Thursday, January 22, 2009

TARP Distributions and Politics

The Wall Street Journal reports on how TARP funds have been disbursed based on political influence. A bank that Rep Barney Frank had ties to received funds even though much larger banks did not.

The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate. Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives' use.

Nonetheless, in December OneUnited got a $12 million injection from the Treasury's Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.

Alabama banks have done well because of political connections as well. This is hardly a surprise. A better solution has to be found. This will be some type of RTC-bank that takes over all the bad assets and wipes out the shareholders of the banks with toxic assets. Nationalization and then privatization seems in the offing.

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