Penny Pritzker is the National Finance Chair of 2008 Democratic Party presidential candidate Barack Obama’s campaign. Yet the Obama campaign’s national finance chair served as chairman of the Superior Bank from 1989 to 1994, before the savings and loan institution collapsed in July 2001, due to the Pritzker bank’s involvement in financially reckless subprime mortgage lending.
Created at the end of 1988 as the successor bank to the failed Lyons Savings Bank, the Oakbrook Terrace/Hinsdale, Illinois-based Superior Bank was 50 percent owned by Chicago’s billionaire Pritzker family. Yet, according to an Oct. 16, 2001 statement before the U.S. Senate Committee on Banking, Housing and Urban Affairs by Ely & Company Inc. President Bert Ely, 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.” In a Dec. 2002 article (“Tremors In The Empire”) that appeared in Chicago Magazine, Shane Tritsch noted, for instance, that for investing $42.5 million in the failed Lyons Savings Bank before it was reopened as Superior Bank, the Pritzkers and their business partner received an estimated $645 million in federal tax credits and loan guarantees; but “by one estimate, it would have cost the government $200 million less simply to shut Lyons down.”
Yet according to Ely’s Oct. 16, 2001 statement, “Superior’s trick, or business plan” under Penny Prtizker’s chairmanship was apparently “to concentrate on subprimelending, principally on home mortgages, but for a while in subprime auto lending, too,” after the Pritzkers’ bank acquired its wholesale mortgage organization division, Alliance Funding, in December 1992.
With a business loss estimate of between $350 million and $1 billion, the 2001 failure of the Pritzkers’ Superior Bank represented the largest U.S.-insured deposition institution to fall between 1992 and 2001. But according to a Feb. 7, 2002 report of FDIC Inspector General Gaston Gianni Jr., “the failure of Superior Bank was directly attributable to the Bank’s Board of Directors and executives ignoring sound risk management principles.”
Coincidentally, the Obama presidential campaign’s National Finance Chair was a member of the Superior Bank’s board of directors which apparently ignored sound risk management principles. As the Aug. 7, 2001 issue of the New York Times observed:
“The Pritzkers controlled half the board seats. Penny Pritzker…was on the board, and Glen Miller, a top financial officer in the Pritzker organization, was chairman of the audit committee…Penny Pritzker…was designated…to watch over the Superior investment.”
Business Week magazine also noted in a Sept. 10, 2001 article (‘The Pritzkers’ Empire Trembles”) that “as of July ,” Penny Pritzker “was still a director of the thrift’s holding company, Coast-to-Coast Financial Corp….”
The Superior Bank board of directors on which the Obama presidential campaign National Finance Chair sat “paid dividends and other financial benefits without regard to the deteriorating financial and operating condition of Superior,” according to FDIC Inspector General Gianni’s Feb. 7, 2002 report. As Ely & Company Inc. President’s Ely’s Oct. 16, 2001 statement observed:
“Superior paid $188 million in dividends in the 1989-1999 period, which gave Superior’s stockholders an 18.1 percent pretax cash return on their initial investment of $42.5 million in Superior.”
Before Superior Bank’s 2001 collapse, stockholders like the Pritzker family members also “may have reaped additional profits from the substantial tax benefits the Federal Government gifted to them” when they acquired the failed Lyons Savings Bank in 1988 and created the successor Superior Bank, according to Ely’s Oct. 16, 2001 statement. Between 1992 and 1998, for instance, Superior Bank claimed a Federal tax credit of $10.6 million and only began to pay a meaningful amount of Federal income tax in 1999.
To avoid being punished for the failure of Superior Bank, the Pritzker family agreed to pay the FDIC $460 million. Yet even with this settlement, the failure of the Superior Bank due its board’s apparent mismanagement will cost the federal thrift insurance agency (and U.S. taxpayers) about $440 million.
The 1,400 Superior Bank depositors whose savings deposits in excess of $100,000 were uninsured, however, brought a federal civil racketeering suit against Penny Pritzker and other former Superior Bank officials. Not surprisingly, Business Week magazine reported in September 2001 that “the collapsing Superior Bank, a $2.3 billion thrift that” Penny “Pritzker chaired from 1989 to 1994” was “ putting the family business savvy under the klieg lights in Washington and beyond.”
Less than two years after the U.S. Senate’s Committee on Banking, Housing and Urban Affairs held a hearing on “The Failure of Superior Bank,” former Superior Bank Chairman of the Board Pritzker, coincidentally, began to financially back Obama’s 2004 campaign to become a U.S. Senator from Illinois. As David Mendell recalled in his 2007 book Obama: From Promise To Power:
“Obama was confident that he was destined for more than a day job running a foundation or practicing law or languishing in the minority party in the Illinois senate…He invited a group of African-American professionals to the house of Marty Nesbitt, who had served as finance chairman of his congressional campaign. Nesbitt is…vice-president of the Pritzker Realty Group, part of the Pritzker family empire…Nesbitt arranged a weekend gathering to help Obama reach inside the deepest pockets he knew—those of the Pritzker family…
“…Nesbitt knew that if Obama could sell himself to Penny Pritzker, her support would not only reap huge immediate financial dividends but also be a crucial step in the foundation of a fund-raising network.
“So in late summer 2002, Obama, Michelle [Robinson-Obama] and their two daughters drove to Penny Pritzker’s weekend cottage along the lakefront in Michigan about forty-five minutes from Chicago…”
Given the past involvement on the board of a failed savings bank that engaged in financially reckless subprime lending of the 2008 Obama presidential campaign’s National Finance Chair, it’s not surprising that an article in The Nation (2/11/08) by Max Fraser, titled “Subprime Obama,” reported that “only Obama has not called for a moratorium and interest-rate freeze;” and that Josh Bivens of the Economic Policy Institute said that “There’s been less emphasis from the Obama campaign on the really dysfunctional role of the financial industy in the subprime mess.”
Incidentally, former Superior Bank Chairman Penny Pritzker contributed $100,000 to the Democratic National Committee [DNC] in 2000.
Next: Revisiting In These Times' “Breaking The Bank” Article
James and the Twenty-Seven Bicycles
8 years ago