“Our results show that political connections play an important role in a firm’s access to capital. 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.”

-Ran Duchin and Denis Sosyura, University of Michigan School of Business

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File this one under “Duh!”

U.S. banks that spent more money on lobbying, were politically connected with the Fed, or had close ties with Pols, were more likely to get government bailout money.

That stunner is according to a new study released this week by two professors at the University of Michigan, Ross School of Business.

Profs Ran Duchin and Denis Sosyura paper also found that  “TARP investment amounts” were positively correlated to banks’ political contributions and lobbying expenditures. Overall, the effect of political influence was strongest for the most poorly performing banks.

Here’s a Reuter’s excerpt:

“U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.

Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.

Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds.

Political influence was most helpful for poorly performing banks, the study found.

Banks with an executive who sat on the board of a Federal Reserve Bank were 31% more likely to get bailouts through TARP’s Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26% more likely to get capital purchase program funds.”

Is there anyone in this country that finds this data remotely surprising . . . ?

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Sources:
Banks and Bailouts: Playing politics?
Ran Duchin and Denis Sosyura
University of Michigan, 12/21/2009
Ross professors

http://www.bus.umich.edu/NewsRoom/ArticleDisplay.asp?news_id=18270

Banks with political ties got bailouts, study shows
Steve Eder
Reuters, Dec 21 2009

http://www.reuters.com/article/idCNN2124009320091221?rpc=44


Category: Bailouts, Credit, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Shocker! Banks with Lobbying Ties to Pols Get Bailouts!”

  1. jeff in indy says:

    sadly, sometimes you have to “state the obvious.” oh no, mr. bill!!

  2. wally says:

    Bribery is bribery. We are just more sophisticated today; we use an indirect method and think nobody sees it.

  3. rustum says:

    Lobbying is nothing but a bribe.

  4. Mannwich says:

    Let me guess – they also got federal stimulus money to conduct this study? That would be the capper.

  5. I was just about to post something like that Manny. Now taxpayers are paying for pointless studies on corruption.

    Talk about a tax on a tax.

    Just remember folks. When you think there is no other way for them to tax you they will find one. Just have a little faith and give it time

  6. rustum says:

    It is all tax payers money flowing through different hands. No wonder, these hands do not want to audit the Fed.

  7. beaufou says:

    It isn’t that nobody sees it Wally, it’s just accepted.

    We will never see sensible policies again until lobbying is outlawed, Congress are a bunch of 10 year olds waiting for the candyman.
    Maybe it is the future, I often wonder why “The Godfather” tops favorite movies, it seems organized crime is cool.

  8. What ever happened to that congressional term limit movement from the ’90′s? I’ll bet that would flush out a lot of dead wood

  9. Steve Barry says:

    This, along with the vote buying scam of a healthcare bill, have me at my low point of where I feel about politics.

  10. bsneath says:

    You do not even hear talk of lobby reform in Washington anymore. The process is so ingrained that it is no longer considered wrong. Our government has become extremely corrupt, but no one seems to care. I admire Ms. Arianna H. She hits them hard on this kind of stuff.

  11. DM RTA says:

    Keep talking about it….that’s all you can do. It will change eventually. Many people with the mic want you to believe that blogs are second media somehow. This is where change starts these days.

  12. Rendezvous says:

    I’m not sure, but I think the professors just proved that big banks got more TARP funds than small banks.

  13. davossherman@gmail.com says:

    Hypocrisy:

    I didn’t get elected to support a bunch of fat-cat bankers—–here is 23 trillion in money or allocations.

    We can’t spend peoples tax dollars like it is Monopoly money—–here comes health care and a second stimulus that we will call a job program since the first stimulus was really a flop because it was fat.

    What a joke, how to finish off the bankrupt corpse. Obama is an utter and absolute moron!

  14. MayorQuimby says:

    I have outrage fatigue. The best part of modern banking is that taking your money out of the big banks does nothing as the bank you DO put your money in will simply deposit the same money back into TBTF banks. Gotta love frac reserve!

  15. Mannwich says:

    I think that we’re just catching up to Europe on our collective cynicism with corrupt politicians and morally/ethically bankrupt corporate execs. In short, we’re growing up as a nation but doing it far “better” than our European counterparts. Ain’t it cute?

  16. Jim Greeen says:

    Dr. Frank Lutz, in his book “Words Work” said “it’s not what you say, but rather what people hear”

    In Vegas they call gambling…gaming, in Washington they call bribery…lobbying.

    At the end of the day corruption is rampant and Harry Reid defines it as just good politics.

  17. ella says:

    Either I missed this lecture or my Con Law Prof never included this concept under “equal protection of the laws”.

    I guess some of us are more equal than others.

  18. wow, nobody is breaking out any quotes from “Casablanca”, on this one?

  19. philipat says:

    Outside of the United States this is called corruption.

    How about a parallel study which correlates Congresspersons funding versus their voting record? I believe that this would show a high degree of correlation also. I have met many of these folks over the years, amny of whom flew in on Corporate Gulfstreams. I found them, without exception, to be pompous, arrogant, ignorant and self-opinionated.

    We the people? Give me a break.

  20. bsneath says:

    Obama is about to discover that he has no constituency left. He did a “bait and switch” on the moderates, he has alienated the left wing, and most importantly in my book, he has shown no moral character in dealing with the banks, insurance companies or lobbyests. He has done nothing for the underclass or the middle class because he is too busy trying to be one of the elites. He does not understand the rules of the game. He attempts to “talk” people into doing what he wants and doesn’t understand that talk means next to nothing. He lacks the courage to stand for his convictions and too often he naively picks the wrong subjects to be convicted to. He is a shallow leader. He should be fighting for the welfare of the working class, but even in the health care debate, he avoids the moral discussions and caters to the rich and powerful rather than fighting for what is right. He will go down in history as the next Jimmy Carter. Great intentions but lacking leadership or character. In fact I think JC had a lot more character. JMO.

  21. Winston Munn says:

    Why Johnny Ringo, you look like someone just walked across your grave.

  22. tradeking13 says:

    “…politically connected with the Fed…”

    I thought the Fed was “independent”? Bwah-ha-ha-ha-ha!

  23. SecondLook says:

    Addressing an earlier comment about term limits as a solution to corruption.

    Unfortunately, from the history of those states that have passed term limit laws, the net effect is simply and accelerated form of musical chairs; politicians moving from office to office, either up the ladder, or vertically.

    This has been true just about since the early 1800′s, the rise of a professional political class, politics as a career, mixed in with it being the family business in many cases.
    Even if you were to set a limit on how long anyone could political offices of any kind – which would require a constitutional amendment since the Supreme Court has ruled that limiting total years is currently unconstitutional – there is the issue of financing elections.
    Given the high cost of getting elected to any major city, state, or Federal office, it’s just about impossible for candidates to avoid receiving money from various special interests; with the attendant problems of influence that money gets.

    The best solution, I think, and with absolutely no chance of ever being implemented, would be public financing of all elections, local level on up, and no private money, or money equivalents allowed (corporate jet loaned to a candidate, etc), directly or indirectly.
    It wouldn’t be cheap, but it wouldn’t be that expensive, particularly if the broadcasting companies were required to provide x hours for free political ads. Not an infringement on their rights, the airwaves are licenced, not owned by broadcasters. Their profits would suffer, but the greater good and all that jazz.

    With thorough public financing most of the influence of money, not all, but most, would disappear.

    Ah, that also would need a constitutional amendment, as the Supreme Court has ruled that campaign contributions are an exercise of free speech. Which, while probably the correct interpretation, ends up with campaign finance reform being hobbled to an extant that makes it all but useless to try.

    There are problems with public financing of elections, granted. One of the most pressing ones would be who qualifies. However, as the adage goes, if there is a will, there is a way to solve those.

    As I said, not a chance it will ever happen. We are just too set in our ways…

  24. gps says:

    That stunner is according to a new study released this week by two professors at the University of Michigan, Ross School of Business.

    What is the stunner in this issue. Everyone knows this. If these folks think it as a stunner, then they’re thinking US citizens as fools. Corruption leads to more corruption. This is as simple as that.

  25. JohnnyBoomBatz says:

    Has anyone thought about one of the first rules of correlation, that correlation does not necessarily imply causality? “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.” No, it suggests that underperforming institutions with weak fundamentals, poorer performance, and lower liquidity need funds more than stronger institutions, therefore, they get them. TARP was a program designed to specifically prevent bank failures in order to prevent another Great Depression. This has nothing to do with back scratching or political favors.

    Along the same note, “U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday.” Well, what banks have political lobbyists? Big banks, banks who are essential to our credit system and our economy. Call them too big too fail. Regardless, if they were to fail, you’re looking at 25% unemployment and another depression. Forget about any recovery for at least the next 3 to 5 years.

    “Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business.” Big banks, ones that are essential to our economic system, would obviously hire the best talent. What better to place to hire from than the Fed? You wouldn’t want someone with that kind of experience working for your bank? Again, correlation does not imply causality.

    You can make the same argument for any one of these points. Is there corruption in the government? Of course. But don’t think that TARP is a source of it. TARP saved America as we know it, and any job that anyone has right now is thanks to TARP. The bank run that would have resulted without Fed intervention would have resulted in a utterly disastrous collapse of US economy.

    ~~~

    BR: Is it your position that while there is a correlation, there is no causality?

    That millions spent on lobbying is wasted, that knowing politicians has no impact, that being close with the Fed did not help?

    I am a huge fan of the Causation/Correlation error, and have mentioned it here repeatedly.
    Rukle # 1 — There needs to be a rational explanation for the correlation that passes the smells test.

    Yours didn’t . . .

  26. JohnnyBoomBatz says:

    Yes, my position is that there is no causality. However, that does not imply that millions spent on lobbying is wasted, that knowing politicians has no impact, or that being close with the Fed did not help. Of course these ties will have some kind of effect on the relationship between government and banks. However, that does not mean that corruption is involved nor does it mean that these ties significantly affected the allocation of TARP funds. In essence, my whole point was in disagreement with this statement: “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.” The author suggests that political ties shifted capital allocation towards underperforming institutions. I would suggest that the fact that these institutions were underperforming was the reason capital was shifted towards them, NOT political ties. There would not have been TARP money distributed in the first place had there not been a financial crisis, i.e. too many underperforming institutions. Clearly, TARP money was not caused by political connections, nor was the allocation of TARP money the result of political influence, rather it was allocated based on the needs of the institutions. Money was allocated to underperforming institutions because they stood to benefit from the funds more than institutions performing strongly. I am sincerely grateful for TARP and the swift actions of Ben Bernanke. To call those actions corrupt because there is a correlation between money spent lobbying and the allocation of TARP funds is certainly misguided.