Banking Law

I've Looked At Work From Both Sides Now

The headline of this article from Saturday's The Washington Post is enough to make most of the American public "hurl": Wall Street Decamps to K Street for Work on Bailout.

The details about  "an army of accountants, financial advisers, asset managers, lobbyists and others descending on Washington as part of the government's attempts to rescue the economy and bail out industries" only add to the amount of acid accumulating in the taxpayer's stomach.

Big consulting firms like PriceWaterhouseCoopers and Ernst & Young have booked extended-stay apartments and blocks of hotel rooms. Out-of-town financial experts are scouting for office space, expecting to lease it for several months as they help do work for Treasury and others.

Commercial real estate brokerage companies have pulled lawyers and salesmen who usually put together deals on downtown offices to work out loans and foreclose on properties. Some have dubbed themselves the "TARP team" after the Treasury's Troubled Asset Relief Program created to sort through assets.

"Everything from the policies, the regulations, to the money and the contracts to do the work will be emanating out of Washington, so people want to be here," [Holland & Knight attorney Larry] Wolk said. "Wall Street has moved to K Street

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"Firms see this as a potential gold mine," said Anirban Basu, an economist and chief executive of Sage Policy Group in Baltimore. For Washington, "that has to translate into business sales, high-powered restaurant meals,business suit purchases, and travel and luxury hotel stays. We often talk about D.C. being different economically than the rest of the country and this is perfectly true. I don't see much evidence of a slowdown here."

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With rates starting at $300 an hour, Huron Consulting Group, a Chicago-based financial management and consulting firm, said it counsels banks and mortgage companies with distressed assets on how to navigate TARP and the bailout.

"Things are moving very fast," said Tim Hart, a vice president at Huron, which has 1,500 employees across the country with about three dozen focused on the bailout and economic crisis. "Regulations are coming out. People are trying to sort through it, and they're asking us to do financial modeling of their balance sheets. What are the impacts if you're a bank or an insurance company considering taking money from TARP?"

There?s no question that the government needs massive amounts of assistance from the private sector in dealing with these types of troubled assets, and that the ?Wall Street? lawyers, accountants, investment bankers and others profiled in this story are perhaps best qualified to render that assistance. Moreover, if you?re a business that wants to render assistance to, or to buy assets from, the government, you naturally want legal, financial, and due diligence assistance from experts in the type of assets, and in the government program requirements, that are involved. The same people who aided ?the Evil-Doers? are the some of the best qualified people to aid you. Nevertheless, the laid-off, stressed-out, auto worker or former Wachovia bank teller, and even Mr. and Ms. Joe Six-pack, are going to think that this is all part of the same old D.C. daisy chain of big biz and ?guh?ment? lining their own pockets as they scratch each others backs and leave the ?little guy? out in the cold, to pay for all of this mess with tax dollars. Frankly, there?s little that I see the government or the contractors can do to dispel that view, whether or not there?s a kernel of truth in it.

Inasmuch as any contractor or adviser will be vilified by the masses for pumping milk from the public udder no matter what he, she, or it does, they might as well make sure that they?re sailing the best financial course for the long haul. In that vein, working for the government may impose some nasty conflicts-of-interest rules on the contractor that go far beyond those imposed by professional rules of conduct.

[A]s Am Law Daily writes today, the conflict rules are onerous: both firms agreed not to represent any bank or financial institution that Treasury buys assets from as long as Treasury owns equity in that institution. Experts, writes Am Law Daily, have estimated the capital purchase program may involve as many as 2,500 financial institutions.

Of course, those overbearing conflicts-of-interest rules are no more onerous than those that have been imposed by the FDIC as a matter of course for decades ("If you represent us anywhere in the system, you can't oppose us anywhere in the system"). Writers who aren't that many years removed from law school have no memory of prior meltdowns, so it's all news to them. Reagardless, anyone thinking of representing the government this time around must consider that aspect carefully before deciding which way to jump.

Luckily, those of us at BLB sold our souls to the dark Side of the Force eons ago, so we'd never be tempted to flack for the good guys.

Full post as published by Bank Lawyers Blog on November 10, 2008 (boomark / email).