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.
Goldman has spent much of its money on hired guns from major Washington lobbying firms, including former Senate Majority Leader Trent Lott (R-Miss.) and former House Minority Leader Richard A. Gephardt (D-Mo.).
But though some companies opt for big names to head their Washington operations, Goldman chose a nearly anonymous, behind-the-scenes player.
Paese spent about 16 months as deputy staff director of the House Financial Services Committee before leaving in September 2008 to lobby for the Securities Industry and Financial Markets Assn., a Washington trade group of which Goldman is a member.
About a year later, as Congress was beginning to work on the financial regulatory overhaul, Paese joined Goldman to run its expanding Washington office. The move led his former boss, Rep. Barney Frank (D-Mass.), who was chairman of the Financial Services Committee at the time, to extend a one-year ban on Paese’s lobbying the committee by another year.
Goldman declined an interview request for Paese and defended its lobbying growth.
“We have an obligation to participate in the political process. We aim to participate constructively with regard to issues affecting our clients and our businesses,” spokesman Stephen Cohen said.
The aversion to public attention was evident last summer.
When animal rights activists began protesting loudly outside Paese’s home because of what they said was Goldman’s financial connection to a research lab that performs tests on animals, the company did what it has a reputation for doing on Wall Street.
It played hardball.
Goldman obtained a court injunction that squelched the protesters’ chants of “blood money” and charges of aiding the torture of puppies.
“It is very scary when a multinational financial giant comes at you with a legal team of four lawyers in court,” said Adam Ortberg, 29, of Defenders of Animal Rights Today and Tomorrow. “It’s very intimidating.”
The group had protested outside the offices and homes of Washington executives of other companies without being sued, Ortberg said.
Paese, who holds a law degree from Notre Dame, has a reputation among congressional staffers and lobbyists as being exceptionally smart. He did an earlier stint as a Financial Services Committee staffer from 2001 to 2002 before working in the financial industry, including at Mercantile Bankshares Corp., a regional bank based in Baltimore.
Although he couldn’t directly lobby his former colleagues on the committee during most of the financial overhaul debate, Paese still had the background to be effective, said Dave Levinthal of the Center for Responsive Politics.
“You know the issues, you know the players, you know the operation, you know how the game is played,” he said of well-connected staffers. “A coach can still have a lot of influence on the outcome of the game, and the same principle holds true in the lobbying world.”
Paese’s team includes five in-house lobbyists who worked as staffers to key members of Congress. Such expertise is important, and Paese can back that up with a stable of outside lobbyists who also served as staffers or lawmakers themselves, Mierzwinski said.
“Somebody who worked on the inside, you know how the committees work, you know all the players,” he said. “That’s important information to know.”