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As It Turns Out, TARP Money Went to the Well Connected

We’ve always had anecdotal evidence that decisions about which companies got TARP money were highly politicized. Now financial scholar Linus Wilson has produced a study that demonstrates the systematic politicization.

Uncle Sam taking money out of your wallet
iStockphoto
Uncle Sam taking money out of your wallet

The paper, titled “Political Influence and TARP Investments in Credit Unions,” shows that credit unions located in the districts of U.S. House Financial Services Committee members were three times more likely to receive TARP funds relative to other eligible credit unions.

“The predicted probability that a typical credit union will receive TARP monies jumps from 23% to 76% if the credit union lies in the district of a House Financial Services Committee member,” Wilson told CNBC.

Out of 189 credit unions eligible to receive TARP funds, 48 credit unions around $70 million from TARP.

“By my estimates, this program has a subsidy rate of between 29.3 to 46.5 percent. These investments allowed the credit unions to borrow at 2 percent for eight years. Even the U.S. government cannot borrow at 2 percent for eight years. Yet, the U.S. government has never missed a payment. Plenty of TARP recipients have missed their payments on bailout loans,” Wilson explains.

In addition, contrary to the goals of the program, TARP recipient credit unions loaned out a significantly lower percentage of their deposits than eligible credit unions that did not get bailout money, according to Wilson.

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