Corrupt Politics and Imprudent Bailouts are Two Peas in Same Pod

In a study that confirms what anyone with common sense already knew, Banks with political ties got bailouts.

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 percent more likely to get bailouts through TARP's Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 percent more likely to get capital purchase program funds.

President Obama said in October that despite the bailout, there was still too little credit flowing to small businesses.

Appearances Are Deceiving

The reason there appears to be "too little credit flowing to small businesses" is simple.

1. Banks are undercapitalized
2. Demand for loans is down
3. What demand does exist is from questionable risks

For details on those points please see Fictional Reserve Lending And The Myth Of Excess Reserves.

Politicians For Sale

Some of the comments to the article hit the nail on the head.

In response to a statement in the article “The banking industry has long been criticized for using political influence to obtain bailouts.” here is this gem of a comment:

How about, “The politicians have long been criticized for granting political favors in exchange for campaign contributions.”

If the politicians weren’t for sale, they couldn’t be bought.

Indeed, politicians are for sale and the results prove it, in spades, with disastrous consequences.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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