Over the weekend, I gave you a refresher course on entrenched California Democrat Rep. Maxine Waters’ OneUnited Bank ethics scandal. It’s a textbook case of cronyism of color.
In a nutshell: The minority depository institution was seeking a backdoor government rescue from its reckless decision to squander nearly $52 million of its bank capital on Fannie Mae and Freddie Mac preferred stock. After the federal bailout of Fannie/Freddie, OneUnited’s stock in the government-sponsored enterprises plunged to a value estimated at less than $5 million. Only through Rep. Waters’ intervention was OneUnited Bank able to secure an emergency meeting with Paulson and Treasury. They did so under the guise of representing the “National Bankers Association.” But records obtained by congressional investigators showed that OneUnited Bank’s legal counsel, vice president and president (the latter two are married to each other) spearheaded the meeting, its agenda, and drafted the talking points/briefing material for Rep. Waters. As I noted in my OneUnited column last year:
“The banks’ executives donated $12,500 to her congressional campaigns. Her husband, Sidney Williams, was an investor in one of the banks that merged into One United. They’ve profited handsomely from their relationship with the bank…Waters (along with Rep. Frank) participated directly in pressuring the feds for OneUnited’s piece of the bailout pie. She personally contacted the Treasury Department last December  requesting $50 million for the company– and failed to disclose her ties to the bank to them. The government ended up coughing up $12 million in TARP funding for OneUnited — despite another government agency rapping the bank in October 2008 for “operating without effective underwriting standards and practices,” “operating without an effective loan documentation program” and “engaging in speculative investment practices.”
You can read the separate Office of Congressional Ethics Report and Findings on Waters’ conduct here. It was completed more than a year ago, but released for the first time to the public yesterday by the House ethics panel. I’ll have much more on the case in my syndicated column tomorrow, but here are some nuts, bolts, and choice nuggets I gathered for you from the report:
THE RELEVANT ETHICS CODE RULES & STANDARDS (pp 7-8):
9. Code of Conduct:
Under House Rule 23, clause 1, Members ‘‘shall behave at all times in a manner that shall reflect creditably on the House.’’
Under House Rule 23, clause 2, Members ‘‘shall adhere to the spirit and the letter of the Rules of the House’’.
Under House Rule 23, clause 3, Members ‘‘may not permit compensation to accrue to the beneficial interest of such individual from any source, the receipt of which would occur by virtue of influence improperly exerted from the position of such individual in Congress.’’
10. Conflict of Interest: The House Ethics Manual discusses at length the precedents guiding Members’ actions on matters of personal interest. Quoting Rule III, section 673 of the Rules of the House of Representatives, the manual states, ‘‘It is a principle of ‘‘immemorial observance’’ that a Member should withdraw when a question concerning himself arises; but it has been held that the disqualifying interest must be such as affects the Member directly, and not as one of a class.’’4 Although the manual states that Rule III only applies to a Member voting on the House floor, it makes clear that contacting an executive branch agency entails ‘‘a degree of advocacy above and beyond that involved in voting.’’5
As such, the manual cautions that a ‘‘Member’s decision whether to take any such action on a matter that may affect his or her personal financial interest requires added circumspection.’’ A Member who considerers advocating on a matter that may affect her ‘‘personal financial interests . . . should first contact the Standards Committee for guidance.’’
THE SUMMARY OF ALLEGATIONS (p.5)
There is a substantial reason to believe that Representative Waters’ conduct may have violated House Rule 23, clause 3 and House precedent regarding conflict of interest1 when she called then Treasury Secretary Henry Paulson and requested that Treasury Department officials meet with representatives from the National Bankers Association. A meeting was in fact granted, however, the discussion at the meeting centered on a single bank— OneUnited. Representative Waters’ husband had been a board member of the bank from 2004 to 2008 and, at the time of the meeting, was a stock holder of the bank.
OBSTRUCTION BY ONEUNITED EXECUTIVES ROBERT COOPER, KEVIN COHEE (p.21)
The Board again notes that the OCE made multiple requests to interview Mr. Cooper and Mr. Cohee. Mr. Cooper and Mr. Cohee refused the OCE’s requests. The website for the NBA currently lists Mr. Cooper as the Chairman for the ‘‘2008 Board of Directors’’ and Mr. Weekes as the ‘‘Immediate-Past Chairman.’’ However, this fact does little to answer the questions raised by this Review.
40. Pursuant to H. Res 895 1(c)(2)(C)(i)(II)(bb) and Rule 6 of the Office of Congressional Ethics Rules for the Conduct of Investigations, the Board infers that Mr. Cooper and Mr. Cohee’s refusal to cooperate, taken together with the facts above, indicate that Mr. Cooper may have used his position as the Chairman-elect of the NBA to place OneUnited in a preferential position with the Treasury Department following the creation of Fannie Mae and Freddie Mac’s conservatorship.
DEMOCRAT REP. BARNEY FRANK’S WARNING TO WATERS TO STAY OUT OF THE ONEUNITED BANK BAILOUT BID (the OCE report refers to him as “REPRESENTATIVE A”)
In September 2008, Representative Waters Told Representative A There Was A Problem With Oneunited, But That She Didn’t Know What To Do About It Because [her husband] ‘‘Sydney’s Been On The Board.’’56
45. Representative A recalled that the problem Representative Waters referenced was the fact that OneUnited has purchased more preferred shares of Fannie Mae and Freddie Mac than any other bank. Representative A described the problem OneUnited had as an exaggerated version of the problem every other bank had—OneUnited had overbought preferred shares in Fannie Mae and Freddie Mac and was therefore at a greater risk of collapse than any other bank holding preferred shares of Fannie Mae and Freddie Mac.57
46. Representative Waters told Representative A that she was in a predicament because her husband had been involved in the bank, but ‘‘OneUnited people’’ were coming to her for help. According to Representative A, she knew she should say no, but it bothered her. It was clear to Representative A that this was a ‘‘conflict of interest problem.’’58
47. Representative A’s advice to Representative Waters was to ‘‘stay out if it’’—OneUnited was a Boston bank and he had a commitment to minority banks. He would address the problem. Representative A then asked his staff to take over the OneUnited issue from Representative Waters.59
The Boston Globe has more on Frank’s role. He told the Boston Herald he feels “vindicated.” Yet, he had no qualms teaming up with Rep. Waters on more permanent Wall Street bailouts masquerading as “reform.”
The ethics, judgment, and color-coded favoritism of Waters and her staff shouldn’t be the only ethics, judgment, and racial favoritism under scrutiny.
Linus Wilson at Seeking Alpha sums it up:
OneUnited Bank was left with NEGATIVE $7.0 million in equity, according to to this spreadsheet, which was mailed by OneUnited bank officials to the U.S. Treasury.
My joint research with Wendy Yan Wu, “Escaping TARP” shows that the average TARP recipient had a tier 1 capital ratio of 11.02 percent. Before it lost the bank’s capital on the Fannie and Freddie preferred stock, OneUnited was near the regulatory minimum of a 5 percent tier 1 capital ratio. After the mortgage giants were seized to prevent their failure, OneUnited’s tier 1 capital ratio was about -1 percent. In other words, OneUnited was a zombie bank. The stock owned by Ms. Waters’ husband would have been worthless without a government rescue and forbearance from regulators.
Yet, despite knowing that OneUnited had negative equity, and thus did not meet even the minimum capital requirements to be open for business, the U.S. Treasury invested $12.1 million of taxpayers’ dollars in this zombie bank on December 19, 2008. Ms. Waters’ alleged use of her position to enrich herself at taxpayer expense is troubling. So is the U.S. Treasury’s ultimate investment in OneUnited Bank based in House Financial Services Committee Chairman’s, Barney Frank’s (D-MA), district. My paper “TARP’s Deadbeat Banks” shows that OneUnited has missed five straight dividends. If it misses its sixth dividend, the U.S. Treasury will have the right to appoint two new directors to the banks’ board. Taxpayers representatives probably will soon be holding a board seat at OneUnited like Ms. Waters husband once held.
Has Congress learned its lesson? Not yet. Ms. Waters’ and Mr. Frank’s party are attempting to pass legislation to invest up to $30 billion in banks like OneUnited. An amendment pushed by U.S. Senator George LeMieux (R-FL) says that banks on the Federal Deposit Insurance Corporation’s (FDIC’s) problem bank list can get access to taxpayer funds, if they get matching amounts of private capital in the amended “Son of TARP” bill. CIT Group raised private capital prior to receiving TARP funds, and it failed nevertheless. I’m wondering why OneUnited was not seized by regulators a long time ago. Perhaps the Boston lender is too politically connected to fail.
When government picks winners and losers behind closed doors, taxpayers always get left holding the bag.