Tax-Exempt Corruption: Exploring Elements of Institutional Corruption in Bond Finance

This paper will apply the theory of institutional corruption to the world of private-activity bonds, which offer private entities access to tax-exempt borrowing, which generally provides lower interest rates. The bonds are issued by a public authority that requires the funds be used for a purpose that serves the public benefit. There is a long history of corruption in the bond market, the latest development being a 2011 Department of Justice investigation that exposed rampant bid-rigging by Bank of America, J.P. Morgan Chase and others. This paper will focus on bonds used for affordable housing, and explore whether the theory of institutional corruption might apply to either housing bonds or tax-exempt bonds writ large. Readers with real estate backgrounds should take care to note this paper, and institutional corruption theory, allege no impropriety whatsoever.