Meddling Pols and the Banking Sector: A Dangerous Mix

Includes: IYF, KBE, XLF
by: Tom Brown

Last week, by way of my extended complaint that President Obama doesn’t seem to have a clue as to how the world works, I made the point (which should be obvious on its face) that bad things happen when politicians meddle in the banking business.

And the examples keep rolling in.

Do you remember OneUnited Bank? No? It is the country’s largest minority-owned bank, and was in the news last December after Barney Frank and Maxine Waters leaned on the Treasury Department to give it $12 million in TARP money.

Now you remember! That Frank/Waters gambit, you are reminding yourself, was simply another instance of crusading lawmakers intervening to make sure minority borrowers have continued access to credit.

Except that that’s not quite what happened. OneUnited might be minority-owned, but it’s nobody’s idea of a minority lender. It does not write inner-city mortgages, for instance. (Instead, the bank lends on properties in areas like Martha’s Vineyard and Boston’s South Shore.) Its CRA ratings have lately ranged from fair to poor. In October of 2008, OneUnited signed a cease-and-desist order with regulators that required, among other things, that it sell a Porsche SUV and Malibu mansion it owned for the benefit of its executives.

All of which is to say, this is basically a corrupt, failing institution that serves no economic purpose beyond what thousands of other well-run, solvent, banks already serve more effectively. But the bank’s management has got an in in Washington. So when two powerful congressmen wanted the federal government to give it $12 million, it got its $12 million.

And now it turns out that—surprise!—that money basically went down a rathole. The Boston Globe reports OneUnited has now missed three consecutive quarterly TARP dividends over the past four quarters. Pathetic! Even for a bank as apparently messed up as this one, that’s an astonishingly poor performance.

Thus you see, yet again, what happens when the pols get involved. In this case, the taxpayers’ “investment” has not resulted in an expansion of credit. (OneUnited’s assets are actually 10% lower than they were last year). Nor has the government received much in the way of dividends. No one has apparently benefitted from this whole, sorry transaction other than the bank’s executives and, presumably, Barney Frank and Maxine Waters. It’s been total and complete waste.

In the grand scheme of the credit crunch, of course, the OneUnited fiasco is a blip. But it’s an expensive and pointless blip. That’s something to remember next time you see President Obama and his pals start leaning on the banking industry and telling it they expects big things. What we’ll all end up with, you can be sure, will be big, costly disasters.