Bank Bail Outs Proved to be "inside job"

What a surprise, it's not what you know, but who you know especially if you want billions in free money to cover your screw up.

A new study from University of Michigan Professors Ran Duchin and Denis Sosyura found that the financial institutions who has the strongest political "ties" received the largest bail outs.

Duchin and Sosyura focused on the Capital Purchase Program, the largest TARP initiative in terms of the number of participants and the amount of expended capital. As of late September, nearly 700 financial institutions had received about $205 billion under the program.

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.

"Our findings also suggest that qualified financial institutions were more likely to receive an investment from CPP if they were bigger and had lower earnings and lower capital," said Duchin, U-M assistant professor of finance. "This is consistent with an investment strategy seeking to support systematically important institutions experiencing financial distress."

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.

Duchin and Sosyura say the amount of CPP investments was negatively related to capital adequacy, earnings and liquidity, and positively related to bank size.

While these Professors proved it, problem is no one ever does anything to change it.

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CR had a story that is indicative of a bigger problem

TARP Deadbeat List Grows to 55. Remember when:

Remember when the TARP capital was supposed to only go to "healthy" financial institutions?

The banking system is largely insolvent and we have the President telling big banks to lend to small business (which they really never did) and we got smaller banks screaming that bank examiners are too tough on them right now. We should have hit reset on the financial system a long time ago but that would've required pissing off the financial oligarchy and the Obama Administration doesn't want to do that.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Reset is it!

Having shown themselves "too incompetent to succeed," the big banks are being showered with taxpayer $$$. What we need is a remake of banking system back when it was boring but made sense. Of course, the political elites have sold out to the big banksters, and have stacked the deck against ordinary banks.
We now need -- must have -- reform of the system. Cut up all unecessary credit cards and stop paying ururious rates. F*ck FICO scores -- when 80% of the country is not credit-worthy, it will make little difference. What if we had FIDO (Fiduciary Index for Depositary Organizations) scores for banks? With zero for outright gambling and 100 for honest, accountable, and ethical behavior. Let's say we score banks based on FIDO -- usurious = bad, fairness to consumer and depositor = good. We then begin taking our money our of the low FIDO and depositing it into good FIDO banks. Sell good FIDO banks on the principle that they sould offer higher rates on deposits than those offered by low FIDO banksters, and lend out money at reassonable though not ruinous rates to consumers and small businesses in the community. Credit-worthiness judged by prompt payment to high FIDO insitutions, screw the low FIDO banksters. Persuade politicians that we can give them FIDO scores as well -- some of them are outright dogs and need to be replaced. Let's get back to first principles -- bank locally, lend locally, and be ethical to your neighbor. Then maybe the low FIDO pups will try to become high FIDO best-of-breed.
Frank T.

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Frank T.

negatively correlated

this study is just for one program, CPP of the many.

But they showed that the success rate was not correlated to the obtainment of support.

I couldn't find this study and I looked so if you see the actual study from these guys, please link/post it.

Be nice to see the results in the flesh so to speak.

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Is This the Study?

I found a 9/14/09 version of a study that can be downloaded here.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1426219

I'm assuming it's the same study.

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hello anonymous drive by

Thanks, I'm not sure honestly, it doesn't give an actual paper title and it would seem, if one is going to issue a press release, that the date of a paper should be around the same time.

But we can just read them (what a concept!) and see which ones determine what. It appears they are generally researching out the bail outs so it's probably an ongoing research area for them.

Hey, consider creating an account and helping out more. We need all the people we can get to look at the details and do paper dig outs! (thank you).

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Welfare for the Wealthy

The bigger the failures the bigger the bonus I guess. I know when my company loses money there is no joy in mudville but when these people drive the companies into the ground its bailout and bonus time.

What America is this? What free market is this?

Baby Bush signed the largest check in US history to a small group of bankers with by law no oversight or accountability. Obama has stepped in and continued welfare for the wealthy. The biggest non accountable quasi/mutant government/private monopoly money printer, the Fed, has printed trillions and no one can even second guess them because they have ABSOLUTE suthority over the public's money supply.

Liars, cheats, deceivers all of them.

When you steal wearing jeans its a crime. When you steal wearing a suit its a lawsuit if even that.

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