During a Budget Subcommittee on Health and Human Services Appropriations meeting today, Negron, the chair of the committee, said that social services in the state are not “services,” but are financial “investments.”

Negron, R-Palm City, said that programs such as Head Start, which he referred to as “soft social services,” should be treated like investments. ”They are like Goldman Sachs,” he said.

Negron, who is a key player in deciding which public programs receive funding, said he was skeptical of services that did not provide “hard” services, such as “fixing broken bones.” He asked the committee to take a hard look at these social services and evaluate whether they are worthy investments.

Negron cited Head Start and D.A.R.E as examples of services that do no have a good return on investment. He mentioned a study that says students in D.A.R.E. programs eventually end up taking more drugs than students who do not go through the program. He said he did not want to continue spending money on those types of programs just because it “makes us feel good.”

“The idea that we can crowd people into a space and indoctrinate them with ideas, make it exciting, make it noisy, have shirts, have balloons and your child has been baptized and is now drug-free … I wish it were true,” he said. “I wish that was the way life worked, but it isn’t the way life works.”

Public health spending saw big cuts this past year. In particular, services for women and children are suffering through a significant reduction in state funding.

Negron said that in the months to come, the committee should make sound financial decisions about the state’s social services.

The poll, conducted by Zogby International and commissioned by the business-led Committee for Economic Development (CED), surveyed 301 business leaders and presents a somewhat counter-intuitive look at their opinions of the current state of nondisclosure in the political campaign finance system. Highlights pointed out by the Committee for Economic Development include:

Seventy-seven percent believe that corporations should disclose all of their direct and indirect political expenditures, including money provided to third party organizations to be spent on campaign ads. The poll also found that ninety-three percent of business leaders believe that corporate boards should be informed of the beneficiaries and purposes of the company’s direct and indirect political spending. Two-thirds polled agreed with the statement: “the lack of transparency and oversight in corporate political activity encourages behavior that puts corporations at legal risk and endangers corporate reputations.”

“This poll underscores what business people across America already know: the political system is broken and large amounts of money are flooding the system and corrupting the democratic process,” said Ed Kangas, a CED Trustee and the former Chairman and CEO of Deloitte Touche Tohmatsu, in a statement. “These huge undisclosed contributions that pay for campaign ads are distorting the political process and are a major reason why Congress has become so dysfunctional.”

I hadn’t heard of CED before reading about the results of this survey. The group’s Board of Trustees contains a lot of heavy hitters, however, including representatives from Yahoo!, Delta Airlines, the Boston Consulting Group, McKinsey & Company, Goldman Sachs and Morgan Stanley, and it describes itself as a “non-profit, non-partisan business led public policy organization.” Whether it has the ability to exert any political weight in a potentially renewed fight in Congress for disclosure is unclear at this point.

It makes a measure of sense, however, why some companies might be upset with the new system: With more opportunities to give, companies that would rather use their treasuries for other purposes might feel increased pressure to keep up with rival businesses or industries in playing the contributions game. This in turn creates an arms race in which more and more business and labor interests are dragged into the political fight when they could be spending their money more productively. With greater restrictions, at least they could be assured of an even playing field.

Lawmakers say more work is needed to reform Wall Street. (Flickr: Pamhule)

Soon after Rep. Brad Miller (D-N.C.) came to Washington in 2002, a fellow member of the House Financial Services Committee told him to pick an arcane financial issue — any issue — and to make it his pet topic. Miller chose mortgage finance. He knew little about it. Banking lobbyists peppered him with data, but he had difficulty getting much information from independent sources.

[Economy1] “I was even reduced to reading blogs,” he quipped to a crowd of bankers, community organizers, financial reform experts, hedge fund managers and government aides at the Roosevelt Institute’s conference, “Financial Reform: Will It Work? How Will We Know?” on Monday. But Miller educated himself on the topic and became a leader in pushing for stronger regulation of mortgage products. By 2008, as the financial system collapsed, all of his colleagues in Congress had joined him in reading up on everything from liar loans to naked credit-default swaps.

That period of intense interest is over following the passage of financial regulatory reform legislation this summer, Miller and others said on Monday. But that does not mean that reform is done. In fact, because political attention has flowed from Wall Street to immigration, unemployment and myriad other topics, reform is imperiled. The regulatory law gave guidelines for fixing the financial sector, but the rule-writing process has fallen to dozens of agencies and government bureaucrats currently hammering out the details. That means the real work of reform is just beginning and the country is only incrementally closer to a safer financial system.

“It has become quite clear in recent years that the servant’s servant has become the master’s master,” argued Rob Johnson, a former hedge fund manager and current director at the Roosevelt Institute. Banks, he said, which should help companies merge, access credit and grow, instead ended up leeching off of them, piling on fees and unnecessary products. Ultimately, average Americans suffered. “We do not yet have a balance between society, the real economy and the financial sector.”

A few visiting investors noted that the sector has become more concentrated — due to a number of banks failing, and the others picking up their business — and therefore more dangerous. Each one of the systemically risky banks, like Goldman Sachs, has become more systemically important and therefore more likely to receive government backing if financial troubles re-emerge. (It will take years for Washington to put capital requirements and other safeguards in place.) Moreover, the long process of rule-writing allows banks ample time and opportunity to lobby bureaucrats working on legislation.

And that rule-writing is ongoing among dozens of agencies, including the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Treasury Department and the Federal Reserve. The government is also in the process of organizing and hiring workers for the new $500 million Consumer Financial Protection Bureau. And the massive legislation is drawing major lobbying interest. This campaign cycle, the American Bankers Association has pledged $13.6 million on lobbying and $2.1 million to campaigns, pushing for looser rules on banks. J.P. Morgan Chase alone has contributed nearly a million to campaigns this year.

So how will those interested in reform know if it is working in the meantime? The question posed to the gathering of 40 or so met with many answers. “[Reform] would be working if the banks were making a lot less money,” Miller argued. “The reality is for it to be successful it has to be a win-lose-win,” with markets and consumers winning, and banks losing. The Wall Street Journal reported yesterday that financial-sector corporate profits are near their all-time highs.

Sen. Jeff Merkley (D-Ore.) was more optimistic. He praised the reform process, citing the creation of the Consumer Financial Protection Bureau, derivatives reform and proprietary trading regulations as big wins. (Elizabeth Warren, the White House and Treasury advisor helping to build the new bureau, attended the conference but did not speak.)

Still, Merkley conceded, “There is more to do.” He noted that ratings agencies — which stamped triple-A ratings on hundreds of billions of dollars of worthless mortgage-backed products in the run-up to the recession — remained unfixed. (“They’re almost useless,” sighed Jerome Fons of Kroll Bond Ratings agency.)

Others pointed to problems with the derivatives clearinghouses, which might now be the new “too big to fail” institutions. (If banks post insufficient capital to cover their derivatives trades, and another credit crunch hits Wall Street, with investors pulling cash out, the government might be forced to bail them out to calm the markets.) Some criticized the new Treasury Department Office of Financial Research, tasked with understanding Wall Street’s new innovations. Dozens of such niche issues arose.

“There are the tools there to do this,” Mike Konczal, a Roosevelt fellow, said. “Now it’s an issue of political will. [The financial regulatory law] doesn’t presuppose that [reform] will happen. But it does have the tools to do it.”

He concluded: “Those tools sit there, and there’s going to be a lot of pressure not to use them.”

“Effectively, what we’ve seen and a lot of other people have seen is we need to give them a better understanding of who we are and what we do,” David Wells, a spokesman for Goldman, told DealBook. “This is meant to help do that.”

The campaign, which is being overseen by the advertising agency Young & Rubicam, kicked off Wednesday with full-page advertisements in The New York Times and The Wall Street Journal.  It will include print advertisements in national, regional and local newspapers and banner advertisements on various Web sites and is planned to continue into 2011, Mr. Wells said.

I can just imagine the ads now:

Goldman Sachs. Making billions off the financialization of the U.S. economy since 1869. Making billions off the carry trade since 2008.

The company’s current slogan, addressed at other businesses, is “Our client’s interest always comes first.” Suspect.

Women are fading from the U.S. finance industry.

In the past 10 years, 141,000 women, or 2.6 percent of female workers in finance, left the industry. The ranks of men grew by 389,000 in that period, or 9.6 percent, according to a review of data provided by the federal Bureau of Labor Statistics. The shift runs counter to changes in the overall work force. The number of women in the U.S. labor market has grown by 4.1 percent in the past decade, outpacing a 0.5 percent increase in male workers. The difference is pronounced at brokerage firms, investment banks and asset-management companies. [...]

[Y]oung women are becoming more rare in the country’s banks, brokerage houses and insurance companies. Since 2000, the number of women between the ages of 20 and 35 working in finance has dropped by 315,000, or 16.5 percent, while the number of men in that age range grew by 93,000, or 7.3 percent.

From a round-up of studies showing women are better investors than men, as they are likely to have lower short-term returns but are much better at avoiding catastrophic losses:

Women made fewer investment mistakes and were less likely to repeat them — or at least to admit to survey takers that they repeated them. [Merrill Lynch] said its results showed 35 percent of women said they had held a losing investment too long, while among men it was 47 percent. The worst part: Of those who did it once, 48 percent of the women and 61 percent of the men admitted to doing it again.

Similar gender differences turned up on other issues: 13 percent of women and 24 percent of men said they had bought a hot investment without doing any research. The men were more likely to repeat that mistake. “Everyone makes mistakes,” said Hannah Grove, chief marketing officer of Merrill Lynch Investment Managers. “Successful investors learn from theirs.”

The numbers come from a telephone survey of 1,000 people with household incomes of at least $75,000 and investable assets of at least $75,000. They jibe with what other surveys and studies have found.

Terrance Odean, a University of California at Davis professor who also has studied the issue, found women earn slightly better returns because they trade less frequently. Men, he says, are overconfident. That showed up in the Merrill Lynch survey, too. Women were more likely to say they are not knowledgeable about investing and more likely to rely on a financial adviser. Other studies show men are more willing to take risks and invest more aggressively than women.

The list in itself is interesting. A few companies, including Colgate-Palmolive, Dell, Goldman Sachs, and Microsoft, have publicly pledged to not spend money from their treasuries, while another few — Target, Massey Energy, etc. — are known for their prior or planned willingness to engage in the practice. The vast majority, however, have no listed policy on the issue, so it’s unclear.

The part that riles Volokh is the pop-up tab that emerges over a company’s name that says, “Hold [company name] Accountable: Call [company name] at [phone number],” or “Demand that corporations stop taking advantage of Citizens United: Call [company name] at [phone number],” depending on their stance on the issue. There may not be a constitutional issue at stake in the issue, admits Volokh, but it is an unusual amount of advocacy on the part of a government agency — even one with the role of “public advocate.”

One of the more aggressive new requirements, the so-called Volcker Rule, would limit proprietary trading to 3% of Tier 1 capital. But the rule may be easy to sidestep. Goldman Sachs is leading the way around the regulation, by simply reclassifying many of its prop traders as asset managers. One major initial criticism of the Volcker rule was that it’s hard to distinguish prop trading from market making. Goldman is using this blurry line to its advantage.

The problem is that it is virtually impossible for regulators to tell whether a bank is making a trade for a client or on its own behalf. Shouldn’t it be easy to tell, depending on who keeps the profits or eats the losses? Indiviglio explains, not so much:

Prop Trading

A bank senses that XYZ corp is going to collapse. So its prop traders short the stock by selling stock option contracts to investors who want to bet long on XYZ’s continued success.

Asset Management

A bank senses that XYZ corp is going to collapse. So its prop traders asset managers short the stock by selling stock option contracts to investors their clients who want to bet long on XYZ’s continued success.

You may have noticed that, other than the two strikethroughs which merely changed terminology, those two descriptions were identical. The firm accomplishes precisely the same end. The Volcker rule, thus, boils down to semantics. It’s only prop trading if you fail to classify a trade as “client related.” And there it is — the first big loophole in the new financial regulation bill found and exploited. It barely took a week.

The score so far: Big Banks 1, Congress 0

Data released on Wednesday morning by the good government group Public Campaign shows that Cantor received more than $460,000 from the financial sector during the second quarter of 2010. That total represents a “32 percent increase from the average of the previous five quarters,” the group found. And the donors included some of the biggest names on the Street as well as those they pay to lobby on their behalf in Washington.

Donors from Goldman Sachs gave $15,600 to Cantor in the second quarter of this year. Donors from Bank of America offered checks totaling $6,000. Equity Group Investments officials forked over $10,800 and American Express employees donated $7,500. “In the second quarter of 2010,” Public Campaign reports, Rep. Cantor received $18,250 in donations from registered lobbyists and firms that have Wall Street clients.

Perhaps it’s Wall Street’s way of saying “thank you” for all of Cantor’s outspoken opposition to the Obama Administration’s financial regulatory reform bill.

Guests at Obama’s DNC events in New York City today will be asked to give the legal maximum of $30,400 to attend. Both events are sold out, but The Wall Street Journal nonetheless argues that antipathy towards Democrats on Wall Street will limit the amount of events Obama will be able to throw in the Big Apple:

Measured in a variety of ways, Wall Street giving to Democrats is down. Overall, five of the top 10 sources of donations to the DNC in 2008 were Wall Street firms, according to an analysis of campaign donations by the nonpartisan Center for Responsive Politics. This election season, just one financial company—the investment-management firm Capital Group Cos.—ranks in the top 10.

Employees of Goldman Sachs Group Inc. donated a total of $1.1 million to the DNC in 2008, making Goldman the biggest source of campaign cash to the Democratic Party. Goldman employees have donated about $100,000 to the DNC so far in the 2010 congressional elections, according to the center’s data.

The “Wall Street is angry with Obama and the Democrats” meme is popular and not without a kernel of truth. Fundraising numbers, however, don’t actually seem to bear this out, at least when compared against the amount of money Wall Street is giving to Republicans. In the same article, the Journal admits as much:

While Wall Street giving is down, Democrats are still outpacing Republicans. Overall, Wall Street has given $4.26 million to the DNC in the current cycle. Financial executives have donated just $870,000 to the Republican National Committee so far, less than 1% of the total raised.

From the SEC’s press release:

The Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

In agreeing to the SEC’s largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.

In its April 16 complaint, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities. Goldman failed to disclose to investors vital information about the CDO, known as ABACUS 2007-AC1, particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO.

In settlement papers submitted to the U.S. District Court for the Southern District of New York, Goldman made the following acknowledgement:

Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.

“Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing.”

The settlement was widely expected. And given its timing on the day of the passage of Dodd-Frank, it underscores the need for good regulators. In this case, Goldman seemingly got off easy, and it is one of few banks dinged for what Wall Street’s own have described as a pervasive business practice. The Dodd-Frank bill gives enormous power and discretion to regulators. But it cannot make them do their job well.