The bizarro behavior that the current leaders of Congress and Pres. Obama are showing toward financial institutions is puzzling to some. There are rumors that some of these institutions have offered to repay some bailout money, and the offer is refused. So, what’s up with that? Here is a thought…maybe they just want their bank back.
I used my handy dandy GOP.com search engine for House bank scandal rubbergate. I came up with three excellent articles. Two were published on March 30, 1992, and the third was published on April 18, 1995. Two of these sources, Time and Newsweek, are much better than anything they are publishing these days. I encourage you to read them to refresh your memory of the kind of history the teachers in school do not mention.
From BusinessWeek The Secrets of Rubbergate
House seargeant-at-arms Jack Russ assigned each new member of the House a non-interest-bearing accounts at the House Bank. A lot of these folks were scratching their head wondering why anyone would want to put money in a non-interest-bearing accounts at the House Bank. The answer was never written down, but Hill veterans knew the secret: The bank provided free overdraft protection worth up to $2,000 a year and, indirectly, interest-free loans up to a members’ net monthly salary, or about $7,000. This more than compensated for the lack of interest on deposits.
Congress exempts itself from regulation and oversight.
The House Bank had some of the trappings of a commercial banking institution–accepting deposits, offering checking accounts, and, indirectly through the overdrafts, making loans. But Congress has long insulated itself from the laws it imposes on others, from civil rights to workplace safety, and the House Bank was similarly exempt from the state and federal regulations that govern more traditional banks. It did not have to pay attention to rules requiring charters, capital reserves, examinations, and fees for deposit insurance.
What’s more, an analysis of some of the arcane procedures at the bank suggests that despite denials by lawmakers, taxpayers’ money was used to support the bank’s operations. Every year, taxpayers footed the bill for the salaries and other administrative costs of running the bank, to the tune of at least $1 million. Furthermore, taxpayers may have helped finance House members’ overdrafts. These were so pervasive that the staff included one person whose sole job was to ask members to cover their bad checks. When members overdrew their accounts by more than their next month’s net salary, as was often the case, “technically and legally, they were dipping into public money,” says Representative Fred Grandy (R-Iowa), one of six House members who investigated the bank scandal.
HOW THE HOUSE BANK WORKED
1 House members’ paychecks placed in an account at Treasury to which House Bank had access. Riggs Bank was a conduit for other House Bank deposits
2 Members wrote checks to third parties such as dry cleaners, which were processed by the Federal Reserve’s national check-clearing system and returned to the House Bank
3 The House Bank wrote checks on the Treasury account in amounts equal to the third-party checks it was called upon to pay. Riggs processed members’ other checks free of charge
4 Checks written on insufficient funds were not bounced. Treasury funds, as well as deposits of other members, may have been used to cover overdrafts
From the Newsweek article you find the following-
The muck slopped over onto the House post office, the scene of embezzling and alleged cocaine dealing by employees. With Minority Leader Robert Michel saying there was evidence of “money laundering” at the facility, postmaster Robert Rota resigned-the second House officer in a week to do so under a cloud.
The post office might have redeemed stamps for cash, in effect allowing legislators or their staffs to steal public money. With the U.S. attorney for Washington, D.C., on the case, Speaker Thomas S. Foley could well declare that “the era of patronage is over.” Promising to put a professional financial officer in charge of House transactions, Foley said he would eliminate some perks and impose real-world fees on others, like the free pharmacy and the nearly gratis gym.
From the Time article we learn about Mrs. Rubbergate–
Mrs. Solarz admitted that she knew her husband’s House account was overdrawn when she ordered a congressional staffer to write a check for $5,200 in 1990. She is not expected to serve jailtime. Ex-Rep. Solarz, who himself had a large number of overdrafts from the House Bank, was cleared by a task force. It was the eleventh criminal charge to emerge from the 1992 “Rubbergate” scandal.
All this talk recently about how those greedy people in financial institutions were not regulated enough by Congress has reminded me of this scandal. Some things simply do not pass the smell test. If Congress wants to work on more regulations, then I suggest they begin by just regulating themselves, Remove exemptions of privileges to them that all of the rest of us have to put up with. Just a thought.