to a party they host during the December holidays, where regulators and lawyers mingle.

In one note, Nazareth jokingly told Becker, “We expect Greenspan to lead us in a sing-along,” referring to former Fed Chairman Alan Greenspan. When Becker gave his regrets for her 2010 party he noted that, “In truth, I enjoy your holiday parties very much, not to mention seeing the host and hostess. It’s the only place I get to see famous economists.”

Can you imagine it? Benanke and Greenspan filled with holiday cheer arm in arm swaying back and forth by a roaring fire while singing Auld Lang Syne. And who is that under the mistletoe? Why it’s professor Krugman! Get in line ladies.

Regulators and bankers coming together over gingerbread and brandy. Isn’t that really what the holidays are all about?


But Ms. Nazareth is no lobbyist. No sir. That would put certain restrictions on her work. She is a lawyer, not a “door opener.” She insists.

Lobbyists try to influence legislation and win favor for their clients. Lobbyists try to woo regulators with lavish parties. Definitely not what she does.

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