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Senator Pleaded for Bank Bailout that Cost Taxpayers
- Categorized in: U.S. Senator Robert Menendez
Senator Pleaded for Bank Bailout that Cost Taxpayers
NJ Sen. Robert Menendez Lobbied Treasury to Bail Out Bank That Failed
June 3, 2010 USA TODAY
During the depths of the financial crisis in 2008, a member of the Senate Banking Committee urged the Treasury Department to provide bailout money to a struggling financial firm whose eventual collapse cost taxpayers $2.3 billion, newly released records show.
Sen. Robert Menendez, D-N.J., wrote to then-Treasury secretary Henry Paulson in support of CIT Group, a New Jersey-based lender to businesses such as retail stores. Menendez touted CIT's importance to New Jersey and the nation and said the firm "provided strong evidence" its finances were sound, according to a copy of the letter released last month under the Freedom of Information Act.
At the time, the financial crisis was near its peak, and the Treasury was deciding which institutions were healthy enough to justify investments of taxpayer dollars. Seven weeks after Menendez's letter, CIT announced the Treasury's $2.3 billion investment of taxpayer money under the Troubled Asset Relief Program. The Treasury's investment was wiped out in CIT's bankruptcy a year later.
Menendez is one of at least a half-dozen members of Congress, including House Financial Services Committee Chairman Barney Frank, who have acknowledged contacting the Treasury in support of financial institutions seeking money from the $700 billion bailout program. The newly released documents from the Treasury Department included contacts from two other lawmakers during the same one-week period in November 2008 on behalf of troubled banks that failed within a year.
It's not illegal for members of Congress to support financial firms' applications for federal investments, and it's not unusual for lawmakers to contact federal agencies on their constituents' behalf. Both the Treasury and the lawmakers involved say political pressure had nothing to do with decisions to spend the bailout fund. "Treasury put in place procedures regarding contacts with Congress and others to ensure that there is no impact on decision-making," department spokeswoman Meg Reilly said in an e-mail.
Menendez said through a spokesman that he was trying to help the economy. "Ensuring that (CIT) continued to function as a primary source of capital for small businesses to survive and grow was the driving force behind supporting its application," spokesman Afshin Mohamadi said in an e-mail.
Former federal prosecutor Melanie Sloan, who heads the group Citizens for Responsibility and Ethics in Washington, says it's "hard to believe" the Treasury wouldn't feel pressure to award money to banks backed by members of Congress. "The Treasury Department is going to pay attention" if contacted by a member of Congress, she said.
When Menendez wrote to Paulson, CIT was struggling under the weight of bad loans and the freeze in short-term credit markets. CIT lost $2.7 billion in the first nine months of 2008, on top of a $111 million loss for 2007. CIT was "acutely interested" in getting federal money, Menendez wrote. "Given CIT's importance to the American economy, I urge you to give every consideration" to its request, he wrote.
Four months after the Treasury's investment, six CIT executives gave a total of $5,500 to Menendez's campaign, Federal Election Commission records show.
Two other lawmakers, then-senator Mel Martinez, R-Fla., and Rep. Artur Davis, D-Ala., supported troubled banks. BankUnited and Colonial Bank both failed in 2009, together costing Federal Deposit Insurance $11 billion.
A staffer e-mailed the Treasury for Martinez, a Banking Committee member who resigned in 2009 to work for the law and lobbying firm DLA Piper. "Sen. Martinez would like to facilitate a meeting between Treasury and Ramiro Ortiz, a constituent, friend and Pres/CEO of Bank United," the staffer wrote.
Reilly would not say whether such a meeting happened.
BankUnited did not get federal money and failed six months later. Martinez "has no recollection" of the contact, DLA Piper spokeswoman Laura Miller said. BankUnited's political action committee gave the maximum $10,000 to Martinez's 2004 campaign, and Ortiz and his wife donated $2,000, FEC records show.
Davis wrote to Treasury official Neel Kashkari, saying Colonial Bank was "badly in need of the capital infusion" the department could provide. "It is my hope that you will be able to move expeditiously," Davis wrote.
Less than two weeks later, Colonial Bank announced it had preliminary approval for $550 million in federal funds. The bank never got that money and collapsed in August, days after federal agents raided one of its offices as part of a fraud probe.
Davis, who lost Tuesday's Democratic primary for Alabama governor, said he was doing "exactly what any diligent member of Congress would have done."
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