The Washington Post along with investigative news organisation ProPublica have been churning up some interesting stuff lately related to the bailouts…
Earlier this week they explored the extent to which GE (GE) was dependent on FDIC-backed debt.
Today they have a report about a Hawaii bank that received TARP cash after Senator Daniel Inouye, a bank founder and major shareholder, placed a call to the FDIC:
The bank, Central Pacific Financial, was an unlikely candidate for a program designed by the Treasury Department to bolster healthy banks. The firm’s losses were depleting its capital reserves. Its primary regulator, the Federal Deposit Insurance Corp., already had decided that it didn’t meet the criteria for receiving a favourable recommendation and had forwarded the application to a council that reviewed marginal cases, according to agency documents.
Two weeks after the inquiry from Inouye’s office, Central Pacific announced that the Treasury would inject $135 million.
Many lawmakers have worked to help home-state banks get federal money since the Treasury announced in October that it would invest up to $250 billion in healthy financial firms. But the Inouye inquiry stands apart because of the senator’s ties to Central Pacific. While at least 33 senators own shares in banks that got federal aid, a review of financial disclosures and records obtained from regulatory agencies shows no other instance of the office of a senator intervening on behalf of a bank in which he owned shares.
For his part, Inouye denies that he was “intervening” and says, merely, that he was interested and that he only left a voicemail with the FDIC. We’re not surprised that he would be interested:
Inouye reported ownership of Central Pacific shares worth $350,000 to $700,000, some held by his wife, at the end of 2007. The shares represented at least two-thirds of Inouye’s total reported assets. Inouye has requested a delay in filing his annual financial disclosure for 2008, which was due this spring, and he declined to provide the current value of his investment. Since the end of 2007, the bank’s stock has lost 79 per cent of its value.
If you read the whole thing, it’s possible to concoct an innocent explanation for this. There’s no smoking gun and we doubt anything will come of it.
In a way this incident is the entire bailout writ-small. The major banks have done a good job making sure their people are in power and that when they say the entire system will collapse if they don’t get a bailout, they mean it. This is a tiny case of what’s basically the same phenomenon, with a little more personalisation.
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