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Wall Street Coy on Social Security

When a group of corporate executives gathered atop the World Trade Center in June 2001 to hear then-Treasury Secretary Paul O’Neill pitch a plan to add personal accounts to Social Security, the reaction from opposition groups and the press was not kind.

“It was just a bad image that fed into the suspicions of the other side,” said Derrick Max, director of the Alliance for Worker Retirement Security, a business-backed coalition that is lobbying to partially privatize the federal retirement program.

Opponents of personal accounts long have portrayed Republican attempts to achieve them as a sop to Wall Street, which presumably stands to reap a share of the millions of Social Security dollars that would pour into mutual funds and other managed investments.

But now, as President Bush prepares to make Social Security reform one of his top agenda items, Max and others who want to rally the business community are finding some financial services interests curiously slow to join the fray.

Ed Yingling, president of the American Bankers Association — a member of Max’s AWRS — said that Wall Street lobbyists seem to be wary of a public relations backlash if they get too conspicuously involved in the debate. The fear, apparently, is that Wall Street will look greedy if it leads the push to reform Social Security.

Noting that Democratic presidential nominee Sen. John Kerry (Mass.) used potential privatization of Social Security as wedge against President Bush on the campaign trail, Yingling said that “people are going to want to keep an appropriate profile, so they don’t feed that” impression.

By all outward appearances, AWRS — the leading supporter of the Bush push on Social Security — is hardly a creature of Wall Street. The group, staffed only by Max and two others, is run out of the Washington offices of the National Association of Manufacturers.

Max said he is now busy coordinating meetings between Members and lobbyists from his member organizations and working with the White House.

He said that’s enough work to occupy him without focusing on recruiting new members, but he did express frustration with the hesitancy of some financial-services players to join the fight.

“They should be involved in it and talking about it,” he said. “If some piece of legislation came up that had a huge impact on homebuilders, would it be any surprise if homebuilders got involved?”

Despite claims from Democrats, labor groups, and the AARP seniors lobby that partial privatization would amount to a Wall Street windfall, Yingling and others insist that the reform would not be profitable enough to merit a major lobbying effort.

Lobbyists say that this view has served to sideline some corporate interests, who think they have a minimal stake at best.

Max recently commissioned the SIA to write a report showing how little Wall Street firms actually stood to gain. That report, released last week, said that plans now under consideration could generate as little as $39 billion in fees for investment firms over the next 75 years, and no more than $279 billion in the same timeframe.

In other words, the report said, “it is hardly likely to be a bonanza for Wall Street.”

Not everyone agrees. This estimate starkly contrasts with one from a study by Austan Goolsbee, a Chicago Business School professor, which put financial institutions’ potential gain at $940 billion. The industry could benefit from the overhaul, this argument goes, if it is allowed to collect large fees from managing private accounts.

Kerry cited the Chicago professor’s study in his presidential campaign. Opposition groups said they would continue to attack the efforts to partially privatize Social Security as a Wall Street boondoggle.

Roger Hickey, director of the New Century Alliance for Social Security, a union-backed coalition, said he has asked his campaign finance researchers to “track who’s contributing what.”

“I would like to be able to show that corporate America is bankrolling a campaign to finance this and that Bush is rewarding his supporters and allies,” he said. “I think that’s generally true, and it’s been true in the past.”

To be sure, AWRS has its share of high-profile firms and trade associations, including the ABA, the SIA, the Business Roundtable and the U.S. Chamber of Commerce. Others, such as the Investment Company Institute, which represents more than 9,000 investment funds, are notably absent.

ICI President Paul Schott Stevens said that his group has been more concerned recently with the trading-abuse scandals now gripping the mutual fund industry. He added that he didn’t know why his group had not joined AWRS, but said that ICI would be “supportive of the administration as it engages in this debate,” at least short of endorsing any private account option.

Others in the financial services industry now hugging the sidelines expect Wall Street to boost its involvement eventually. Since the White House has not yet outlined its plan for a Social Security overhaul, they say, a headlong rush toward the Hill would be premature.

“We’re caught in a timeframe: When it’s time to start looking at different issues and proceed apace,” an investment company lobbyist said. “In June, we might be more involved.”

Scott Talbott, the vice president for government affairs at the Financial Services Roundtable, agreed that it’s still early, but he added that his group has already been meeting with the Congressional leadership and the members of the relevant committees.

“We’ve already started the groundswell,” he said. Talbott added his group is meeting this week with Chuck Blahous, the White House point man on Social Security and a former director of AWRS.

Max said that, for now, he is relying on lobbyists from his member groups. He said it may be possible to hire outside lobbyists as the debate heats up.

Those from the trade groups, he said, “are a skeptical breed at best. They understand Social Security is hard to touch and hard to move.”

Former Rep. Barbara Kennelly (D-Conn.), director of the National Committee to Preserve Social Security and Medicare, another group opposing partial privatization, expressed skepticism that corporate lobbyists would stay out of the debate for long.

“Please — I was in Congress too long,” the nine-term Congresswoman said. “They’ll be involved.”

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