Democracy could still theoretically function under these circumstances except for one important point. Those who fund the politicians either openly or covertly demand favors in return.

The second reason why the elite have so much influence over the legislators, is that to a politician, there is only one thing more important than getting elected, and that is getting reelected! Consequently, they enter politics eager to bargain for reelection campaign support which is required every two years. Once elected, politicians know that from that point on they must win favor of the moneyed interests who will eventually finance their reelections. And that is the bottomline. By using this leverage, the lobby community effectively purchases whatever favorable legislation it needs! Democracy, if you can call it that, goes covertly to the highest bidder!

The first voting system serves the public, the second serves the elite. Not surprisingly, the one that serves the elite is much more powerful because the lobbyists can vote daily, and they can seek specific and obscure minor changes to the wording and meaning of previous legislature that can greatly favor a special interest group, ...usually to the detriment of the rest of society. A good example of this was the lobbying carried out by the rich wine making Gallo family regarding an inheritance tax exemption that has since come to be known as the "Gallo Amendment". {B108} The reader can get a rough idea of the ultimate cost to the taxpayer in lost taxes, as a direct result of this family's successful lobbying, by reading the article "Before the loophole closes" on page 239 of the Oct 2 1989 issue of Forbes. {B109}

Another reason that the lobby system works so well and seems so firmly entrenched is that nowadays most politicians already have a few million dollars in personal wealth, and politics presents an opportunity to increase their social and economic contacts in order to multiply their personal wealth more rapidly.

Since the system's legislation clearly favors the richest 10%, and more specifically the richest 1%, it's evident that the elite have more effective power using their lobby voting system than the majority do using their tick on a ballot. In many ways, a tick on a ballot every few years has about the same effect as a tick on an elephant every few years.

Disguising the "Favors for Favors" Payoffs

The discouraging aspect regarding payoffs is that the variety of methods used to disguise an exchange of favors seem limitless. And while many methods used may be transparent in their function, and ethically despicable, few if any are illegal.

Quid Pro Quo In Action

No better example will serve to demonstrate the quid pro quo arrangement that underlies American politics than through an acquaintance with the circumstances surrounding the failure of a particular S&L, Lincoln Savings and Loan of Irvine California. First a brief introduction.

The S&L problems began in 1982 with the introduction of the Garn-St.Germain Act (introduced by Senator Jake Garn (R-Utah)), which had to do with deregulating the banking industry. Deregulation in a nutshell amounts to less regulation and less supervision. The first relaxation of regulations actually occurred in 1981, when S&Ls were permitted to offer variable-rate mortgages. In 1982 they were allowed to branch into business loans and into the funding of developers' real estate ventures. {B118} The relationships that soon evolved between developers and S&L owners amounted to real estate speculation teams. The speculation binge that resulted created an artificial boom that made billions of quick and easy profits for existing multimillionaires, before eventually going bust in a big way. Hell-bent on deregulation, the Reagan Administration even denied the Federal Home Loan Bank Board money to increase the number of its regulators.

And now to the Lincoln fiasco.

When Mr Charles Keating, a lawyer, purchased Lincoln Savings and Loan for $51 million back in 1984, it had assets worth 1 billion. In one of his investment ventures later that same year, Keating used Lincoln's federally insured S&L deposits to effectively make $30 million in "greenmail" profit involving a take over bid for Dallas-based Gulf Broadcasting Co. {B119} Then in 1985, Mr Keating hired none other than the present chairman of the Federal Reserve Board, Mr Alan Greenspan, to lobby government to allow diversification from home loans into direct equity investments. In fact, Mr Greenspan praised Lincoln as "a financially strong institution that presents no foreseeable risk to the Federal Savings and Loan Insurance Corporation". Mr Greenspan was successful. Mr Keating was virtually free to speculate directly. Mr Greenspan's lobbying had in effect pulled the cork. By October 1986 when San Francisco regulators first investigated Lincoln, the S&L already had unreported losses of $135 million. The regulators started putting pressure on Mr Keating.

At this stage Mr Keating first called in four of the five Senators (that would later come to be called the "Keating Five") to lobby on his behalf. The Senators, who were all recipients of Keating's generous campaign support, received the following: Senator Alan Cranston of California, $974,000; Senators John McCain of Arizona, $125,000; Dennis DeConcini of Arizona, $48,000; Senator John Glenn of Ohio, $234,000; and Senator Riegle of Michigan, $76,000. The first four Senators lobbied the Washington-based head of the Home Loan Bank Board, Mr Edwin Gray, on April 2 1987, in Senator DeConcini's office. Mr Gray, who later commented that the four senators "came at me like lawyers arguing for a client", refused to be bullied into submission and suggested that they deal directly with the San Francisco Bank Board regulators under whose jurisdiction Lincoln actually fell.

One week later, they did. But this time the four original Senators were joined by Donald Riegle, now Chairman of the Senate Banking,

{B108} "Gallos humor" Forbes (Oct 17 1988): p88
{B109} "Before the loophole closes" Forbes (Oct 2 1989): p239
{B110} "Frenzy on the Hill" Newsweek (Jun 12 1989): p20
{B111} "Heavy hitters of politics, 1988 edition" Forbes (Oct 24 1988): p72
{B112} "The rise and fall of special interest financing" Forbes (Oct 24 1988): p80
{B113} "Can you buy a congressman?" The Economist (Nov 18 1989): p25
{B114} "Can you buy a congressman?" The Economist (Nov 18 1989): p26
{B115} "Frenzy on the Hill" Newsweek (Jun 12 1989): p17
{B116} "Frenzy on the Hill" Newsweek (Jun 12 1989): p20
{B117} "Frenzy on the Hill" Newsweek (Jun 12 1989): p18
{B118} "The S&L mess - and how to fix it" BusinessWeek (Oct 31 1988): p131
{B119} Good timing, Charlie" Forbes (Nov 27 1989): p142