Dodd's Troubles Open Debate on Congress' Ties With Special Interests

Just two years ago, Christopher Dodd was a popular U.S. senator from Connecticut doing what ambitious lawmakers with long and distinguished careers in Congress have always done -- run for president.

But now, with his political career on the rocks after numerous controversies, Dodd has become the poster boy for critics who say the inevitable ties between longtime members of Congress and special interests are undermining efforts to revive the economy.

"He literally thinks he's going to play a critical role from saving us from ourselves," Christopher Healy, the Republican Party chairman in Connecticut, said of the Democratic senator.

"It's like putting the arsonist in charge of the volunteer fire department. He knows where the fire is because he set it. But beyond that, he can't offer much help."

Dodd is now flailing to save his 35-year congressional career in the swirling wake of an amendment he authored in the $787 billion stimulus package. That amendment, signed into law by President Obama, grandfathered in bonuses that would have been cut off by the bill but had already been promised to employees of companies that received government bailout money.

The issue exploded when it became known that the American International Group had given $165 million in bonuses to its executives after being bailed out by the U.S. government.

Dodd initially denied last week that he had any role in crafting the exemption language, then changed his tune a day later, saying that Treasury officials pressured him to make the change to protect the government from potential lawsuits.

Dodd is closely linked with AIG, whose employees and political funds have donated $300,000 to his campaign fund over the last decade, according to the Center for Responsive Politics.

Julian Zelizer, a professor of history at Princeton University and an expert on congressional matters, said most politicians are entangled with conflicts of interest -- and they look bad when they're revealed.

"In terms of the financial bailout, this can bite," he said.

Healy acknowledged that conflicts of interest are not the domain of any one party. But he believes Dodd, who is chairman of the Senate Banking Committee, should step aside because of his position.

"It wouldn't be so bad if he was in a harmless position," Healy said. "But now he's been thrust into the middle of the debate on the future of our economy."

But Zelizer said Dodd should not have to sideline himself unless there is clear evidence of wrongdoing.

"You have to penalize all of Congress if you started doing this," he said, adding that long-term reform is needed for a more efficient system.

Ross Baker, a politics professor at Rutgers University and a congressional scholar, said the ties between lawmakers and special interest groups have bothered him for a long time.

"No one leaves Congress living at the same level they came in," he told FOXNews.com.

"More than anything else, it's getting insider information, getting special deals that on the face are not illegal. But they're in a privileged position."

Baker said most lawmakers who have served as long as Dodd have had these carrots dangled in front of them.

"And most take advantage of it," he said. "It makes you wish more independently wealthy people ran" for office.

Republicans are turning a spotlight on Dodd's longtime friendship with Edward Downe Jr., a former director of the Bear Stearns investment firm who was snared in an insider trading scandal. Dodd owned a condo with Downe in a fashionable Washington neighborhood but bought out Downe's share in 1990 after learning Downe was under investigation. Downe eventually pleaded guilty to trading inside information.

During the final days of the Clinton administration, Dodd wrote a letter supporting a pardon for Downe.

"Mr. President, Ed Downe is a good person, who is truly sorry for the hurt he caused others," Dodd wrote. The pardon was granted.

Dodd, who spent six years in the House of Representatives before being elected to the Senate in 1980, complained last week that the GOP is repackaging old stories.

"They're trying to weave things together that have been reported on widely over the years," Dodd said. "They are taking some items that are frankly, old news, routine transactions, and trying to make more out of it."

Dodd has acknowledged participating in a VIP program run by Countrywide Financial Corp., which was the nation's largest mortgage lender before its risky involvement in the subprime mortgage scandal forced it into the arms of Bank of America last year.

Dodd said he thought the VIP program referred to upgraded customer service. He denied asking for or receiving any special treatment when he refinanced his homes in Washington and East Haddam, Conn., with Countrywide in 2003.

"There was no sweetheart deal," he said.

Dodd faced criticism in his home state for not releasing details of his mortgages until several months after the controversy surfaced last summer.

He concedes his sluggish response was a mistake, but his critics have not been forgiving.

"He's a walking, talking ad for term limits," state GOP chairman Healy told FOXNews.com. "Thirty years is a long time.... If you hang around too long in sports, theater and politics, the customers speak. They either stop coming to the theater, the ballpark or showing up on Election Day."

The Countrywide controversy came after a failed presidential bid by Dodd that soured many Connecticut voters because he was out of state campaigning so much.

Dodd moved his family to Iowa for several weeks before the caucuses, adding to the home-state backlash.

Critics are seizing on that now, saying Dodd should have been paying more attention to red flags in the economy.

"He wasn't asleep at the switch," Baker said. "He wasn't even at the switch."

But Dodd is not ready to call it a career. He has hired a prominent campaign manager to run his 2010 re-election bid, a sign that he recognizes the challenge he faces against whoever the Republicans pick to run against him.

Baker said he respects Dodd for his intelligence and shrewdness, but he believes Dodd, like many longtime lawmakers, has lost touch with reality.

"I think what happens, when you're in the Senate a long time, you start to feel a presidential run is in the stars and you reach a point where age and experience almost ordains you to get the presidential nomination," he said, explaining that bubbles form around lawmakers who are surrounded by acolytes paid to adore them.

"Sometimes that leads senators to do things that are foolhardy," he added. "Not just the decision to seek the nomination but to move lock, stock and barrel to Iowa."

The Associated Press contributed to this report.