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How being politically wired helped the banksters loot our money

Quelle surprise! I mean, that's what being politically wired is for! An abstract of a study from the Ross School of Business at the University of Michigan:

Banks with strong political connections were more likely to receive bailout money from the government — and more of it — in the past year than those with weaker ties, say Ross researchers.

"Last year" being 2009, Year One Of The Hope And Change Era.

A new study by Ross professors Ran Duchin and Denis Sosyura found that banks with connections to members of congressional finance committees and banks whose executives served on Federal Reserve boards were more likely to receive funds from the Troubled Asset Relief Program, the federal government's program to purchase assets and equity from financial institutions to strengthen its financial sector.

Further, their research shows that TARP investment amounts were positively related to banks' political contributions and lobbying expenditures, and that, overall, the effect of political influence was strongest for poorly performing banks.

Which makes sense. It's easier to make money the old-fashioned way: By looting it. At least if your a bankster with no sense of ethics. Sorry for the redundancy.

"Our results show that political connections play an important role in a firm's access to capital," said Sosyura, assistant professor of finance.

We've got central planning! Run by thieves! Sorry for the redundancy.

"The effects of political ties on federal capital investment are strongest for companies with weaker fundamentals, lower liquidity and poorer performance — which suggests that political ties shift capital allocation towards underperforming institutions."

It's the magic of the marketplace -- where our elected representatives sell us!*

The researchers used four variables to measure political influence: 1) seats held by bank executives on the board of directors at any of the 12 Federal Reserve banks or their branches (the Federal Reserve is involved in the initial review of CPP applications from the majority of qualified banks); 2) banks with headquarters located in the district of a U.S. House member serving on the Congressional Committee on Financial Services or its subcommittees on Financial Institutions and Capital Markets (which played a major role in the development of TARP and its amendments); 3) banks' campaign contributions to congressional candidates; and 4) banks' lobbying expenditures.

They found that a board seat at a Federal Reserve Bank was associated with a 31 percent increase in the likelihood of receiving CPP funds, while a bank's connection to a House member on key finance committees was associated with a 26 percent increase, controlling for other bank characteristics such as size and various financial indicators.

It's almost like the insiders are looting the system for their own benefit!

In addition, the study found 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 elected representatives are cheap!** And the ROI is spectacular!

One can only wonder, what with the rot of corruption so thick from the fish's head in Versailles, when the stench will filter down, and we end up with mordida, baksheesh, or ?????? in our towns and neighborhoods? Since everyone else is a rent-seeker, why not?

NOTE * And why wouldn't they? For most of these guys, elective office is an unpaid internship on the way to real money!

NOTE ** Ian Welsh explains:

But it's the cheapness which used to puzzle me.  No more though.  My friend Eli pointed out what should have been obvious to me.

(They sell out cheap) because it's not their money.  It's like selling your neighbor's car for twenty bucks.

America's politicians: cheap and crooked.

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DCblogger's picture
Submitted by DCblogger on

the American crony Kleptocracy.