The Curious Case For And Against Maxine Waters

Rep. Maxine Waters, D-Los Angeles, may or may not be innocent of House ethics violations but she certainly did not enrich herself or her husband.

The minority-owned bank she ran interference for is still in financial trouble but at least now has a pulse..

The primary ethics charge is Waters influenced Treasury to secure $12 million in TARP funds to One United Bank where her husband had been a director and holder of about $350,000 as a shareholder.

This violated a house code, the ethics committee charged, that members ”may not permit compensation to accrue to the beneficial interest of such individual from any source, the receipt of which would occur by virtue of influence improperly exerted from the position of such individual in Congress.”

Waters arranged the meeting with Treasury officials Sept. 9, 2008, two days after Congress took over the failing home mortgage giants Fannie Mae and Freddie Mac and several months before Treasury Secretary Henry Paulson convinced Congress to pass the $750 billion Troubled Asset Recovery and Protection bank bailout legislation.

It is not unusual for a Congress person to seek a meeting with a government agency on behalf of constituents.

What was unusual was that One United was the only bank represented at the meeting even though One United is a minority trade association. The groups representing minority-owned banks sought relief as a direct result of Fannie and Freddie’s collapse.

Waters has demanded a public trial before the Ethics Committee.

One United is based in Boston with major offices in Miami and Los Angeles.

What the House Ethics Committee, equally divided with four Democrats and four Republicans, must decide is if the September meeting with Treasury had a bearing when One United was awarded the $12.1 million in equity in TARP funds Dec. 19, 2008. One United has not repaid the loan.

According to the Investigative Reporting Workshop of American University, One United was in financial hot water before the September meeting and was tagged as a potential failure in October by the FDIC.

On Oct. 27, 2008, the Federal Deposit Insurance Corp. and Massachusetts Division of Banks issued a cease-and-desist order to One United. The order, which is still in effect, said the agencies “had reason to believe that the Bank had engaged in unsafe or unsound banking practices and violations of law.”The order cited the bank’s capital position, poor oversight of officers, “excessive” executive compensation, weaknesses in loan underwriting and “speculative investment practices.”

The agencies gave the bank a detailed plan of corrective action. It has not yet met all those goals…

The bank, which has almost no common stock, was told to increase common stock accounts to half its total capital; the reports show it has made no progress toward that goal in the past two years. It has another two years to meet that deadline, according to the order.

The TARP funds granted One United also was curious, according to the journalist investigative team.

Records show that as of Sept. 30, 2008, the latest quarter before the investment, One United had “Tier 1 capital” of just 1.8% of assets. Of the 363 banks that got TARP money in the fourth quarter of 2008, at the height of the financial crisis, that was the lowest Tier 1 ratio.

In fact, none of the 987 banks that got TARP money between October 2008 and December 2009 reported a lower ratio in the quarter before they received federal cash. As of March 31, 2010, 16 TARP banks had lower Tier 1 ratios then One United’s 4.98%.

One United has claimed its problems were brought about by the housing collapse and that one third of its assets were invested in the worthless Fannie and Freddie stock. It claims it did not engage in subprime mortgage loans.

One of the curious events in the Waters case is that the investigation was completed a year ago and was just released publicly last week.

In an interview with The Grio political website, Waters said:

We have asked the ethics committee the same question. Why has it taken so long to bring the charges? The OCE (Office of Congressional Ethics) report was made public just as the House was going into a six week summer break. That hurt, because there’s no real opportunity to contest the charges and that’s not fair.

Two questions and answers I found most pertinent. One:

In the report that was released, a representative from Treasury was very specific that at the time you asked for a meeting with the National Bankers Association, Treasury was getting 70 to 80 calls a day from all financial parties about the Fannie Mae and Freddie Mac bailout and your call was simply one among the many. Why then is considered now a major offense?

I believe this started with a Treasury employee who was a mentee of Karl Rove (a top GOP operative). He remembered that I had disclosed that my husband sat on the board of directors of One United Bank at one time. He took this public information to the OCE to make it look as if there was a conflict of interest. The committee looked at it and said “aha” maybe there is a conflict here. And because their investigation is so limited, they came up with the idea that I received some benefit from the meeting that I requested.

The other:

There’s nothing in the 80 page report that shows that you or your husband received any financial benefit from this meeting.

That’s because there was no benefit, and I know that there’s nothing in the report that shows it. One United Bank did not get any immediate help from the Treasury. The Bank then went to the private market and got $20 million in loans to help them stabilize their lending. The bank’s investors did not lose anything. The way I see it the committee took bits from conversation and information between staff members about the economic crisis and the Treasury’s role in it and then pieced them together to try to make something out of it. And it’s not fair.

Waters’ assertion that the bank secured $20 million in private loans before the $12 million in TARP was sought but not verified in the journalists investigative report.

One other exchange in the Grio interview is worth mulling:

House Financial Services Committee chair Barney Frank is quoted as telling you “to stay out of it”

That’s not true. When I learned that One United Bank was seeking help, I said to Frank that One United is one of your constituents (the bank is headquartered in Frank’s state Massachusetts) so you should take a look at this. He said “you’re right, they are my constituents, stay out of it, I’ll take a look at what One United is requesting.” That was said before the TARP bailout even came into existence.

The House Ethics charges also zapped Waters for allowing her grandson who is her chief of staff to continue pursuing the TARP funds.

The Los Angeles Times:

The documents contend that Waters’ chief of staff, Mikael Moore, worked to help One United Bank, even as Frank, chairman of the House Financial Services Committee, urged Waters to “stay out of it” because of her husband’s ties to the bank…

Once Waters realized that she should not be involved in assisting One United, she should have instructed her chief of staff to refrain from assisting the bank, the statement said.

But Moore, 32, “provided continued assistance to One United,” including attending meetings and exchanging e-mails and phone calls with the bank’s executives and “communicating with other congressional staffers regarding a legislative solution to the One United’s financial problems,” according to the documents.

House rules generally prohibit lawmakers from putting spouses, children and a number of other family members on their congressional payrolls, but not grandchildren.

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EPILOGUE

Waters certainly stretched the envelope and her grandson may have crossed that line in violating House ethics rules. The investigative workshop said several congressmen sought help from Treasury for particular banks and a Freedom of Information request failed to include Waters’ inquiry and correspondence. The House Ethics Committee works in secrecy. I think the timing of the release of charges just months before the midterm elections is politically motivated. But in Washington, that’s how the cookie crumbles. I give credit to Waters that she has not raised the race card as syndicated columnist Charles Krauthammer said she would on Fox News’ Special Report with Bret Baier. So far. I wonder if this is what House Speaker Nancy Pelosi, who does not have Waters’ back in this case, intended by “draining the swamp.” Somehow I cannot divorce myself from the premise that what Waters is alleged to have done is politics as usual and will always be that way.