Wall Street money has small effect on skittish Congress

WASHINGTON (Reuters) - Money usually talks. But this time, the millions Wall Street lavished on the U.S. Congress to avoid financial reform got shouted down by angry voters who hold bankers and traders responsible for their own financial troubles.

Securities and investment firms, commercial banks, insurers and others with a material stake in reform have spent over $286 million lobbying Congress since the financial reform debate began in earnest in the House of Representatives last summer.

Financial interests also poured $56 million into the election coffers of House and Senate members in that time. Just under half of that went to Democrats, who control the two chambers.

But with the U.S. unemployment rate just below 10 percent and the economy still limping, analysts say Wall Street money is proving unusually ineffective among members of the Senate and House whose constituents are angry at incumbents and financial fat cats.

"It's likely another bad investment. When there's a broad national mood, money's often unable to negate it," said Norman Ornstein of the conservative American Enterprise Institute.

The mood on Capitol Hill bodes ill for Wall Street's interests as the sweeping overhaul of the U.S. financial industry makes its way from the Senate toward a final passage by both chambers of Congress and President Barack Obama's signing desk.

The bill the Senate approved last week contains a long list of items financial lobbyists have in their sights.

Chief among their targets are provisions to police the $615 trillion high-risk over-the-counter derivatives market by imposing more accountable trading channels and requiring banks to spin off their swap-trading desks.

Lobbyists also hope to weaken Senate measures that would ban banks from risky trading unrelated to customers' needs, impose tougher consumer protections on credit card firms and mortgage lenders, and empower a special council to attack systemic risk by tightening regulatory restraints on banks and other financial institutions.

The reforms could take a big bite out of bank profits. Veteran banking analyst Richard Bove said last week that the reform legislation could lower the earning capacity of the industry by about 25 percent.

Wall Street and other corporate lobbyists have put on a brave face, vowing to defend their interests in a conference committee that will hammer out differences between the Senate bill and a House version that passed last December.

POLITICS TRUMPS MONEY?

The U.S. Chamber of Commerce, which expects to spend $3 million lobbying against financial reform, vowed to fight the unacceptable measures all the way to the regulatory level and possibly in court.

But lawmakers hope to vote on reconciled legislation that Obama can sign into law before July 4.

"This may be a case where politics trumps the money," said Sheila Krumholz, executive director of the non-partisan Center for Responsive Politics, which compiled the lobbying and campaign finance data contained in this story.

"Money doesn't win the day every day. But that doesn't mean anybody's going to stand down any time soon. There's too much evidence of return on investment for playing the Washington game. But members of Congress are red-alert nervous this year and had to do something to put the reins on Wall Street."

All 435 House seats and 36 of the 100 Senate seats are up for election in November.

Obama and other Democrats have cast the congressional race as a contest against Wall Street in order to capitalize on voter anger over the financial industry and its role in the biggest U.S. economic slump since the Great Depression.

As a result, lobbyists say getting Wall Street's case across to decision-makers on Capitol Hill has become a frustrating task.

"People are taking our meetings and still talking to us. But at the end of the day, look what ends up happening? It's difficult," said one lobbyist who asked not to be identified.

As for the conference committee, lobbyists expect little change from the atmosphere of the Senate debate, especially if Democrats make good on a pledge to televise the proceedings.

"The Senate process was more about producing political sound bites than having a genuine debate," complained David Hirschmann, who leads the U.S. Chamber's Center for Capital Markets Competitiveness.

(Editing by Eric Beech)