Obama’s Sub-Prime Conflict

From the Archive: President Obama has nominated Hyatt Hotels heiress Penny Pritzker to be the next Commerce Secretary. Pritzker, also a major fundraiser for Obama’s two presidential campaigns, faced controversy because of her role in the sub-prime mortgage disaster, as Dennis J. Bernstein reported in 2008.

By Dennis J. Bernstein (Originally published Feb. 28, 2008)

I remember my first piggy bank: a little pink piggy made of plastic with a little slot at the top. The slot was big enough, perhaps, to fit a half dollar, a great deal of money to me at the time. “A penny earned is a penny saved,” my father told me, as we dropped the first few coins into the opening, and I heard them hit bottom and bounce.

And I can’t tell you how excited I was when we broke it open, after a year or so, and I couldn’t fit another penny into the slot. I tallied up my stash — close to five dollars, I recall — and decided what I would do with my small fortune. I bought a kite, and my imagination soared even higher than my beautiful Chinese box-kite as to what I would save up for next.

President Barack Obama announced the nominations of Penny Pritzker as Secretary of Commerce, and Mike Froman as U.S. Trade Representative, in the Rose Garden of the White House on May 2, 2013. (Official White House Photo by Chuck Kennedy)

My pop gave me a powerful push in the right direction, when it came to savings: A penny saved really was a penny earned. Unfortunately, this wasn’t the case for the 1,406 people who lost much of their life savings when Superior Bank of Chicago went belly up in 2001 with over $1 billion in insured and uninsured deposits.

This collapse came amid harsh criticism of how Superior’s owners promoted sub-prime home mortgages. As part of a settlement, the owners paid $100 million and agreed to pay another $335 million over 15 years at no interest. The uninsured depositors were dealt another blow when the U.S. Supreme Court let stand a lower court decision to put any recovered money toward the debt that the bank owners owe the federal government before the depositors get anything.

But this bank failure had relevance in another way [in 2008] because the chair of Superior’s board for five years was Penny Pritzker, a member of one of America’s richest families and the Finance Chair for the 2008 presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending.

During a campaign stop in south Texas, Obama met with San Antonio-area residents who had been particularly hard hit by the sub-prime meltdown. He expressed dismay over how lobbyists for the sub-prime lending industry had spent more than $185 million in the last several years for their cause.

“To give you a sense of what that kind of lobbying gets you,” Obama said, a “CEO of the largest sub-prime lender was promised a $100-million severance package at a time when more than two million Americans were facing foreclosure, including nearly 14,000 right here in San Antonio.”

Though Superior Bank collapsed years before the 2008 sub-prime turmoil that rocked the world’s financial markets – and pushed millions of homeowners toward foreclosure – some banking experts say the Pritzkers and Superior hold a special place in the history of the sub-prime fiasco.

“The [sub-prime] financial engineering that created the Wall Street meltdown was developed by the Pritzkers and Ernst and Young, working with Merrill Lynch to sell bonds securitized by sub-prime mortgages,” Timothy J. Anderson, a whistleblower on financial and bank fraud, told me in an interview.

“The sub-prime mortgages,” Anderson said, “were provided to Merrill Lynch, by a nationwide Pritzker origination system, using Superior as the cash cow, with many millions in FDIC insured deposits. Superior’s owners were to sub-prime lending, what Michael Milken was to junk bonds.”

In other words, if you traced the sub-prime crisis of 2008 back to its origins, you would come upon the role of the Pritzkers and Superior Bank of Chicago.

One Failure to the Next

Superior was founded at the tail end of 1988 in the wake of the failed Lyons Savings Bank. The Feds were trying to keep a lid on the magnitude of the S&L post-deregulation crisis and were selling failed or failing thrifts for a song, along with a lucrative package of special benefits.

Chicago’s billionaire Pritzker family and their partners bought Lyons Savings for a quite reasonable $42.5 million, but were also given $645 million in tax credits. The kicker was that the buyers only had to come up with $1 million in cash, and got access to the $645 million, and all the bank’s deposits insured by the Federal Savings and Loan Insurance Corporation (FSLIC).

The Pritzker family’s Superior Bank “started life with enormous tax benefits and a substantial amount of FSLIC-guaranteed assets under a FSLIC assistance agreement,” said financial consultant Bert Ely in an Oct. 16, 2001, statement before the U.S. Senate Committee on Banking, Housing and Urban Affairs.

Ely stated, “Superior’s trick, or business plan” under Penny Pritzker’s leadership was apparently “to concentrate on sub-prime lending, principally on home mortgages, but for a while in sub-prime auto lending, too.” In December 1992, the Pritzkers acquired Alliance Funding, a wholesale mortgage organization.

In a 2002 article in In These Times about Superior Bank’s collapse, business writer David Moberg reported that the bank’s operations were “tainted with the hallmarks of a mini-Enron scandal. … And yet the bank’s owners, members of one of America’s wealthiest families, ultimately could end up profiting from the bank’s collapse, while many of Superior’s borrowers and depositors suffer financial losses.”

Moberg wrote that “the Superior story has a familiar ring. … Using a variety of shell companies and complex financial gimmicks, Superior’s managers and owners exaggerated the profits and financial soundness of the bank. While the company actually lost money throughout most of the ’90s, publicly it appeared to be growing remarkably fast and making unusually large profits.

“Under that cover, the floundering enterprise paid its owners huge dividends and provided them favorable loans and other financial deals deemed illegal by federal investigators. Superior’s outside auditor, which doubled as a financial consultant, engaged in dubious accounting practices that kept feckless regulators at bay.

“Many individuals — disproportionately low-income and minority borrowers with spotty credit records — had apparently been exploited through predatory-lending techniques, including exorbitant fees, inadequate disclosure and high interest rates.”

When it collapsed in 2001, Superior Bank represented the largest failure of a U.S.-insured depository institution for a decade. “The failure of Superior Bank was directly attributable to the Bank’s Board of Directors and executives ignoring sound risk management principles,” said FDIC Inspector General Gaston Gianni Jr. in a Feb. 7, 2002, report.

Banking whistleblower Anderson noted that “Superior failed at a time of historically low interest rates, high employment, a strong economy, and a growing housing market. … There was no reason for it to fail unless you consider gross negligence, a flawed business plan, and a conspiracy to deceive the regulators who were clearly asleep and were negligent themselves in their duties of protecting the class of underinsured depositors.”

Pioneering Work

Anderson said the bank owners and board members used Superior for their pioneering work in sub-prime lending, developing the financial instruments that helped set the stage for the current sub-prime meltdown.

“The Pritzkers like to say they did sub-prime lending to help the disadvantaged get into the home equity business, [but] it would be more accurate to state they ran a very large nationwide predatory lending operation,” Anderson said, citing criticism of Superior’s lending practices in a letter written to the Office of Thrift Supervision on July 3, 2002, by the National Community Reinvestment Coalition, an association of more than 600 community-based organizations that promote access to basic banking services.

As an owner and board chair of Superior, Penny Pritzker also was named in a RICO class action suit on behalf of the more than 1,400 depositors at Superior, who initially lost over $50 million of their life savings.

“This is a story of two Americas with two sets of laws, one for the rich and powerful and another for the rest of us,” said Clint Krislov, the depositors’ attorney, in an interview. “My clients will all be dead, before they get back their money, given the Supreme Court’s recent decision to uphold the lower court, which put the predatory owners on the front of the line, if any money is recovered.”

The Pritzkers arrayed a powerful and well-connected legal team including former President Bill Clinton’s impeachment lawyer Lanny Davis, two ex-comptrollers of the currency, and two former General Counsels to the FDIC, the American Banker Magazine reported.

Given the political sensitivity of the sub-prime mortgage crisis, Anderson said he believes Penny Pritzker should have resigned her post as Obama’s Finance Chair, the person who oversaw the campaign’s fundraising. Otherwise, Anderson said, Pritzker’s presence could undercut Obama’s credibility on the issue of predatory lending and create a possible conflict of interest if Obama is elected President and tries to crack down on sub-prime abuses.

Obama campaign spokesman Tommy Vietor had no comment about the controversy surrounding Pritzker, but added: “Barack Obama has already made it very clear that he’s going to crack down on fraudulent brokers and lenders.”

One might wonder why Hillary Clinton’s campaign didn’t jumped on this issue. Maybe it was because Penny’s little brother, J.B. Pritzker, was a mover and shaker in the Clinton campaign. In May of 2007, Jay Robert, aka, (J.B.) Pritzker, threw his support behind Hillary Clinton, representing a coup for her campaign by wresting the billionaire out of Obama’s home town of Chicago, and better still, the brother of Obama’s Campaign Finance Chair.

[On Thursday, President Obama nominated Penny Pritzker, who was also co-chair of his reelection campaign in 2012, to be the next Commerce Secretary. In announcing her appointment, Obama hailed Pritzker as "one of the country's most distinguished business leaders" with more than 25 years experience in the fields of real estate, finance and the hospitality industry.]

Dennis J. Bernstein is a host of “Flashpoints” on the Pacifica radio network and the author of Special Ed: Voices from a Hidden Classroom. You can access the audio archives at www.flashpoints.net.

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8 comments on “Obama’s Sub-Prime Conflict

  1. Rehmat on said:

    Obama’s nomination of Penny Pritzker, Jewish Hotel Heiress, proves once again that Obama is a product of Chicago’s Jewish crime syndicate. she is an Israel-Firster Zionist Russian-Ukranian Jew.

    Professor Paul Kengor (Grove City College, Pennsylvania), has called Barack H. Obama, “God“, in an article, entitled “Obama, The God That Failed” in the Zionist daily online magazine, American Thinker, published on April 5, 2011. Dr. Kengor, being a Catholic, seems to be very much in touch with his G-d (not Christ of course). He is author of books like; God and Ronald Reagan, God and George W. Bush and God and Hillary Clinton.

    http://rehmat1.com/2011/04/06/obama-jewish-president-messiah-or-g-d/

  2. F. G. Sanford on said:

    It’s too bad the pioneers in this industry are all dead. If Pritzker can head Commerce, they could make Meyer Lansky the Treasury Secretary, Louis Buchalter the Secretary of Defense and Bugsy Siegal the Ambassador to the United Nations. This gives a whole new meaning to “going straight”. Be a campaign fundraiser, and “legitimate” opportunities await! Recent loosening of those annoying “insider trading” regulations are sure to make her billionaire relatives happy too! Hey, isn’t that what America’s all about? Keepin’ it “All in the Family”!

  3. pritzkerwatch on said:

    Coincidentally, former Frontline tv show Producer Gus Russo’s 2006 book, Supermob: How Sidney Korshak and His Criminal Associates Became America’s Hidden Power Brokers, included the following interesting historical references to how the ultra-rich Pritzker family of the Democratic Obama Administration’s Commerce Secretary-Designate Pritzker allegedly obtained some of its wealth, that apparently don’t seem to get examined much on the Big Media television screen these days:

    1. “What is most relevant to the Pritzker role in the Supermob is the large number of Pritzker transactions that involved known crime figures…” (page 68)

    2. ‘From LAPD Hamilton’s Feb. 2, 1954 internal memo: `Abe Pritzker, a Chicago attorney with offices at 134 N. LaSalle Street, which is the same address as that of Sidney Korshak’s office, has been closely connected with members of the Capone syndicate…and other underworld characters. It is believed by the undersigned that Pritzker may be active locally, as a front for eastern hoodlum money to be invested in the Los Angeles area…’” (page 136)

    3.”…The Pritzkers also became one of the country’s largest hospital operators, acquiring 6 of their own and operating 15 more under lease and contract management…” (page 138)

    4. “Profits…were not the only constants in the Pritzker saga. Rumors flew that, as with their questionable real estate partnerships in the forties, the Pritzkers’…Hyatt endeavor was similarly tainted. One IRS informant who was quoted as saying that `the Pritzkers family of Chicago through their Hyatt Corp. initially received their backing from organized crime’ was later identified as F. Eugene Poe, the late president of a bank in Perrine, Florida, and vice president of the offshore tax haven where the Pritzkers hid their wealth known as Castle Bank…” (page 138)

    5.”…By the midseventies, the Pritzker empire was awash in profit, the most recent success coming from Nevada casino investments. Between 1959 and 1975, the Pritzkers had obtained $54.4 million in Teamster loans for their hotels…Thus, in 1972, under their Elsinore banner, the Pritzkers joined the Vegas party when they bought the Four Queens in `Glitter Gulch’ and King’s Castle with Teamsters Pension Fund loans (obtained at 4 percent discount, saving Hyatt $8 million). In return, the Teamsters bought $30 million in Hyatt stock…” (page 438)

    6. “It was around this time, the early seventies, that IRS agents like Andy Furfaro noticed that the Prizkers’ billion-dollar Hyatt chain was paying no taxes. It turned out the Pritzkers were the largest depositors in one of the most notorious offshore tax havens ever devised, The Castle Bank of the Bahamas, which was nothing less than an intersection of the Supermob, known gangsters, pop stars, a U.S. president, and the covert branch of the CIA–all of whom had good reason to hide their money from Uncle Sam…

    “Castle…was the brainchild of longtime CIA `front organization’ mastermind Paul Helliwell…

    “In 1964, Helliwell joined forces with…Pritzker Chicago tax attorney (and Hyatt board member] Burton Kanter and Pritzker law firm partner [and Teamsters Pension Fund trustee] Stanford Clinton to establish the Castle Bank, where foreigners could set up trust accounts that were the key to both personal and commercial tax avoidance: since the trusts were, for U.S. tax purposes, foreign citizens, they owed no taxes to the U.S. government. The added beauty of the Castle setup was that the actual deposits never had to be delivered to the bank, which was a fake depository for money that the client could use anywhere in the world.” (page 439)

    7. “In the midseventies…the IRS mounted Operation Tradewinds (later Project Haven), an all-out investigation of Castle, referring to the probe as potentially the largest single-biggest tax-evasion case in U.S. history…IRS agent Richard Jaffee and detective Sybil Kennedy obtained a list of the bank’s depositors, which included the Pritzkers…

    “Given all the Pritzker associates involved in the management of Castle, it came as no surprise when Pulitzer Prize-winning journalist Knut Royce determined in 1982 that the Pritzkers were in fact the bank’s largest depositors. A September 1972 IRS statement noted, `An informant [F.Eugene Poe, a former VP and director of Castle Bank] with access to the records of Castle Trust has stated that the Pritzker family of Chicago, through their Hyatt Corporation, received their initial backing from organized crime.’…” (page 440)

    8. “…The CIA’s general counsel John J. Greaney intervened and demanded that the Department of Justice and IRS end the probe–it seemed that the CIA had also used Castle Bank to launder money in furtherance of its clandestine operations, and it feared that an investigation would jeopardize national security, not to mention its own congressional free ride…” (page 443)

    9. “Using seed money from Chicago investors including the Pritzkers.., Kanter next became the legal advisor to…Cablevision Systems, which went on to become the largest privately held cable television company in the United States…” (page 443)

    10. “Castle Bank was not the only shady partnership entered into by Kanter and the Pritzkers. In the 1970s, Kanter and Pritzker were also involved in a massive kickback scheme with two executives from the real estate wing of Prudential Insurance Company…In a complex setup that took prosecutors over 20 years to unravel, Kanter and the Pritzkers devised a scheme wherein contractors paid them and the Prudential executives under the table in exchange for lucrative Prudential business…” (page 440)

    11. “…Burt Kanter, the man who had devised so many tax dodges for the Pritzkers and other cadre associates, died of cancer on October 31, 2001, while awaiting sentencing on a finding that he had defrauded the IRS.

    “In 1994, after spending years unraveling the Kanter-Pritzker-Prudential insurance kickback scheme, the IRS had finally brought the case to trial…Judge Couvillion concluded that Kanter and associate had devised a scheme of kickbacks to avoid paying taxes to the federal government…” (page 571)

    12. “As for the Pritzkers, over the last quarter century the family business had partnered with the infamous Bank of Credit and Commerce International [BCCI] in developing Hyatt hotels in Saudi Arabia…” (page 521)

    13. “Like so many of the Supermob who increased their wealth with offshore tax dodges, the Pritzkers attempted to balance their reputation with philanthropy, the clique’s way of saying that they’d rather choose where their money goes than allowing the IRS to do it…” (page 68)

    • Paul G. on said:

      Check out Russo on the JFK assassination, his work is highly contradictory and questionable. Possibly more profit oriented than truth oriented.

  4. Paul G. on said:

    Praise the Lord and pass the slush fund!! The Senate hearings are gonna be fun. This is totally rich(pun intended). Now we see Obamascam in bed with high finance early on, not just Wall Street but his own home town; and the “pioneer” in sub-prime lending no less. My question is how far back do the mighty O. and Ms. Pritzker go? Did Penny Pritzker “make” Obama, financing his political rise from the get-go?

    His unusually rapid rise to the Presidency can now possibly be seen in a new light; that of the lap dog for finance trained to heel at a tender early political age. What a perfect trojan horse with everybody looking at the color of his skin, rather than the color of his soul. This explains a lot and opens up a whole new avenue of inquiry. Mob associated too; this is very juicy.

  5. Paul G. on said:

    And there is more: Obama, has urged speedy confirmation by the Senate, portrayed Pritzker as pro-worker. Yes of course, anything Obamascam says will turn out to have the opposite truth. Hyatt Hotels are subject to the “Hyatt Hurts” boycott campaign supported by 5000 labor and other organizations, “Hyatt has singled itself out as the worst hotel employer in America. Hyatt has abused workers, replacing career housekeepers with minimum wage temporary workers and imposing dangerous workloads on those who remain.” “ She is “not known to be a good employer” Hyatt is the first in the hotel industry to receive a letter from OSHA warning of hazards imposed on the workers.

    She recently resigned from the Chicago Board of Education- anticipating vetting for the Commerce position- which just oversaw the largest school closure program in the US hurting in particular poor and minority communities. Obama described her as, “ … an extraordinary civic leader in our shared hometown of Chicago.”

    She also had been involved in a long standing dispute with the IRS over off shore holdings, but of course. (See pritzkerwatch above)

    How many have been told by their parents that you will be known by the friends you keep. Penny and the big O’ have been friends since the 1990′s.

    See The Guardian, May 2, 2013 for more on this “extraordinary civic leader.”

  6. F. G. Sanford on said:

    I found this quote on the internet. In the wake of this nomination, can I assume that it’s accurate, and represents another broken campaign promise…or can it be that this runs parallel to the Bernard Kerik (now in Federal Prison) nomination by George Bush to be Secretary of Homeland Security?

    “I am in this race to tell the corporate lobbyists that their days of setting the agenda in Washington are over. I have done more than any other candidate in this race to take on lobbyists — and won. They have not funded my campaign, they will not run my White House, and they will not drown out the voices of the American people when I am president.”

    – Barack Obama, Speech in Des Moines, IA
    November 10, 2007

  7. Dwight Haskins on said:

    This is interesting. I reported to the Inspector General and FDIC chairman how senior FDIC officials buried hundreds of analyses alerting to the financial crisis but was ignored & stonewalled. I was not provided whistleblower protection or a Merit System Protection Board hearing entitled by law BECAUSE of what appears likely to be White House interference and obstruction of justice. This all occurred during the period leading up to the Nov 2012 presidential election. Political handlers did not want my evidence to be embarrass the White House administration so close to the election. See just two of the many documents I provided to Administrative Judge showing unambiguously I was a whistleblower. The MSPB admin judge purposely failed to consider these as evidence since they convincingly show I meet the definition of a whistleblower.

    How about investigating my story?

    You can google me and go to my blog to see the evidence. Better yet, contact me and I will give you personal access to the evidence on the cloud.

    Dwight Haskins
    djhask@gmail.com