Nearly a year ago we pointed out the shameful politically-motivated largess being practiced under the guise of economic recovery. Now a new study from the University of Michigan confirms what we already knew: financial institutions with political ties have been significantly more likely to get bailout money than those without.
Professors Ran Duchin and Denis Sosyura demonstrated that banks with connections to members of Congressional finance committees or executives who served on Federal Reserve boards were significantly more likely to receive funds from the government’s Troubled Asset Relief Program, or TARP, than those without connections.
"Political connections play an important role in a firm's access to capital," wrote Professor Sosyura, whose research indicates political ties actually shift capital to the weakest, most underperforming institutions.
Among the examples, the study highlights OneUnited Bank, the poorly performing but politically connected Boston-based bank where the husband of Rep. Maxine Waters (D., Calif.), who serves on the Financial Services Committee and Financial Institutions Subcommittee, was previously on the board and owned stock.
As we discussed last year, Rep. Barney Frank (D., Mass.) inserted a provision into the TARP specifically aimed at helping the bank, which received $12 million from the government soon after getting a cease-and-desist order from the FDIC for poor lending and pay practices. Among the bank’s assets: a Porsche registered at the home of its CEO.
Just this week it was reported that the bank has skipped its third consecutive dividend owed to the U.S. Treasury, where it now owes hundreds of thousands of dollars in missed payments. As you try and stretch your own Christmas dollar this year for family and friends, keep in mind you’ve extended OneUnited an interest-free loan.
Back-scratching has always existed in business, of course, but in the business world it’s typically been practiced with private dollars by those who voluntary opted to participate (read: shareholders). In the new back-scratching economy, however, the payments are made with tax dollars in full view of the electorate, which is expected to stomach the redistribution of their savings to institutions like OneUnited along with socialized healthcare, "responsible" homeowners who don’t pay their mortgages or other politically-motivated interests with only one justification: "the public good."
It’s a frightening harbinger for free markets, capitalism and individual rights.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.
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