The Wall Street Journal reports on the suspicious case of OneUnited Bank, which received a TARP bailout thanks to Barney Frank, despite running afoul of state and federal regulators due to shady investing and lending practices, as well as the perks it granted to senior executives. The case is an object lesson on the opportunities that massive bills like TARP create for payoffs by those in power, and the power to hide those payoffs. First, the background:
Troubled OneUnited Bank in Boston didn't look much like a candidate for aid from the Treasury Department's bank bailout fund last fall...
Nonetheless, in December OneUnited got a $12 million injection from the Treasury's Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.
Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging that OneUnited be considered for a cash injection.
The Journal later described the provision Frank inserted into the bill to help UnitedOne. Frank apparently recognized that it would prompt unpleasant ethical questions if he simply earmarked money for UnitedOne, so instead he created a pool that would benefit the bank without having to name it:
Mr. Frank says that in order to protect OneUnited bank, he inserted into the bill a provision to give special consideration to banks that had less than $1 billion of assets, had been well-capitalized as of June 30, served low- and moderate-income areas, and had taken a capital hit in the federal seizure of Fannie Mae and Freddie Mac.
Frank saw fit to provide this legup to OneUnited despite it running afoul of federal regulators:
The allegations against the bank included "operating without effective underwriting standards and practices," "operating without an effective loan documentation program" and "engaging in speculative investment practices."
The action also alleged excessive executive compensation. The FDIC ordered OneUnited to "sell all bank-owned automobiles," and to require that executives reimburse the company for any vehicles that had been purchased. The Boston Business Journal reported in November that the bank owns a 2008 Porsche sport-utility vehicle that is registered at the address of OneUnited CEO Kevin Cohee.
The FDIC also ordered the bank to stop paying for a beachfront house in Santa Monica that, according to the Boston Business Journal, was purchased for more than $6 million in early 2007 by a group that included Cohee and his wife Teri Williams, the bank's president.
The story would not be complete without a reminder of where OneUnited puts its political support:
The moves left OneUnited's capital badly depleted. A measure called "Tier 1 risk-based capital" equaled only 1.88% of assets at the bank, versus a desired level of about 6%. A OneUnited lawyer, Robert Cooper, says he called Rep. Frank and Rep. Maxine Waters of California, both Democrats, to complain that the Treasury's move had hurt the bank.
Rep. Waters heads the House Financial Services subcommittee on housing, and until last spring her husband, Sidney Williams, was a OneUnited director. Rep. Frank, besides heading the Financial Services Committee, has longstanding ties to OneUnited, and recalls having had a deposit account at a predecessor bank in the 1960s.
But Frank and Waters are not the bank's only friends in Congress. Members of the Board of OneUnited have been extremely generous to many Democratic candidates over the years. Just look here, here and here for examples.
Right now Congress is considering a stimulus package likely to grow to $1 trillion before the process is over, and there's talk of a multi-trillion TARP II in the near future. Expect hundreds more such tales if those measures pass.
