Crony Capitalism pays in America as much as third world countries

Economists show that markets reward political connections in the US as much as they do in corrupt, third world countries with weak institutions.  Markets don't do that unless it's substantially true.  From an article about our nation's leading Crony Capitalist, Warren Buffet.

Having the correct political connections was critical. A National Bureau of Economic Research study by four researchers at the Massachusetts Institute of Technology, documented the power of such connections. Economist Daron Acemoglu and his colleagues found that when Timothy Geithner, a man who had spent his career shuttling back and forth between Wall Street and Washington, was announced as President Obama’s nominee for treasury secretary, it “produced a cumulative abnormal return for Geithner-connected financial firms of around 15 percent from day 0.” The stock market reflects the thinking of all investors, and they clearly believed Geithner would be able to reward his friends directly or indirectly.

Conversely, when there was word that Geithner’s nomination might be derailed by tax issues, those same firms were hit hard with “abnormal negative returns.” Acemoglu et al. systematically examined companies that had corporate ties to Geithner, had executives who served with him on other boards, or had other direct relationships. They found that “the quantitative effect is comparable to standard findings” in Third World countries with weak institutions and higher levels of corruption. In other words, markets react to government actions in the U.S. the same way they do in a corrupt developing country. Crony capitalism pays, and the market knows it.