by David Nuttle

Created on: February 23, 2009

It is generally understood that political payola is undertaken by wealthy special interests making large, sustained campaign contributions (to selected Congressmen, or state legislators) to effectively "buy" influence and votes as needed to create, support, and/or sustain legislation favoring that special interest. As a matter of practice, political payola may also be in the form of expensive gifts, free trips, special rewards, sexual favors, and other incentives used to persuade politicians to vote on legislation (or promote/ defend legislation) that will benefit the provider of any specific political payola contribution.

Every so often imbalances, created by use of political payola, become widespread and harmful, and the public will then demand an end to all the political payola. New legislation is passed, or once again passed, to make it seem that our Congressmen or state legislators have taken action to end political payola. Each time, however, there are always new and more creative "loopholes" provided (in the legislation) to allow political payola practices to continue. Politicians never do well at self-regulation, and very few are really willing to end practices that bring them easy campaign dollars as well as a long list of other benefits.

In 1999, several bankers and home mortgage providers paid U.S. Senator Phil Gramm a $1 million bribe to sponsor, promote, and help pass legislation to end most regulatory and reporting practices for the home mortgage industry, and other major lenders. (See the Gramm-Leach-Bliley Financial Modernization Act, of 1999). This new legislation effectively made predatory lending legal, and thereby created the basis for the subprime home mortgage crisis that will eventually cost taxpayers more than $1 trillion. This is only one example, of dozens of similar political payola incidents causing major damage to the U.S. economy.

The following year, 2000, the bankers gave U.S. Senator Phil Gramm more political payola to promote passage of the 2000 U.S. Commodity Futures Modernization Act to effectively remove all restrictions from the derivatives industry. As a result, derivatives were allowed to become an unusual combination of insurance, gambling, and high stakes bookmaking designed to make "junk" securities attractive to investors. Banks and home mortgage lenders were thus able to create and "bundle" thousands and thousands of highly risky subprime loans, and then sell this "junk" to investors as AAA rated "collateralized debt

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