By DANA LIEBELSON
The 2008 Troubled Asset Relief Program (TARP)— the Bush Administration's $700 billion response to the mortgage crisis—was designed to provide capital injections to banks that needed it. But according to a study published last week, banks that lobbied or had other types of political connections were far more likely to see TARP cash than those that didn’t.
Benjamin Blau, Tyler Brough and Diana Thomas, three professors from Utah State University, authored the report. Corporate Lobbying, Political Connections, and the 2008 Troubled Asset Relief Program takes a comprehensive look at the lobbying expenditures and political connections of banks that were recipients of TARP funds. The researchers found that for every dollar firms spent on lobbying during the five years prior to the TARP bailout, they received between $486 and $586 in TARP money. Firms that lobbied also had a 42 percent higher chance of receiving TARP support than those that didn’t.
POGO interviewed one of the researchers, Diana Thomas by email about the findings, political investments and what the Super Committee can take away from this kind of research (but probably won’t).
POGO: Why did you decide to conduct a study on the Troubled Asset Relief Program?
Diana Thomas: During lunch about a year ago, a colleague mentioned that the biggest criticism of the bailout was the randomness of the distribution of the funds. We quickly agreed that it would be interesting to see what factors contributed to the distribution of bailout money. Additionally, since one of us is a political economist, we decided that it might be worth looking at potential political determinants of bailout funds.
POGO: Do you think there are problems associated with the fact that firms that engage in political lobbying receive more bail money?
DT: From an economist’s perspective, lobbying is just another form of investment and there are a number of studies that show that it is a surprisingly profitable investment. Our study does not address the question of whether that is a good thing or a bad thing. Given the current set of political institutions, it is to be expected that corporations will seek to influence political decision making processes. What is surprising is that some firms chose to stay out of the political game given that it is such a profitable investment.
POGO: Did your results surprise you in any other ways?
DT: Given the existing evidence on this topic, we expected to find a positive relationship between political involvement and the allocation of TARP funds. The magnitude of the relationship was somewhat surprising however. It is pretty astonishing that a firm that spent $1 on lobbying in the five years before the bailout ended up receiving more than $500 worth of bailout money.
POGO: Do you have any follow-up studies planned?
DT: We have a few follow-up studies planned. Our biggest question is what the most profitable political investments were. In other words, was it more profitable for a bank to contribute to the campaign of a legislator on the house banking committee—or was it more profitable to employ a person who used to work at the Treasury? Another thing we are planning to do is to look at the operating performance of firms that were able to pay back their TARP funds early as compared to those that did not.
POGO: What lessons can the Super Committee take from your study in trying to make its required budget cuts?
DT: If the intention of the Super Committee is to avoid giving special favors to particular groups, the best way to achieve that would probably be to implement rule based cuts across the board that don’t allow for discretion in how the cuts are distributed across programs.Given that the Super Committee is composed of a number of the same people that were members of the legislature when TARP was passed, however, it seems unlikely they will choose to do so.
Dana Liebelson is the POGO Beth Daley Impact Fellow
Images from top to bottom - Benjamin Blau, Diana Thomas, and Tyler Brough