Calling Claude Raines: Study Finds Politics in TARP Bailout

via: Heritage

A late end-of-year entry for the 2009 Claude Raines Award goes to a study just released by two economists at the University of Michigan finding that banks with political connections were more likely to get TARP funds than those without them.

“Our results show that political connections play an important role in a firm’s access to capital,” said Denis Sosyura, who — along with Ran Duchin — authored the study.

It’s a stunningly unsurprising result. Just imagine: politics affecting who gets federal bailout money. Who would have guessed?

When you get past the initial non-shock, however, the study does provide some interesting detail on the corrolation between political influence and bailouts. A one standard deviation increase in political contributions for instance, was associated with a $14.6 increase in TARP funding. Similarly, a one standard deviation increase in lobbying amounts corrolated with an extra $10.4 million increase.

There is of course always a question of causation. It could be argued that banks in need of government assistance naturally are also more politically attuned, and thus the additional funding they wasn’t because of their political involvement.

That doesn’t seem to explain one curious finding of the report however: banks with headquarters located in the district of a member of the House Financial Services Committee were 26 percent more likely to receive TARP funds than those not so geographically favored.

A beautiful friendship indeed.


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