The story was related to the ethics investigation involving Rep. Maxine Waters, (D-CA) and the Massachusetts bank OneUnited, which received $12 million in bailout money from the Troubled Assets Relief Program. A bailout which — according to both an inspector general tasked with investigating the FDIC, and the Washington Post — was unprecedented in the level of consideration the bank was given.
According to the Washington Post story:
Congress adjusted the law and regulators broke with customary practices, despite an explicit internal warning that the bank was in financial trouble. Among other exceptions, the bank was allowed to count as part of its capital $12 million in federal bailout money — before the aid arrived.
OneUnited was the only bank to receive all of these considerations among the 707 recipients of money from the Troubled Assets Relief Program, according to documents and interviews.
Waters’ husband, Sidney Williams, was a former member of OneUnited’s board of directors, and still had approximately $350,000 in stock in the bank at the time of the bailout.
As troubling as the bailout is, the FDIC’s alleged “list of banks with prominent connections” is more troubling still. Says the Post:
A Washington Post review of documents and interviews with many involved in the decisions show that regulators flagged the bank early on for its “highly visible” connection — in OneUnited’s case, a former board member who is married to Waters, the chairman of an important banking subcommittee. The alert was part of a previously undisclosed practice at the Federal Deposit Insurance Corp. of trying to identify banks that might cause “unnecessary press or public relations” problems, according to testimony a top FDIC official gave to House ethics investigators.
All of this on Thursday prompted Rep. Darryl Issa (R-CA) of the House Committee on Oversight and Government Reform to send a letter to FDIC Chairwoman Sheila Bair demanding answers:
I was troubled to learn that, according to a senior official at the Federal Deposit Insurance Corporation (FDIC), the FDIC has “routinely flagged any bank” that had “connections to prominent people” or might otherwise cause “unnecessary press or public relations” problems. This previously undisclosed practice, revealed last week in the Washington Post, raises concerns that the FDIC may be making decisions based on factors other than protecting the best interests of taxpayers and depositors. I am writing to request more information about this FDIC practice.
Issa is demanding answers to four questions from the FDIC no later than Oct. 4:
1. A full and complete explanation of any FDIC practice or effort to identify banks that have connections to prominent people or might cause press or public relations problems;
2. A full and complete explanation of the criteria or metrics the FDIC uses to determine if a bank has connections to prominent people or might cause press or public relations problems;
3. A full and complete explanation of how the FDIC treats a bank which has been identified as having connections to prominent people or potentially causing press or public relations problems differently from a bank not so designated;
4. A list of all institutions regulated by the FDIC which have been identified by the FDIC, between January 1, 2007, and September 20, 2010, as having connections to prominent people or potentially causing press or public relations problems. The list should include, but not be limited to, the following information for each institution:
a. The name of the institution;
b. The date at which it was identified by the FDIC as having connections to prominent people or potentially causing press or public relations problems;
c. A full and complete explanation of all reasons it was identified by the FDIC as having connections to prominent people or potentially causing press or public relations problems; and
d. If the institution was later removed from any list of institutions identified as having connections to prominent people or potentially causing press or public relations problems, a full and complete explanation of all reasons why the institution was removed.
On Friday, PJM contacted the FDIC to ask those same questions. After repeated phone calls were not returned and this reporter was told people “had just left for a meeting,” PJM received an email from Andrew Gray, director of Public Affairs at the FDIC, at 4:57 p.m. EST:
We don’t have a system or list of prominent banks that have relationships with prominent people. The Washington Post article was wrong. If you look at the testimony that the reporter drew from, it is pretty clear.
Note Gray directed PJM to testimony which is not public, but which the Washington Post has obtained:
Regulators were worried about the bank’s expenditures on its officers and its $50 million worth of investments in the stocks of two federally chartered mortgage lending companies, Fannie Mae and Freddie Mac, according to a sworn interview by Sandra Thompson, the FDIC’s chief supervisory and consumer protection official, with House investigators. Her statements, obtained by the Post, have not been made public.
PJM then contacted R. Jeffrey Smith, the Washington Post journalist who wrote the original story, to ask him about the allegations raised by Gray.
Smith responded via email as well, late Friday evening:
We haven’t made a decision about making the testimony public in full. But I stand by the story in full. Moreover the agency has not contested to us our description of that testimony.
FDIC needs to explain themselves, and quickly.
That the law is fairly applied — and that all have an equal opportunity before it — is the cornerstone of American society. Bad enough that this bank so obviously was given consideration far above and beyond any other bank in the country because of its connection to Waters, but that a government agency should so blatantly keep track of organizations with the “proper contacts” is a level of corruption which defies description. It is possible, of course, that Smith and his collaborators did indeed get it wrong. But the fact that FDIC will deny this to PJM, but has not protested to the Post is telling.
That politicians will try to curry favors for constituents’ friends and relatives is a law of nature, as is that bureaucrats will often grant them. But this should not be institutionalized. If the Post is correct and this practice was institutionalized at FDIC, all Americans should be appalled, and a criminal investigation should follow Issa’s.