Many happy returns
Editor's Note: Diana W. Thomas, Benjamin N. Blau and Tyler J. Brough are assistant professors of economics and finance at the Jon M. Huntsman School of Business at Utah State University.
The Salt Lake Tribune
By Diana W. Thomas, Benjamin N. Blau and Tyler J. Brough
Occupy Wall Street activists are protesting corporate greed and their message is resonating well with many across the country who are taking up the cry. At first glance, the numbers might suggest that the protesters are right to complain. In new research, we show that for every $1 a bank spent on lobbying in the five years prior to the 2008 federal bailout of financial institutions, it received $500 in bailout money.
This result holds after controlling for other factors that may have influenced the distribution of Troubled Asset Relief Program funds, such as a firm’s size or its debt-to-equity ratio, which is a measure of a firm’s risk. Overall, banks that lobbied were 42 percent more likely to be bailed out than banks that did not.
Yet from a strictly financial perspective, the banks that lobbied and received more bailout money as a result were merely smart investors. Their return on investment over the five-year period prior to the bailout was almost 500 percent, unheard of for any other type of investment. Even the banks that paid back TARP funds were still rewarded for their lobbying investment, with low-interest loans that private borrowers could never dream of receiving at their local bank.
This raises a difficult question: If these bankers were just acting in their rational self-interest, then are they the only party to blame?
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