In February 2007, one of the nation’s oldest law firms — Cadwalader, Wickersham & Taft — reported over half a billion dollars in revenue for the previous year and an industry leading profits per partner of $2.9 Million.
The firm’s chairman, Robert O. Link, was bullish on the future: “Are we going to have difficulty sustaining this? No, short of some cataclysmic event that hits everyone else too.”
As the New York Law Journal reported at the time:
The engine of the firm is its asset-backed structured finance practice. Link made his name in the area and still serves as the firm’s practice leader. It is a specialized area that, in its most basic form, involves the issuance of tradeable securities tied to fixed assets or revenue streams, most commonly residential mortgages.
It is not generally regarded as a premium practice area like [mergers & acquisitions] or high-yield bond offerings, and some have questioned how Cadwalader could have achieved such impressive results from that foundation…. The head of another New York law firm described securitization as a high-volume “commodity” practice, an area top firms avoided because of their inability to command premium rates in it.
“Somehow they’ve managed to make a success of it,” he said of Cadwalader.
On Monday, March 24th, 2014, Kentucky’s 6th District Congressman, Garland H. Barr IV, will be in New York City for a Wall Street fundraiser hosted by Cadwalader’s partners.
You are cordially invited:
The cost of the economic collapse spiraled into the trillions. Millions of average Americans lost their retirement money and their homes. At Cadwalader, Wickersham & Taft over 200 Wall Street lawyers were forced from the firm. [link, link]
While most Americans struggled to understand what had happened, the lawyers at Cadwalader had a pretty good handle on it. The mortgage backed securities industry had led the nation into financial ruin. When the Troubled Asset Relief Program (TARP) was passed in the waning days of the Bush administration, the Treasury Department contracted Cadwalader, Wickersham & Taft to provide legal services in the administration of the bailouts.
At the time of its TARP work, Cadwalader’s current and recent clients included such major TARP recipients and beneficiaries as Bank of America, Citigroup and AIG. [link]
In a 2008 BusinessWeek story about Treasury’s choice of double-dipping firms — ones that played both a role in the financial collapse and in the plans to administer the TARP bailouts — a Cadwalader lawyer puts it simply: “What’s the cost of hiring people who are less competent to do the job?”
So far, Cadwalader has earned somewhere between $23 million and $27 million for its TARP work. They’ve got contracts running thru August 2015. [link]
When the Congressional Oversight Panel requested testimony from Cadwalader in 2010 on its TARP work, Cadwalader and Treasury declined the request and Treasury ultimately blocked public testimony, citing attorney client privilege. [link, link, link, link]
But what about Garland H. Barr IV, the 6th District Congressman from the great state of Kentucky?
Why are Cadwalader’s partners holding a fundraiser for Andy Barr in their Wall Street headquarters?
Part of the reason is clearly indicated on the invitation. Let’s look at it again:
As you see, Andy Barr is a member of the House Committee on Financial Services.
Aside from its continued interest in collecting TARP funds, Cadwalader, Wickersham & Taft has an interest in the efforts to regulate and reform Wall Street.
For example, Cadwalader is opposed to the SEC’s current examination of the repo agreement market, a $4.5 Trillion web of deals that could, in an economic panic, unravel. As Bloomberg reported this past week:
U.S. regulators concerned that banks and brokerage firms remain too dependent on risky types of short-term funding are weighing new rules designed to reduce reliance on parts of what is often called the shadow banking system.
Cadwalader’s current co-chairman told Bloomberg the risk of default is “exponentially less” than in the housing market — which would be more reassuring had they foreseen the risk in the Housing market… but they didn’t.
Cadwalader appears to have a larger interest in overriding and undoing the Wall Street Reform and Consumer Protection Act. That law includes protections for consumers and at least a groundwork for protections against a recurrence of the kind of reckless trading that created the “Great Recession.”
In particular, Cadwalader — and Wall Street at large — is fighting against the Volcker Rule, a part of the Wall Street Reform and Consumer Protection Act which prohibits banks from engaging in certain kinds of speculative investments.
A month ago, Andy Barr began pushing HR 4167 through the House and through his own Financial Services Committee. The bill would, as Cadwalader’s website puts it, “amend the Volcker Rule to exclude certain collateralized loan obligations (“CLOs”) from the prohibition against a ‘banking entity’ (essentially a bank or any affiliate of a bank) acquiring or retaining an ownership interest in a hedge fund or private equity fund.”
The Big Banks and their Wall Street allies claim that the Volcker Rule’s effect on CLOs would crush their industry. Writing in the New York Times earlier in March, ProPublica’s Jesse Eisinger explored this debate and found that claim suspect.
[C.L.O.] stands for collateralized loan obligations, which are bundles of loans, usually made to junk-rated companies. They use the same techniques as collateralized debt obligations, which were often made up of subprime mortgage investments and were the rotten core of the financial crisis. C.L.O.s caused billions in losses for banks during the market panic of 2008, but most recovered strongly and memories faded. Junk-rated companies rallied, and C.L.O.s roared back.
The banking industry and its supporters like to talk about the CLOs strictly in terms of small community banks. Yet, as Eisinger’s notes, 71% of the CLO market is controlled by three “too big to fail” institutions — JP Morgan Chase, Citigroup and Wells Fargo.
When Barr’s bill on CLOs went for a hearing in front of the House Financial Services Committee, one professor explained its cons and four industry leaders argued for the CLO exemption — including a leading partner at Cadwalader, Wickersham & Taft, who testified on behalf of and representing the Structured Finance Industry Group.
The Structured Finance Industry Group was established just last year to educate “members, legislators, regulators, and other constituencies about structured finance, securitization and related capital markets” and so forth. Its members and its Board are, well, basically the Too Big To Fails and the rest of Wall Street. (Cadwalader has joined Republicans since the earliest implementation’s of Dodd-Frank in arguing for delays, rollbacks and repeals of the consumer and financial protections law.)
Whether Monday’s fundraiser at Cadwalader is a chance for the firm, its partners and its friends to say “Thank you” for Barr’s support or to just fill him up on money so he can do it again next time, what is clear is that Barr’s desire to leave Kentucky and fill up on Too Big To Fail Wall Street Money is nothing new.
As the New York Times reported last August:
Representative Andy Barr, a Republican from Kentucky with little experience in the intricacies of Wall Street, was among the lucky House freshmen to secure a seat on the powerful Financial Services Committee.
….Mr. Barr, 40, a first-time elected official, has raised nearly as much money this year from political action committees run by major banks, credit unions and insurance companies as longtime lawmakers like Speaker John A. Boehner and other party leaders.
The flood of financial industry cash — $150,000 in political action committee donations to Mr. Barr in just six months — is hardly an accident.
And as the Herald Leader added:
It remains to be seen how much influence Barr can bring to bear on his colleagues, but so far it seems he’s worked fairly hard to prove his worth.
He has pledged to help protect a $500 million tax break for credit unions. Barr also has introduced a bill to remove a federal regulation to prevent banks from making mortgage loans to people who cannot afford to repay them.
Barr invokes the all-purpose mantle of government over-regulation stifling business to criticize rules aimed at preventing the type of mortgage boom and bust that almost brought down our economy in 2008 and 2009.
And as discussed here at B&P back in February, Andy Barr’s ties to the financial services go well beyond the private firms and Too Big To Fail Banks on Wall Street. His trip last summer to Texas with five other members of the House Financial Services Committee under the apparent wing of the Committee’s Chairman, Jeb Hensarling, raked in cash from a host of payday lenders, mortgage bundlers and other more remote financial actors who would all like to see a less regulated, more shadowy financial industry — that is, one that looks more like the Wall Street that nearly destroyed America six years ago.
Hensarling is an acolyte of Phil Gramm, the Texas Senator whose 1999 law created the Bank/Investment Firm nexus that lead to financial ruin. Now head of the Financial Services Committee, Hensarling’s pushing for re-deregulation, and Barr appears to be right at his side.
The fundraiser at Cadwalader, Wickersham & Taft on Monday will no doubt be lucrative for Garland. But perhaps the better question is: How lucrative will it ultimately be for Cadwalader, Wickersham & Taft?
It’s perhaps also worth noting that in January, Cadwalader announced their next chairman — James C. Woolery. He joined the firm in 2013 and will assume the helm in 2015:
[Woolery] moved to help Cadwalader continue rebuilding itself after the financial crisis, when the firm’s lucrative business of advising on complex debt offerings dried up. The collapse of the market for mortgage securitizations, in particular, led to a big wave of layoffs.
Woolery’s a graduate of the University of Kentucky Law School (’92) and a distant cousin of noted conservative economist and game show host Chuck Woolery.