The troubling bailout of OneUnited Bank
IF AMERICANS ARE angry at Washington, it may be because of episodes like the federal coddling of OneUnited Bank. A minority-owned institution with close ties to Rep. Maxine Waters (D-Calif.) of the House Financial Services Committee, OneUnited got $12 million from the Troubled Assets Relief Program in December 2008, thanks in part to a provision inserted in the TARP bill by the committee's chairman, Rep. Barney Frank (D-Mass.). OneUnited has since failed to pay the government the $900,000 it owes -- not surprising, given its history of mismanagement, which TARP officials elided to approve the money in the first place.
Ms. Waters now faces a House investigation on charges she improperly aided OneUnited, whose past directors include her husband; she denies it. Mr. Frank faces no such proceeding, but this is not his finest hour, either. Aware of Ms. Waters's potential conflict of interest, he told her to steer clear of the bank's plea for aid and said he was "taking care of it." This was not a "handoff," Mr. Frank says. OneUnited was active in his home state; having heard of its plight from others, he was already inclined to lend a hand. OneUnited's capital had consisted largely of stock in Fannie Mae and Freddie Mac; like other small banks, it suffered when the Bush administration took over the insolvent mortgage giants. All his bill did, Mr. Frank says, was give such banks a shot at TARP cash: Funding them or not was Treasury's call.
Federal support of minority-owned banks can help financial services reach underserved communities. But OneUnited specialized in serving itself. Indeed, the Federal Deposit Insurance Corp. cracked down on a top officer's use of bank funds for a Porsche and a couple of mansions. Other regulators had consistently noted OneUnited's failure to meet community credit needs. Mr. Frank says he knew none of this -- but he also made no effort to check OneUnited out beyond what he learned from Ms. Waters and others lobbying on its behalf.
Mr. Frank's contention that TARP aid was up to Treasury is true. But TARP officials went the extra mile, and then some, to bail out OneUnited. Internal e-mails make clear they believed Mr. Frank and Ms. Waters were interested in OneUnited, in part because Ms. Waters had sought aid prior to Mr. Frank's intervention and in part because Mr. Frank's staff called after the TARP bill passed. A TARP inspector general later confirmed that OneUnited was shown "greater flexibility" than others but found no proof of improper favoritism, a conclusion Treasury officials endorse. Mr. Frank allows that the TARP infusion has not worked out and it's probably time for the FDIC to intervene at OneUnited. "TARP was a time of great turmoil," he told us. "Not every 'T' was crossed."
So a dodgy bank with little going for it except access to powerful members of Congress gets $12 million for no evident public purpose and with little chance taxpayers will ever see that money again. Those responsible insist that, according to prevailing norms in the nation's capital, they did nothing wrong. Worst of all, they might be telling the truth.