How did GOP get $8 million from Wachovia?

[FourScore]

BREAKING: How did GOP get $8 million from Wachovia? UPDATEDx2
by ProgressiveSouth
Thu Oct 09, 2008 at 11:49:15 AM PDT

Wachovia Corp., a once-thriving financial giant now teetering on the brink of collapse, confirmed today that it was extending an $8 million loan to the cash-strapped National Republican Congressional Committee for last-minute activites to support GOP House candidates.

Wachovia's decision to lend money to the NRCC -- itself reeling from a damaging financial scandal earlier this year -- is sure to draw charges of favoritism, as Wachovia denies credit and freezes assets for thousands of other customers.

Allegations of favoritism are especially delicate for Wachovia, given the company's disproportionate support of Republican campaigns and organizations.

What's more, Wachovia's loan to the NRCC comes as Wachovia awaits the outcome of precarious buyout negotations which have relied on federal backing -- inviting questions over the political activities of companies whose survival depend on public support.

WACHOVIA'S BIG FALL

In a year of spectacular finance industry failures, the fall of Wachovia Corp. -- the 4th-biggest bank in the country -- was one of the biggest. This past July, Wachovia announced staggering 2nd-quarter losses totaling over $9 billion -- the second-largest bank losses in history. The crisis forced the financial giant to slash over 11,000 jobs and cut $2 billion in expenses.

Wachovia's economic tailspin this year also caused them to drastically cut back on making loans. By July 2008, Wachovia branches were turning down most loan requests that came across their desk, as The New York Times reported:

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring. <...>

Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.

But when Greenblatt called the local branch of Wachovia -- the same bank that had been aggressively marketing loans to him for years -- he was distressed by the response.

"The exact words were, 'We're saying no to almost everybody,'" Greenblatt recalled.

But Wachovia hadn't hit bottom yet. For the next three months, stock prices kept falling and losses mounted. By the time Washington Mutual failed on September 25, investors had lost all faith in Wachovia, too. Wachovia faced a "silent run" as businesses and institutions began pulling out vast sums of money.

The possibility of total collapse was so real that the FDIC, for the first time ever, used its authority to prevent a failure that could pose a "systemic risk" to the financial system by forcing Wachovia into a rescue buyout by Citigroup.

Wachovia's dramatic fall -- and uncertainty around the Citi buyout -- has forced it to further slash access to capital and credit. In a widely-publicized move, Wachovia announced days later that it was freezing the short-term accounts of nearly 1,000 colleges who invested in the Commonfund -- generating panic at campuses nation-wide, as the Chronicle of Higher Education reported:


Making matters worse, Wachovia's situation has grown even more precarious over the last week, as the FDIC-engineered buyout by Citi fell apart amid a storm of lawsuits after rival Wells Fargo made a counter-offer for Wachovia's takeover.

BAILING OUT THE NRCC

It was in this context that yesterday, in a little-noticed item in Roll Call (and noted by Chris Bowers at OpenLeft), that the National Republican Congressional Committee said it had obtained an $8 million loan from Wachovia to help out House Republican candidates in the final weeks of the 2008 elections:

The National Republican Congressional Committee, trailing its Democratic counterpart considerably in cash on hand, has secured an $8 million loan to spend on House races during the last few weeks of the campaign, according to sources.

The NRCC reported $14.4 million in cash on hand as of Aug. 31, compared to $54 million in the bank for the Democratic Congressional Campaign Committee. As it did last cycle, the NRCC is procuring its loan from Wachovia Bank, sources confirmed.

The announcement that Wachovia is throwing a lifeline to the NRCC for the home stretch of the 2008 elections is remarkable for several reasons.

First, the timing – shortly after Wachovia had cut off credit to nearly 1,000 colleges and in the middle of precarious and bitterly-contested buyout negotiations – is a PR problem and financially risky for a company that is still on financial life support.

Wachovia's loan also raises questions about the political involvements of businesses that get the support of the federal government.

In the Citigroup buyout arrangement, the FDIC has agreed to absorb any losses Citi may incur beyond $42 billion -- and therefore ensuring Wachovia's ability to operate and make loans. Financial analyst Karen Petrou described the federal government's central role on the radio show MarketPlace:

The FDIC-arranged Citigroup buyout of Wachovia is not a private sector transaction. This is a government rescue.

In order to get Citi to buy Wachovia, the FDIC promised to shoulder most of the potential losses. There are a lot of them. Wachovia purchased a California lender in 2006, which was riddled with bad mortgages. That's added to what is now $312 billion in loans on Wachovia's balance sheet.

Citi is at risk for only $42 billion of that portfolio. The rest of the $312 (billion) goes to the FDIC.

Since the FDIC first pushed the Citigroup buyout, rival Wells Fargo stepped forward with an alternative proposal that doesn't include federal backing. Citi and Wells Fargo are still trying to iron out a compromise.

But the Citi deal is still one the table. And most importantly, it's only due to the FDIC's promise of support that Wachovia is alive at all, as New York Times business writer Steven Davidoff observes:

According to an affidavit of Wachovia’s chief executive, Robert K. Steel, Wachovia would have filed for bankruptcy protection on Sept. 29 without some kind of government assistance. The Federal Deposit Insurance Corporation arranged to support the Citi transaction on an open bank assistance basis...

It is uncertain whether Citi would have stepped up to the plate to acquire Wachovia without this assistance. From the affidavit of Mr. Steel filed with the federal court over the weekend, it appears that Wells Fargo initially stated that it would not.

By providing this assistance, the F.D.I.C. allowed Wachovia to survive as a whole entity outside bankruptcy.

In other words, Wachovia is only able to operate and make loans today because the federal government has its back. That Wachovia would turn around and use its financial position to bolster the NRCC at a critical moment in the 2008 elections raises the specter of public resources and influence being used to serve partisan ends.

MORE AT:
http://www.dailykos.com/story/2008/10/9/144138/991/200/625265

[Demeter]

1. Call It What It Is: Quid Pro Quo, or in the Vernacular, a BRIBE

[notadmblnd]

2. Yup, they gave the money to republicans so they would vote for the bill.

buy off plain and simple at tax payer expense naturally.

[breadandwine]

4. Aw, don't pick on the GOP.

They've given us the best elections money can buy.....

[anigbrowl]

3. This might be why Citi has backed off and let Wells Fargo aborb Wachovia

Seems to me it's well worth pushing the story.

[breadandwine]

5. Hey. If bailing out Wachovia gave the GOP $8 million, think of what $700 billion can buy for them.

The Senate, the House, the Supreme Court, and of course, the White House.

Vote Republican.

They're good businessmen.