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Politics : American Presidential Politics and foreign affairs
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From: TimF12/28/2009 4:49:34 PM
   of 71588
 
Crony Capitalism

University of Michigan business professors Ran Duchin and Denis Sosyura recently conducted a study of banks that received bailout money. Surprise, surprise – banks with the strongest political connections ended up getting the biggest bailouts:

… [A] board seat at a Federal Reserve Bank was associated with a 31 percent increase in the likelihood of receiving CPP [Capital Purchase Program] funds, while a bank's connection to a House member on key finance committees was associated with a 26 percent increase… .

… the amount of CPP investments was strongly related to banks' political contributions and lobbying expenditures. A one standard-deviation increase in political contributions to congressional candidates was associated with a $14.6 million increase in allotted CPP funds, while a one standard-deviation increase in lobbying amounts was associated with an additional $10.4 million in CPP funds.

… “[Our findings] highlight the importance of political connections in the choice of federal investments."

The experience of Boston’s OneUnited Bank illustrates the power of friends in high places:

OneUnited Bank found its capital depleted and its management compromised with a cease-and-desist order from the FDIC for poor lending practices and the abuse of management pay. Yet in mid-December 2008, the bank received $12,063,000 from CPP.

The bank is based in the home state of Rep. Barney Frank, the head of the Financial Services Committee, who acknowledges that he had included into TARP a provision aimed at helping this particular bank and recommended to regulators that OneUnited be considered for capital investment under TARP. The bank's lawyer admitted that he had discussed the bank's financial situation over the phone not only with Rep. Barney Frank, but also with Rep. Maxine Waters (a member of the Financial Services Committee and Financial Institutions Subcommittee), whose husband used to be a OneUnited director.

This is not capitalism. This is “crony capitalism,” where politically-connected businesses use their connections to get special favors.

I plan a show on crony capitalism. Readers, do you have any particularly egregious examples that you’d like to share?

stossel.blogs.foxbusiness.com
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