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Report Ties Financial Industry Lobbying to the Financial Crisis

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"The political influence of the financial industry can be a source of systemic risk," is the thrust of an IMF working paper entitled "A Fistful of Dollars: Lobbying and the Financial Crisis." The December 2009 report evaluated "how lobbying may have contributed to the accumulation of risks leading the way to the financial crisis."

Mortgage-lending companies that lobbied prior to the financial crisis generally engaged in riskier lending practices, according to the report, and they were more likely to be bailed out. "Sixteen of the twenty lenders that spent the most on lobbying between 2000 and 2006" received bailout funds, with 60% of funds allocated under TARP going to lenders that lobbied on specific issues.

Without greater disclosure of the activities on which lenders lobbied, the authors could not determine whether mortgage lenders lobbied to gain preferential treatment or to share information with decision-makers. (It could be both.) However, they emphasized that their findings were consistent with a "moral hazard" interpretation, where mortgage lenders engaged in riskier behavior because either they expected to be bailed out in the event of trouble or focused on short-term gains over long-term profits.

The paper concludes that "the prevention of future crises might require weakening political influence of the financial industry or closer monitoring of lobbying activities to understand the incentives behind [financial industry behavior] better."