Banks Use Bailout Bucks to Lobby Congress

Kurt Brouwer July 22nd, 2009

This is not surprising, I suppose, but depressing nonetheless.  The bailout dance is like a perpetual motion machine.  Companies lobby for tax breaks and bailouts and then, after they get the bailout bucks, they use some of that money to feed a hungry Congress. From the Hill.com comes this report [emphasis added]:

Auto companies and eight of the country’s biggest banks that received tens of billions of dollars in federal bailout money spent more than $20 million on lobbying Washington lawmakers in the first half of this year.

General Motors, Chrysler and GMAC, the finance arm of GM, cut back significantly on lobbying expenses in the period, spending about one-third less in total than they had in the first half of 2008.

But the eight banks, the earliest recipients of billions of dollars from the federal government, continued to rely heavily on their Washington lobbying arms, spending more than $12.4 million in the first half of 2009. That is slightly more than they spent during the same period a year ago, according to a review of congressional records…

And, of course, there are some unintended consequences as we see our government dollars at work bailing out a profitable liquor company:

Bailout of U.S. Banks Gives British Rum a $2.7 Billion Boost (Bloomberg, June 26, 2009, Ryan J. Donmoyer)

In June 2008, U.S. Virgin Islands Governor John deJongh Jr. agreed to give London-based Diageo Plc billions of dollars in tax incentives to move its production of Captain Morgan rum from one U.S. island — Puerto Rico — to another, namely St. Croix.

DeJongh says he had no idea his deal would help make the world’s largest liquor distiller the most unlikely beneficiary of the emergency Troubled Asset Relief Program approved by Congress just four months later.

Today, as two 56-foot-high (17-meter-high) tanks for holding fermenting molasses will soon rise from the ground on the Caribbean island of St. Croix, the extent to which dozens of nonbank companies benefited from last October’s emergency financial rescue plan is just beginning to come to light.

The hurried legislation adopted by a Congress voting under the threat of sudden global economic collapse led to hidden tax breaks for firms in dozens of industries. They included builders of Nascar auto-racing tracks, restaurant chains such as Burger King Holdings Inc., movie and television producers — and London’s Diageo.

“It’s kind of like the magician’s sleight of hand,” says former House Ways and Means Committee Chairman William Thomas, a California Republican who ran the committee from 2001 to 2007 and oversaw all tax legislation. “They snuck these things in a bill that was focused on other things.”

Congress inserted the tax benefits for companies other than banks in a fog of confusion and panic after the House of Representatives rejected the first attempt to fund the bank support effort urged by then President George W. Bush and Treasury Secretary Henry Paulson.

…Lawmakers rubber-stamped the package of arcane, if innocuous-sounding, tax items with one eye on the calendar. An election was only a few weeks away, and legislators were desperate to return home to campaign for their own re-election.

A year later, lawmakers and the public are just now discovering some of the curious subsidies tucked into TARP and the government’s other massive intervention programs. Four months after TARP took effect, President Barack Obama pushed through a $787 billion bill intended to pump up the nation’s economy.

That legislation included $20 billion in tax breaks for companies that produce energy from wind and other alternative sources as well as $1.6 billion in relief related to the tax treatment of canceled debt for Sprint Nextel Corp., the third- largest U.S. mobile-phone-service company, and other firms.

Like TARP, the stimulus bill was passed quickly, with little scrutiny…

And, this is actually legal.  It’s not fraudulent or anything.

Of course, there is plenty of fraud to go around too. FBI Director warns of fraud and corruption on a vast scale associated with the economic stimulus programs:

The Federal Bureau of Investigation is braced for a potential crime wave involving fraud and corruption related to bank bailout money and the economic stimulus package, FBI director Robert Mueller warned Tuesday.

“These funds are inherently vulnerable to bribery, fraud, conflicts of interest and collusion. There is an old adage, that where there is money to be made, fraud is not far behind, like bees to honey,” Mueller told an afternoon gathering of business executives.

Law enforcement agencies faced a similar scenario after Hurricane Katrina, with a task force created in the wake of the 2005 storm so far convicting 246 people of fraud and other crimes related to relief funds in Mississippi and Louisiana, Mueller said..

Our government dollars at work.  Unfortunately, there seems to be plenty of action for well-connected organizations like the big banks and auto companies.  I know the insiders and politicians and lobbyists like it, but what about ordinary Americans?

See also:

U.S. Treasury’s Plan C For Banks

Federal Bailout & Boondoggle Bribery

Via: Cato

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