U.S. banks that spent more on lobbying were more likely to get government bailout money according to Ran Duchin and Denis Sosyura at the University of Michigan's Ross School of Business. Their study reveals a twisted correlation between a bank's bailout and its proximity to an elected politician.
Banks with an executive who sat on the board of a Federal Reserve Bank were 31 percent more likely to get bailouts through TARP, and those with ties to a finance committee member were 26 percent more likely to get capital purchase program funds.
Members of the House of Representatives were also a good way in — the study showed that more funds went to banks with headquarters in the district of a member who served on a committee or subcommittee related to TARP.
If this raises concerns of corruption, it should. TARP funds should have been distributed according to need. In a Frontline documentary, former Treasury secretary Henry Paulson, as well as congressmen who pushed the legislation behind the fund, described the move as absolutely necessary to prevent a financial meltdown. But how is it possible that such rampant favoritism could transpire in such a crisis?
In fact, Rep. Barney Frank, D-Mass., confirmed last January that he had sought taxpayer money for Boston's troubled OneUnited Bank:
At the time, OneUnited was dealing with an investigation by bank regulators. In October, federal and state regulators entered into a “cease and desist” order with OneUnited, citing problems with inadequate capital, a failure to provide adequate supervision, and the bank's “excessive compensation, fees and benefits to its senior executive officers.” The bank, for example, was required to stop paying expenses related to a California beach home and to stop providing a bank-owned Porsche SUV to executives.
Cohee said that while the bank signed the cease and desist order, and is abiding by it, he denies all of the charges in it. “We don't admit guilt,” he said.
Two months later, OneUnited was awarded $12 million under the government's financial rescue program.
Even more craven is Rep. Maxine Waters' role:
…Ms. Waters, a longtime congresswoman from California, had close ties to the minority-owned institution, OneUnited Bank.
Ms. Waters and her husband have both held financial stakes in the bank. Until recently, her husband was a director. At the same time, Ms. Waters has publicly boosted OneUnited's executives and criticized its government regulators during congressional hearings. Last fall, she helped secure the bank a meeting with Treasury officials.
These are the banks getting “saved” by TARP. But The Financial Services Roundtable, the industry lobbying group, claims no harm, no foul:
Talbott also noted that $116 billion has been repaid with interest.
“This demonstrates the banks were excellent stewards of the taxpayer's money,” Talbott said.
But a watchdog for the government's bailout, the special inspector general for TARP, said last month that the broader $700 billion bailout program "almost certainly” will result in an overall loss for taxpayers.
This is why government shouldn't pump money into banks — favoritism becomes an issue.