this was not surprising at all. I quote the abstract:
I examine whether stock ownership by politicians helps to enforce noncontractible quid pro quo relations with firms. The ownership by US Congress members in firms contributing to their election campaigns is higher than in noncontributors. This bias toward contributors depends on the financial incentives of politicians and the relation's value. Firms with a stronger ownership–contribution association receive more government contracts. The financial gains from these contracts are economically large. When politicians divest stocks, firms discontinue contributions to the politicians, lose future contracts, and perform poorly. Politicians divest the stocks in contributors, but not in noncontributors, in anticipation of retirement.
In a way, from a purely economics view, this makes perfect sense. Incentives are everything, no? So the fact that both the congress and the companies work to ensure each other get remunerated shouldnt be a surprise, eh? This allows both parties to skate around the bribery restrictions. Neato. bah!
The author gives two publicly available news stories.
The Case of Representative Jerry Lewis (R-CA)
Representative Jerry Lewis (R-CA) is a 16-term member of Congress and has been a member of the House Appropriations Committee since 1980. From 2005–2006, he served as chairman of the full committee, and he currently serves as a ranking member. Rep. Lewis’ ethical issues arise from misusing his position on the Appropriations Committee to steer hundreds of millions of dollars in earmarks to family, friends, former employees, and corporations in exchange for contributions to his campaign committee:
“In 2005, shortly after becoming chairman of the Appropriations Committee, Rep. Lewis was asked to buy into an initial public offering of a fledgling bank, Security Bank of California, headed by his close friend James Robinson. Rep. Lewis’ initial investment of $22,000 for 2,200 stocks in Security Bank was worth nearly $60,000 in 2006, an increase of almost 300%. The stock was recommended to Rep. Lewis by Mr. Robinson's wife, a former chair and board member of the Loma Linda University Children's Hospital Foundation, a branch of Loma Linda University Medical Center. Rep. Lewis has helped direct more than $200 million in federal dollars to the medical center, which has facilities named in his honor. In June 2006, Rep. Lewis acknowledged that the medical center benefitted from $40 million in earmarks. Many of Security Bank's board members have also contributed to Rep. Lewis’ campaign and are linked to businesses that received federal earmarks. They include Zareh Sarrafian, an executive with Loma Linda Medical Center and president of the Hospital Foundation's board, and Bruce Varner, a friend of Rep. Lewis’ who served on the board of the National Orange Show Events Center in San Bernardino. The center has received more than $800,000 in federal funds.” (CREW report 2009, pp. 37–38)
The Case of Representative Maxine Waters (D-CA)
Representative Maxine Waters (D-CA) is a 10-term member of Congress and a senior member of the House Financial Services Committee. She arranged a meeting between the Department of Treasury and OneUnited Bank, a company with close financial ties to Ms. Waters, involving both investments and contributions:
“In September 2008, Rep. Waters asked then-Secretary of the Treasury Henry Paulson to hold a meeting for minority-owned banks that had suffered from Fannie Mae and Freddie Mac losses. The Treasury Department complied and held a session with approximately a dozen senior banking regulators, representatives from minority-owned banks, and their trade association. Officials of OneUnited Bank, one of the largest black-owned banks in the country that has close ties to Rep. Waters, attended the meeting along with Rep. Waters’ chief of staff. Kevin Cohee, chief executive officer of OneUnited, used the meeting as an opportunity to ask for bailout funds.... Former Bush White House officials stated they were surprised when OneUnited Officials asked for bailout funds.... In December 2008, Rep. Waters intervened again, asking Treasury to host another meeting to ensure minority-owned banks received part of the $700 billion allocated under the Troubled Asset Relief Program… Within two weeks, on December 19, 2008, OneUnited secured $12.1 million in bailout funds… This was not the first time Rep. Waters used her position to advance the interests of the bank. Rep. Waters’ spouse, Sidney Williams, became a shareholder in OneUnited in 2001, when it was known as the Boston Bank of Commerce. In 2002, Boston Bank of Commerce tried to purchase Family Savings, a minority-owned bank in Los Angeles. Instead, Family Savings turned to a bank in Illinois. Rep. Waters tried to block the merger by contacting regulators at the FDIC. She publicly stated she did not want a major white bank to acquire a minority-owned bank. When her efforts with the FDIC proved fruitless, Rep. Waters began a public pressure campaign with other community leaders. Ultimately, when Family Savings changed direction and allowed Boston Bank of Commerce to submit a winning bid, Rep. Waters received credit for the merger. The combined banks were renamed OneUnited.... In March 2004, she acquired OneUnited stock worth between $250,001 and $500,000, and Mr. Williams purchased two sets of stock, each worth between $250,001 and $500,000. In September 2004, Rep. Waters sold her stock in OneUnited and her husband sold a portion of his. That same year, Mr. Williams joined the bank's board.... OneUnited Chief Executive Kevin Cohee and President Teri Williams Cohee have donated a total of $8,000 to Rep. Waters’ campaign committee…. On October 27, 2009, less than two months before OneUnited received a $12 million bailout, the bank received a cease-and-desist order from the FDIC and bank regulatory officials in Massachusetts for poor lending practices and excessive executive compensation... the bank provided excessive perks to its executives, including paying for Mr. Cohee's use of a $6.4 million mansion…” (CREW report 2009, pp. 123–125).
