TIMOTHY NOAH FEBRUARY 9, 2012
When I read this morning that a provision in the House ethics bill had been dropped that would have required members of the political intelligence industry to register with the federal government, I had one question. What’s the political intelligence industry?
The bill in question, a version of which cleared the Senate last week 96-3 with the political intelligence requirement—sponsored by Sen. Chuck Grassley (R., Iowa)—intact, would outlaw insider trading by members of Congress. Grassley wasn’t pleased. “It’s astonishing and extremely disappointing,” Grassley said,
that the House would fulfill Wall Street’s wishes by killing this provision. The Senate clearly voted to try to shed light on an industry that’s behind the scenes. If the Senate language is too broad, as opponents say, why not propose a solution instead of scrapping the provision altogether? I hope to see a vehicle for meaningful transparency through a House-Senate conference or other means. If Congress delays action, the political intelligence industry will stay in the shadows, just the way Wall Street likes it.
I agree, and I don’t even know what the damn thing is!
It turns out that the political intelligence industry is something that sprang up as a way to convey inside information to hedge funds and mutual funds. Although it’s illegal to trade on the basis of inside information about public companies, it’s perfectly legal, in most instances, to trade on the basis of inside information about stuff the government does. So these hedge funds and mutual funds (and, to a lesser extent, other Wall Street investors) hire “expert network” companies like Gerson Lehrman, Coleman Research Group, Inc., and Public Insight LP to tell them the latest on what Washington will or won’t do, and when. The expert network firms operate worldwide collecting all kinds of information for investors, but lately they’ve been ramping up their activities in Washington. An Oct. 4 story in the Wall Street Journal reported that the political intelligence industry employs about 2,000 people in D.C. and generates about $100 million in annual revenue, according to Integrity Research Associates LLC, which “evaluates investment-research firms.” The political intelligence industry is sufficiently mature to have spawned another industry to to keep track of it!
The Journal piece profiled Paul Equale, a 60 year-old former lobbyist and onetime Energy department official who does some consulting for Gerson Lehrman, the biggest expert-network firm. (Most of Gerson Lehrman’s experts, including Equale, are contractors rather than employees.) Equale bills Gerson $600 an hour for passing along inside information about what the government is up to. “It’s put my kids through college,” he told the Journal. In 2010, for instance, the financial services industry hired him to track a provision in the Dodd-Frank financial-reform law sponsored by Sen. Dick Durbin, D.-Ill., that required Visa and MasterCard to stop ripping off retailers with sky-high fees on debit-card purchases. So Equale paid $1000 to attend a breakfast fundraiser for Senate Majority Leader Harry Reid that Durbin attended. Durbin (who told the Journal he didn’t remember the conversation) told Equale that he’d managed to win support for his amendment from Rep. Barney Frank, D.-Mass., then financial services committee chairman, who had opposed it previously for fear it would hurt small banks. That cleared the path for the Durbin amendment to become law. Equale shared that information with several hedge fund analysts that had hired him through Gerson.
Like a lot of very pricey services in Washington, Equale’s appears in this instance to have been useless, since the markets had already concluded, even without knowledge of Frank’s conversion, that some version of the debit-fee restriction was bound to pass. There is, after all, already a vast corps of journalists in Washington (some of them working for the Journal) who spend all day running around the Capitol trying to find out what’s going to happen to various bills. Many of these journalists are young people working for highly-priced trade publications that collect detailed information on specialized topics of interest. The two main differences between what they do and what Equale does are
a.) What they earn isn’t enough to pay off their own college loans, let alone put their future children through college;
b.) Digesting the information they provide requires a hedge fund manager to read, an activity increasingly frowned upon in our culture.
As journalism and the habit of reading decline, it seems entirely possible that political intelligence will develop into a billion-dollar industry. People will still need information about government affairs, after all. But this information may become a luxury commodity for the very rich rather than something ordinary citizens consume by reading newspapers and magazines or listening to the radio or watching the evening news. Demand for all these mediums has dwindled, and the rise of the Internet doesn’t appear to have taken up the slack. Politicians, meanwhile, who after all have limited time on their hands, may increasingly wonder why they should spend any of it talking to a mere reporter when they can talk instead to a political intelligence consultant who just might reward the favor with a fat campaign contribution.
So, yeah, lets figure out a way to keep track of these guys. They may be coming for my job.