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Despite Extra Help, Weakest Bailed-Out Bank Is Still Among the Worst

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Rep. Barney Frank, chairman of the House Financial Services Committee, confers with Rep. Maxine Waters, left, and others. Frank stepped in to help a bank in which Waters' husband had a financial stake, but he has said she did not influence him. (Win McNamee/Getty Images)

At the center of the ethics controversy enveloping Rep. Maxine Waters, a California Democrat, is OneUnited, the nation’s largest African-American-owned bank.

The House ethics committee announced three charges against Waters today, alleging that she improperly used her office to help the bank, in which her husband had a financial stake.

The Investigative Reporting Workshop at American University points out that OneUnited  was the weakest bank to receive bailout money at the time of its rescue, though that part of the bailout was intended to help healthy banks:

When then-Treasury Secretary Henry Paulson announced creation of the so-called "Capital Purchase Program" in October 2008, he said it was directed at "healthy institutions." Nevertheless OneUnited Bank of Boston received a $12.1 million capital injection from the Treasury Department on Dec. 19, 2008.

That OneUnited wasn’t exactly a "healthy institution" isn’t new. As we pointed out last week, a month before the Treasury awarded OneUnited bailout money, regulators at the FDIC had accused its management of unsound banking practices and excessive executive perks.

But the bank had friends in high places. When Waters, a member of the Financial Services Committee, told her committee’s chairman, Rep. Barney Frank, about her conflicts of interest, he told her to stay out of the matter. Frank, a Massachusetts Democrat, then proceeded to help the bank on his own. From The Wall Street Journal:

A provision designed to aid OneUnited was written into the federal bailout legislation by Mr. Frank, who is chairman of the financial-services panel. Mr. Frank has said he inserted the provision to help the only African-American owned bank in his home state. He said in an interview that Ms. Waters's interest "had zero impact on the outcome because I would have done it anyway."

In other words, OneUnited didn’t go through the same door as the other banks, so it's not too surprising that it got bailout money despite being weak.

Strength and weakness were calculated based on banks’ ratio of Tier 1 capital (that’s equity and disclosed reserves) to total assets. The FDIC requires banks to have at least a Tier 1 ratio of 3 or 4 percent, depending on their classification. According to the Investigative Reporting Workshop, OneUnited’s Tier 1 ratio was just 1.8 percent in the quarter before it received bailout money.

OneUnited representatives did not comment for the Investigative Reporting Workshop story. Frank has said he has “no regrets” about helping the bank.

But despite its $12 million influx of federal cash, the bank still ranks among the worst of those bailed out. The bailout money has not been repaid, and OneUnited “has not yet met” all the goals of the corrective plan set forth by federal and state regulators, according to the Investigative Reporting Workshop.

Unlike most of the other banks, the piece pointed out, OneUnited’s financial troubles were “not primarily due to bad loans” or subprime lending, but were instead due to its Fannie Mae and Freddie Mac investments.

Anyone really surprised at this?

I’m confused.  If Waters stayed out of the matter after talking to Frank, why is it not Frank who is accused?  And “intended to help healthy banks??? If all those banks were healthy, why O why did they need help?

Q: Did Goldman Sachs and JP Morgan become banks in order to be eligible for all the “bailout” and FED interest rates.

A: Yes.

Q: Did Henry Paulson ever work for CEO of Goldman Sachs which would be a conflict of interest?

A: Yes

Q: Are ethics a violation regardless who you know?

A: Depends

cdw and T Jones,

Great post comments. Why O why!

Sonny Lapilotta

Aug. 10, 2010, 5:31 a.m.

Barney Frank should be in jail. He and Chris Dodd (and Nouvo Cuomo) did more to facilitate the mortgage meltdown debacle than Goldman Sachs and Hank Paulson. But Franks carefree, wave of the hand dismissive attitude seems to constantly minimize his abhorrent behavior….Term limits, folks..Now THATS what the Tea Party should be demanding!

Hi cdw,

According to the House Ethics Committee charges, Rep. Waters didn’t stay out of the matter after Barney Frank warned her to—her chief of staff (also her grandson) continued to try to help OneUnited.

The ethics scrutiny is on Rep. Waters right now and not on Rep. Frank because of her husband’s connections and financial stake in the bank. He held hundreds of thousands in investments in the bank and was also a board member. According to the Ethics Committee, those investments would’ve been worthless if the bank failed.

(More info: http://www.propublica.org/blog/item/read-the-ethics-findings-for-rep.-maxine-waters & http://blogs.wsj.com/washwire/2010/08/09/waters-chief-of-staff-named-in-ethics-charges/)

Erich Riesenberg

Aug. 10, 2010, 2:25 p.m.

I guess Frank is off the hook because he has plausible deniability.  It is a high hurdle to hold powerful people responsible.

The underlining scenario tied to investments to Fannie Mae, Freddie Mac plus it being taughted as the nations largest African Americna owned bank I can see why it received special attention.  I just dont know why Ive never heard of the bank or it NEVER solicited me to deposit money there, hmmm, Im as Black as they come.

i suppose you have made a good talk about the topic.
  thank you very much.

Thank you for responding,  Marian. As far as I’m concerned the jury’s still out on this one.  I really don’t see any difference between Waters’ actions and Paulson’s in the Goldman bailout. 

And my question about the “healthy” banks getting bailouts still stands.  Shouldn’t that read “big” banks instead of “healthy” banks?

Another question that’s been on my mind.  Why did Pelosi allow these investigations to come to a head so close to the November elections.  Surely she could have seen that were disposed of earlier?

I got divorced a few years ago and my exwife was told she could get the house if she could afford it or else split the sale. Instead she sold it to my daughter behind my back, and my daughter only made $12. an hour and took out a mortgage for $250,000.00. Talk about predatory lending, these a@@hole banks get bailed out also. They ruined my daughters credit because my wife ended up losing the house after a year cause she couldnt afford it. These banks should rot in hell. Then they want us to pay for this , America you just been swindled

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