Jeff Connaughton’s “The Payoff: Why Wall Street Always Wins” – A Book Review

My Forbes column on Tuesday September 4 is a book review of The Payoff: Why Wall Street Always Wins.

Jeff Connaughton has written a memoir of his twenty-plus years working for Senator, and now Vice President, Joe Biden. Jeff is a lot like the Democrats I know here in Chicago –  a “Professional Democrat”, life long, practical and unswerving in their loyalty to what used to be the “machine” but is now just the struggling status quo. Jeff became a very successful Washington DC  lobbyist who eventually sought answers, and pushed for reforms, as Chief of Staff for Biden’s replacement when he left for the White House, Senator Ted Kaufman.

Jeff’s book is a must read during this election season. He gives a full, highly textured look at Joe Biden. He also critiques the lobbyist life and the corruption endemic in Washington as a result of the lack of campaign finance reform and the Citizens United decision by the Supreme Court.

I listened to an interview with Chicago Mayor Rahm Emanuel on PBS this past Wednesday night during the Democratic National Convention. Gwen Ifill commented, “There’s a lot of conversation about whether these super PACS are what’s wrong with the process.”

Listen to the Mayor’s answer:

Jeff talked to me over the Labor Day weekend about the lobbying and campaign money influence of the auditors.

I asked him about the bi-partisan lobbying by the audit industry and the corrupting influence on true financial reform of the industry’s money. The auditors spend money well and strategically for themselves and their clients’ interests. Connaughton agreed.

Academics will tell you they can’t prove a correlation between campaign contributions and legislative positions on issues.

My experience, however, is that the accounting industry – because it has so many partners who have disposable income and who are geographically ubiquitous, i.e., in every state and congressional district – is one of the most powerful fundraising machines in Washington when it gets behind a specific reform it wants (or gets in front of a provision it wants to block). It certainly was in the PSLRA reforms. The big accounting firms have gigantic PACs and, yes, they focus their fundraising efforts and revolving-door hiring practices (both internally and at the lobbying firms they hire) on key leadership positions in the Senate and House and on the banking and financial services committee (on both sides of the aisle).

As I say in the book, all of this strategically planned fundraising and lobbying effort assures that the accounting industry is well positioned at every lever of power, either to promote their interests or to squelch a provision that threatens their status quo.

I also asked Jeff about the auditors role, in general. His book has more mentions of the auditors and their role in the regulatory process, although not by name or related to a specific case, than any other post-crisis book I’ve read.

In Congress we couldn’t play the role of prosecutor. Our oversight role was limited, as I discussed in the book. (We didn’t get into the facts or allegations of any specific cases). The larger themes of the book about Washington’s systemic failures were more important to me than trying to point fingers. On the other hand, I relied on the bankruptcy examiner report in Lehman and the Permanent Subcommittee on Investigations report on WaMu to show that when competent, independent fact finders look at what happened in the financial crisis, they found evidence of fraud.

I suppose I could have spent more time on Ernst & Young’s role in the Lehman case, like we did in Ted’s first rule of law speech and on WaMu’s auditor (Deloitte). It’s a good point. I’m not as auditor-centric as you, even though I start the prologue by saying I was stunned in Costa Rica because I still believed we had a system based on full disclosure and independently audited financial statements as policed by the SEC.  The failure of accountants to play their gatekeeper role could have gotten more ink, in retrospect.

Read the rest of the review, and my interview with Jeff, here.

Main page photo credit: “An Andy Warhol acrylic and silkscreen ink on canvas “Dollar Sign,” given by the artist to the model Jerry Hall in 1982, sold at auction for 217,250 pounds. The work, inscribed “To Jerry,” was offered by Hall at a Sotheby’s sale of contemporary art in London on Oct. 15, 2010, with an estimate of 120,000 pounds to 150,000 pounds.” Photo: Sotheby’s via Bloomberg.