Central Pacific Financial

Central Pacific Financial (CPF) is a troubled bank. The last year it was profitable was 2007. Its stock is worth a fortieth (1/40) of its peak. It is over-exposed to troubled assets, in the form of sub-prime mortgages. In late 2008, when the Federal Government started the Trouble Asset Relief Program (TARP), CPF applied.

Central Pacific was not a likely candidate. TARP was meant to save healthy banks and companies. The Treasury Department, which runs TARP, had initially rejected the bank’s application, with a stated concern that the bank had too few capital reserves to be viable. The bank had already been chastised by the FDIC for being low on reserves.

In late 2008, the TARP application was sitting in review council. According the the Huffington Post: “The internal e-mails show that the application had been forwarded to an inter-agency council headed by the Treasury Department that reviews cases in which a bank did not meet the criteria for a federal investment. Those criteria require banks to demonstrate their viability without the benefit of federal funding.”

Then, suddenly in December 2008, the bank received $135 million in TARP funds.

What happened?

In November of that year, the Treasury Department received a call from the staff of Daniel Inouye, inquiring about the status of the application. News of this phone-call travelled by email from San Francisco to Washington, DC. The application was approved two weeks later.

In 2007, Inouye represented Hawaii in the senate. At the end of 2007, a year before these events, he owned about half a million dollars worth of shares in CPF.