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Political Influence and TARP: An Analysis of Treasury's Disposition of CPP Warrants

Published online by Cambridge University Press:  14 March 2012

Lucas Puente
Affiliation:
Stanford University

Abstract

I investigate one mechanism through which financial institutions could have used political influence to receive preferential treatment in the US Department of the Treasury-administered “bailout.” I find that neither proxies of political influence nor other political variables, such as public interest in specific deals, can explain variance in the sale price of warrants (a type of financial asset) Treasury acquired through TARP's Capital Purchase Program. Moreover, I find that the more politically active the firm is, the more likely Treasury is to auction its warrants (thereby receiving fair market value). This conclusion is not consistent with recent studies investigating the role of such variables in the initial administration of TARP and can be interpreted as good news for American taxpayers.

Type
Special to PS
Copyright
Copyright © American Political Science Association 2012

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