"David Weidner Brings the Crazy"

Somehow I doubt we'll see a post with that headline on Megan McCardle's Atlantic blog in response to Weidner's MarketWatch column today, which questions the influence Goldman Sachs has exerted on the government's response to the financial crisis ("Government Sachs is in control"¹). Last month Megan used a similar headline when a Member of Congress raised similar questions about Goldman Sachs ("Maxine Waters brings the crazy"). In that post, Megan embedded the video below, of Rep. Waters questioning Treasury Secretary Geithner, and opined that,

She seems to get all of her questions off of the fringier conspiracy sites.

Some commenters dismissed Waters because of her previous comments, or because she flubbed some basic terminology in this video (e.g., referring to Geithner's deputy -- a Goldman Sachs alumnus -- as his "CEO"), but as I wrote in the comment thread of Megan's post at the time,

Maxine Waters is neither crazy nor stupid, as some here seem to think. She and her family members seem to have done quite well in business dealings trading off of her position²: she has to have some savvy to have been able to do that and not get in trouble with the law (at least so far). Since her family's success in business seems to have been from rent-seeking, she probably assumes that's how big business works too, which may explain her apparent contempt for corporate CEOs. In the case of Goldman Sachs, she may not be entirely off base. It's certainly not unreasonable to ask questions about the ubiquity of Goldman Sachs alumni in influential positions, and how that may have influenced government policies that, so far, have been very good for Goldman Sachs.

¹In his column, Weidner wrote,

Since the fall of Bear Stearns Cos. a little more than a year ago, Goldman has taken more than $20 billion in taxpayer cash through loans, payments and backstops.

[...]

In the last year, Goldman has benefited from Paulson's selective bailouts, a fortuitously timed ban on short selling, a liberal interpretation of bank holding company rules and soon, an easily gamed auction of distressed securities run by the government.

A conspiracy theorist might think this run of fortune has something to do with the former Goldman executives having influential roles in the Treasury Department.

²See this previous post for some examples, "Peering Under the TARP: Foul Waters"

Peering Under the TARP: Foul Waters

Representative Maxine Waters (pictured above), Democrat of California, was one of the members of the House Banking Committee featured in the YouTube video in a recent post ("Armando Falcon, Jr: An Enemy of the People?"). Today, she was the subject of a New York Times article ("Congresswoman, Tied to Bank, Helped Seek Funds"). From the article:

WASHINGTON — Top banking regulators were taken aback late last year when a California congresswoman helped set up a meeting in which the chief executive of a bank with financial ties to her family asked them for up to $50 million in special bailout funds, Treasury officials said.

Representative Maxine Waters, Democrat of California, requested the September meeting on behalf of executives at OneUnited, one of the nation’s largest black-owned banks. Ms. Water’s husband, Sidney Williams, had served on the bank’s board of directors until early last year and has owned at least $250,000 in stock in the institution. Treasury officials said the session with nearly a dozen senior banking regulators had been intended to allow minority-owned banks and their trade association to discuss the losses they had incurred from the federal takeover of Fannie Mae and Freddie Mac. But Kevin Cohee, OneUnited’s chief executive, instead seized the opportunity to plead for special assistance for his bank, federal officials said.

“Here you had a tiny community bank that comes in and they are not proposing a broader policy — they were asking for help for themselves,” said Steve Lineberry, a former Treasury aide who attended the meeting. “I don’t remember that ever happening before.”

[...]

While OneUnited did not get the $50 million it requested, the bank did become among the first minority-owned institutions to receive a cash infusion — $12 million — in December through the Treasury’s bank bailout effort, called the Troubled Asset Relief Program.

The aid surprised some bank analysts because the bailout was intended for healthy banks, and OneUnited was then considered to be in precarious condition. In addition, it had been harshly criticized by regulators in 2007 for failing to give a sufficient number of loans to lower income residents in Miami, while favoring wealthier customers there. And the F.D.I.C. sanctioned the institution in October 2008 for “unsafe or unsound banking practices,” including excessive compensation for Mr. Cohee. The bank had provided him with a 2008 Porsche SUV and maintained his $6.4 million beachfront compound in Santa Monica. Calif., with views of the Pacific and a spa and pool.

[...]

Ms. Waters and Mr. Cohee have been outspoken advocates for fair treatment of African-Americans and other minorities by the nation’s banks — “silver rights,” Mr. Cohee called it during an interview in his Los Angeles office, where he prominently displays a photograph of him with the congresswoman. Indeed, in Los Angeles the bank has won praise for its record of helping minority businesses and lower-income residents.

Their interests first intersected in 2002, when Mr. Cohee was involved in a bidding war for Family Savings, a small, black-owned bank in Ms. Waters’ South Los Angeles District.

As a white-owned Illinois bank initially emerged as the winner, Ms. Waters made clear through the local news media that she opposed any deal in which Family would fall out of African-American hands. She was credited when the bank abruptly changed course and gave Mr. Cohee another chance to submit a winning bid.

“It’s very helpful if you have a community-based transaction to have the real or implied support of Maxine,” said Mr. Bradshaw, who preferred the initial deal. “She’s a star in the community.”

This Mr. Bradshaw seems quite diplomatic. Back to the article:

The acquisition nearly doubled the size of Mr. Cohee’s bank, making it among the nation’s largest African-American-owned banks.

Less than two years later, Mr. Cohee named Mr. Williams, Ms. Waters’ husband, to the bank’s board. A former professional football player and ambassador to the Bahamas¹, Mr. Williams was working as a business consultant, pulling in hundreds of thousands of dollars over a several-year period working with some of Ms. Waters’s political allies, according to disclosure forms.

[...]

The federal takeover of Fannie and Freddie last fall was a near-fatal blow to One United. The bank, like many others around the United States, had invested some of its capital in preferred stock of the two mortgage companies.

After the federal intervention, the stock became nearly worthless and OneUnited lost almost $50 million. That left the bank dangerously under capitalized.

[...]

Ms. Waters had been in regular contact with Henry M. Paulson Jr., then the Treasury secretary, urging him to hire minority contractors to advise the federal government on investments and to move more aggressively to head-off a rash of forced evictions of people defaulting on their mortgages, Treasury officials said.

It was in one of those conversations that she asked Mr. Paulson to host a gathering at Treasury of representatives from minority-owned banks to discuss their losses related to Fannie Mae and Freddie Mac, the officials said.

OneUnited officials, including Mr. Cohee, had separately been pressing for such a meeting, requesting it on behalf of the National Bankers Association, a Washington-based group that represents minority-owned banks. Its incoming chairman was a OneUnited executive, Robert Cooper. But it was only after Ms. Waters intervened that the session was approved, Treasury officials said.

At the meeting were representatives from the offices of Representative Barney Frank and Senator John Kerry, both Democrats of Massachusetts, the home state of OneUnited, along with Ms. Waters’s chief of staff. As the hour-long meeting got underway, Treasury officials were surprised as Mr. Cohee and Mr. Cooper focused the discussion on their bank, not broader industry problems, participants said. Mr. Cohee made it clear that he wanted the federal government to somehow make up for their $50 million loss.

“They wanted money — cash,” said a former Treasury Department official who attended the meeting but asked not to be named, because he was not authorized to speak to reporters. “That is why they were there. It was very, very explicit.”

The photo above, of Rep. Waters, accompanied the article. It is credited to Doug Mills/The New York Times .

¹Perhaps Rep. Waters ought to recommend Wayne-Kent A. Bradshaw, the former president of Family Savings, for this post?