Senators Hold Personal Stake in Bailed-Out Banks
A senator's financial disclosure forms.
The senators who voted last fall to approve the federal bailout of Wall Street hold hundreds of thousands of dollars worth of stock in the very banks that Washington has rescued in the nine months since.
Of the 74 upper-chamber lawmakers who supported the $700 billion financial rescue in October, at least 15 own direct shares in institutions receiving federal funds under the Troubled Assets Relief Program, according to financial disclosure forms filed by members of Congress last month. Combined, those 15 members hold between $1.2 million and $3.0 million worth of stock in TARP beneficiaries — firms that have received no less than $330 billion in TARP funds and loan guarantees since the program began.
Illustration by: Matt Mahurin
Under federal law and congressional rules, it is perfectly legal for lawmakers to be invested in the industries they fund and regulate. Indeed, while judges are often forced to recuse themselves from cases where they have a financial interest, the Congress members who control the nation’s purse-strings have no similar obligation. Yet, the trend has raised the eyebrows of some public interest advocates, who warn that even the appearance of lawmakers voting their wallets can erode the voters’ trust in the elected officials they send to Washington.
“Americans will be skeptical, if it looks like their representatives are making money off of the deal,” said Melanie Sloan, executive director of the Center for Responsibility and Ethics in Washington.
To date, roughly 650 companies have received more than $400 billion in federal funding since the financial rescue began, according to researchers at ProPublica, with a bulk of that money going to enormous Wall Street firms like American International Group, Bank of America and JPMorgan Chase. That influx of cash has benefited not only the companies themselves, but also the shareholders whose investments were rescued from sheer collapse as Wall Street tanked last fall.
Financial disclosure rules make it difficult to pinpoint the extent to which lawmakers are invested in the firms benefiting from the program they helped to launch. But at least 20 percent of the senators who supported TARP own stock in institutions later propped up by the program, according to financial disclosures.
Sen. John Kerry (D-Mass.), for example, along with his wife, reported holdings between $66,000 and $166,000 in Bank of America, which has received $52.5 billion in TARP-backed funds and backstop guarantees. He also claimed between $151,000 and $365,000 in shares of Citigroup ($50 billion from TARP), and between $251,000 and $516,000 in shares of American Express ($3.4 billion from TARP).
He’s hardly alone. Sen. Olympia Snowe (R-Maine) reported holdings between $100,000 and $250,000 in Key Bank ($2.5 billion from TARP). Sen. Judd Gregg (R-N.H.) claimed between $15,000 and $50,000 of stock in Capital One ($3.6 billion from TARP), and another $15,000 to $50,000 in JPMorgan Chase ($25 billion from TARP). The list goes on.
In all, at least 15 senators supporting TARP have benefited financially from the program — a number that’s likely to rise. Thirteen upper-chamber lawmakers have yet to submit their financial disclosures this year.
No one is accusing these lawmakers of voting solely to benefit themselves. Indeed, economists across the ideological spectrum had warned last year that a failure to enact an enormous, government-backed Wall Street rescue would spiral the country even deeper into recession.
Yet the size and scope of the federal bailout efforts — not to mention the popular criticisms of them — have focused more eyes on the workings of Washington in the last year. Some government watchdogs are concerned that the new scrutiny, combined with the awareness that some lawmakers are heavily invested in TARP-backed banks, will lead to public suspicions that their elected officials are blind to conflicts of interests. Those suspicions are intensified when lawmakers conduct financial transactions near to votes on related topics.
“It suggests they have insider information,” Sloan said.
Congressional lawmakers, who build careers preening images that they’re just like everyone else, tend not to be like everyone else when it comes to personal finances. Almost every lawmaker, for example, dabbles somehow with Wall Street, whether their investments take the form of direct purchases of publicly traded stocks or mutual funds tucked away into blind trusts. By contrast, less than 18 percent of American families owned stock in 2007, according to the Federal Reserve’s latest Survey of Consumer Finances. And less than half of all Americans have investments of any kind on Wall Street, including mutual funds and 401(k)-style retirement accounts, according to researchers at the Economic Policy Institute.
Some prominent lawmakers have gone out of their way to eliminate suspicions that they’re using their power to enrich themselves. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, for example, owns no direct company stock, instead putting his holdings almost exclusively into municipal bonds. Aside from benefiting his home state, Frank said in a phone interview Tuesday, that strategy precludes accusations that his legislative activities are motivated by his own financial well-being.
“It is the one conflict-of-interest-free thing I can do,” Frank said. He was quick to add, though, that he doesn’t want to be held up as some example for other members to follow. “I do what I do,” he said. “I can’t be a role model.”
Some money-in-politics experts argue that lawmakers’ personal holdings are largely insignificant as they relate to the legislative process. Mary Boyle, spokeswoman for Common Cause, said that from a public interest standpoint, the more threatening influence is the tsunami of campaign contributions generated each year by special-interest groups in search of legislative favors.
Robert M. Stern, president of the Center for Governmental Studies, a Los Angeles-based non-profit research group, agreed, arguing that a few thousand dollars invested in an enormous Wall Street firm wouldn’t sway most legislators one way or another. On the other hand, Stern added, a lawmaker with significant holdings in a small community bank — or a seat on the company board — might easily be motivated to act on the bank’s behalf.
“If it’s a small bank and there’s a big investment,” Stern said, “then it’s a big deal.”
Stern’s comments came one day before The Washington Post and ProPublica reported that the office of Sen. Daniel Inouye (D-Hawaii) had made an inquisitive phone call to federal officials about the fate of a struggling state bank that had applied for TARP funds. Although TARP was designed to strengthen only healthy banks, Hawaii’s Central Pacific Financial, which Inouye helped establish 55 years ago, received $135 million in federal help shortly after the phone call, the reporters found. Inouye, who has delayed submission of his 2008 financial disclosures until Aug. 13, claimed between $350,000 and $700,000 in Central Pacific shares between he and his wife in 2007.
The laxity of congressional conflict-of-interest rules, watchdogs say, allows it all to happen. Sloan pointed to a 14-year-old saga surrounding former Sen. Lauch Faircloth (R-N.C.) to illustrate the leniency of those guidelines. In 1995, Faircloth was chairman of a Senate subcommittee on clean water and wetlands. But he was also part-owner of a hog-farming empire, with a stake estimated to be worth nearly $20 million. From his perch, and claiming no conflicts of interest, Faircloth tried to roll back federal wetland protections — efforts that would have been a boon to many hog farmers by exempting “large-scale animal feed lots” from some provisions of the Clean Water Act. A local paper, the Charlotte Observer, estimated that the senator’s own farms housed 500 acres of wetlands that would be affected by his proposals.
The Senate Ethics Committee looked into the tale, and found no conflicts of interest.
*Alexandra Jaffe and Aaron Wiener provided extensive research for this report. *