Five years before the 1979 Three Mile Island nuclear accident, 1996 [and 2008] presidential candidate Ralph Nader helped launch the movement which resists the use of nuclear power in the United States. As The Anti-Nuclear Movement by Jerome Price observed:
“…Ralph Nader organized the first anti-nuclear conference, Critical Mass ’74, in Washington D.C…The prime mover for environmental opposition to nuclear power was Ralph Nader…Nader sponsored the convention of nuclear power critics…to coordinate antinuclear activities throughout the nation…Nader called for increasing citizen intervention and joint activities among divergent groups, including those fighting utility rate structures…
“Nader’s organization established the Critical Mass newsletter, representing the Citizen Movement to Stop Nuclear Power…Powerful coalitions of financial and industrial interests, manipulation of the press, and biased government activity were exposed…”
As long ago as 1978, Nader argued that U.S. politics could be characterized in the following way:
“Liberal versus conservative is no longer the real dividing line in politics; the actual distinction is between the `corporatists,’ those who support and expand the power of corporations, and `consumerists,’ those who are working to expand the power of the people. The abuse of power by large corporations is the number one issue in our society…”
(Downtown/Aquarian Weekly 5/22/96)
Historically, the media images of major party presidential candidates [like the Big Media’s 2008 presidential ticket of Obama-McCain] have apparently been fabricated. As Myth of Democracy by Ferdinand Lundberg observed:
“It has come about that the entire `image’ of the President that is presented to the public is a gross fabrication by a team of election specialists. These specialists include speech writers (for few candidates write their own speeches), authors, elocutionists, strategists who know what words will affect different voting groups, make-up men, tailors, hairdressers, stage designers from Hollywood, lighting experts and many more arcane experts.
“The task of all these people, composing the election team, is to develop a fictitious character to take part in the election charade. The election campaign is a charade because it has nothing to do with the way the government will be run…”
(Downtown/Aquarian Weekly 5/15/96)
Yet long before he became a 1996 [and 2008] presidential candidate, Ralph Nader provided financial support to an organization that lobbied for women’s rights. In 1972, Nader’s Public Citizen group helped set up the “Center for Women’s Policy Studies” to “advocate women’s rights in employment, education and other areas” with “a $10,000 grant” [in 1970s money], according to Ralph Nader: A Man And A Movement by Jay Acton and Alan LeMond. The same book also noted that, although Nader helped set up and fund the Center for Women’s Policy Studies, this feminist center operated “independently of Nader.”
(Downtown/Aquarian Weekly 6/5/96)
Friday, October 31, 2008
Wednesday, October 29, 2008
Nader's Legislative Record In 1960s
In the 1960s, 1996 [and 2008] presidential candidate Ralph Nader was able to push through Congress more legislation in the public interest than Bill Clinton [or John McCain or Barack Obama] has been able to push through Congress. As Nader: The People’s Lawyer by Robert Buckhorn recalled in 1972:
“…If Nader contributes little in the way of consumption of goods himself, he has almost single-handedly done more for the consumer…than any clutch of presidents, politicians, or corporation chiefs. Since 1965, he has been responsible…for the passage of…the Traffic and Motor Vehicle Safety Act (1966), Natural Gas Pipeline Safety Act (1968), Wholesale Meat Act (1967), Radiation Control Act (1968), Wholesale Poultry Products Act (1967), Coal Mine Health and Safety Act (1969), and the Occupational Health and Safety Act (1970).
“…It was Nader who prodded the Food and Drug Administration to force the railroads to stop what Nader termed `their repulsive corporate practice’ of dumping two hundred million pounds of human excrement along railroad tracks every year. It was Nader who gave public exposure to the threats of poisoning from mercury in fish, cadmium in water, and asbestos in ventilation systems.
“It was Nader who charged that non-tobacco elements like glass fibers and rock wool were finding their way into cigars and cigarillos…And it was Nader who warned that the Volkswagen bus was `so unsafe’ it should be permanently barred from the road.”
(Downtown/Aquarian Weekly 5/1/96)
Before becoming well-known as a consumer advocate, Nader lived in New Jersey as a Princeton University undergraduate. According to Nader: The People’s Lawyer by Robert Buckhorn:
“…At Princeton, in the era before Rachel Carson’s Silent Spring, Nader was alarmed over the use of pesticides. When he found that DDT was killing the campus bird population, he was outraged. But his fellow students couldn’t get all that upset over a few dead birds, and Nader found the editor of the campus newspaper wouldn’t even print his letters of protest…
“It was at Princeton that Nader developed his penchant for staying up half the night, something he still does regularly…Nader spends his nights preparing congressional testimony or plowing through trade magazines, letters, and technical reports…His major was Oriental studies and he mastered Chinese, Russian, and Spanish…On summer vacations, he visited Indian reservations in New Mexico, Arizona, and California to collect information for a…paper on the exploitation of the Indian.”
(Downtown/Aquarian Weekly 5/15/96)
“…If Nader contributes little in the way of consumption of goods himself, he has almost single-handedly done more for the consumer…than any clutch of presidents, politicians, or corporation chiefs. Since 1965, he has been responsible…for the passage of…the Traffic and Motor Vehicle Safety Act (1966), Natural Gas Pipeline Safety Act (1968), Wholesale Meat Act (1967), Radiation Control Act (1968), Wholesale Poultry Products Act (1967), Coal Mine Health and Safety Act (1969), and the Occupational Health and Safety Act (1970).
“…It was Nader who prodded the Food and Drug Administration to force the railroads to stop what Nader termed `their repulsive corporate practice’ of dumping two hundred million pounds of human excrement along railroad tracks every year. It was Nader who gave public exposure to the threats of poisoning from mercury in fish, cadmium in water, and asbestos in ventilation systems.
“It was Nader who charged that non-tobacco elements like glass fibers and rock wool were finding their way into cigars and cigarillos…And it was Nader who warned that the Volkswagen bus was `so unsafe’ it should be permanently barred from the road.”
(Downtown/Aquarian Weekly 5/1/96)
Before becoming well-known as a consumer advocate, Nader lived in New Jersey as a Princeton University undergraduate. According to Nader: The People’s Lawyer by Robert Buckhorn:
“…At Princeton, in the era before Rachel Carson’s Silent Spring, Nader was alarmed over the use of pesticides. When he found that DDT was killing the campus bird population, he was outraged. But his fellow students couldn’t get all that upset over a few dead birds, and Nader found the editor of the campus newspaper wouldn’t even print his letters of protest…
“It was at Princeton that Nader developed his penchant for staying up half the night, something he still does regularly…Nader spends his nights preparing congressional testimony or plowing through trade magazines, letters, and technical reports…His major was Oriental studies and he mastered Chinese, Russian, and Spanish…On summer vacations, he visited Indian reservations in New Mexico, Arizona, and California to collect information for a…paper on the exploitation of the Indian.”
(Downtown/Aquarian Weekly 5/15/96)
Tuesday, October 28, 2008
Nader In 1972: `Punish Corporate Crime!'
One of the Independent Majority’s presidential candidates in 1996 [and in 2008], Ralph Nader, has been urging the federal government to punish U.S. corporate criminals and reduce U.S. corporate power for many years. In the 1972 book Nader: The People’s Lawyer by Robert Buckhorn, for example, Nader observed:
“I don’t know of any horde of hippies or yippies who have managed to smog New York City or contaminate the Gulf of Mexico. But I know companies that have done that. Consolidated Edison smogged New York. Chevron Oil dumped hundreds of thousands of barrels of oil in the Gulf of Mexico with impunity until the law finally came down on it, then only with a $1 million fine—the equivalent of about one hour’s gross revenues of Chevron’s parent company, Standard Oil…
“…Corporate crime should be punished, but it isn’t, because we have not been conditioned to think in terms of curbing corporate power or punishing it for excesses. There is a corporate crime wave in this country of unprecedented proportions, but if you look at the FBI crime statistics, what do you see? Have you ever seen a company on the `Ten Most Wanted’ list? Do you ever see statistics as to how much corporations stole from consumers?
“My job is to try to bring these issues out in the open where they cannot be ignored. The only real defeat is giving up, just as the only real aging is the erosion of one’s ideals.”
The same book also noted:
“The New Party, formed in the aftermath of the 1968 Democratic Convention in Chicago to provide an alternative for those who were no longer willing to compromise their views or vote for the `lesser of evils’ candidates, was the first political entity to reach out for Nader…The party consisted…of…young political activists. Its platform included plans endorsing everything from the Gay Liberation movement to a call for `a 30-hour week at 40-hour pay,’ and abolition of the CIA…
“As the average voter-in-the-street about Nader as presidential candidate, and you get a puzzled look followed by an expression that seems to say, `Why not?’…”
In 1975, Nader And The Power Of Everyman by Hays Gorey recalled:
“At the height of the Watergate scandals, Nicholas Von Hoffman had written in the Washington Post that `there is one man in public life who is clean enough, who has stature enough to restore respect for politics and public office, and that’s Ralph Nader, our national ombudsman…’ His distance from both major parties was a distinct asset, Von Hoffman had written, `in a period when parties are generally regarded as packs of marauding thieves and housebreakers.’
“Besides, `who knows more about how the federal government works on every level? Who could attract more talent to government? Who would more quickly shed the monarchical trappings the Presidency has acquired over the years?’”
One reason the New York Times/Boston Globe/Boston Metro media conglomerate was not eager to report on Ralph Nader’s 1996 [and 2008] presidential campaign is that, as early as 1972, Nader suggested that a consumer-oriented study of the New York Times media conglomerate should be made. In Nader: The People’s Lawyer by Robert Buckhorn, Nader made the following recommendation:
“There should be a study of The New York Times. Why the Times covers what it does? What are the priorities? Why doesn’t it have more investigative reporters? Why is it so poor on coverage of the way big banks manipulate the economy? What about the likes and dislikes of its editors? How high up are the decisions on editorials made? The Times is a world of its own and a study would be worth doing…”
(Downtown/Aquarian Weekly 4/10/96)
“I don’t know of any horde of hippies or yippies who have managed to smog New York City or contaminate the Gulf of Mexico. But I know companies that have done that. Consolidated Edison smogged New York. Chevron Oil dumped hundreds of thousands of barrels of oil in the Gulf of Mexico with impunity until the law finally came down on it, then only with a $1 million fine—the equivalent of about one hour’s gross revenues of Chevron’s parent company, Standard Oil…
“…Corporate crime should be punished, but it isn’t, because we have not been conditioned to think in terms of curbing corporate power or punishing it for excesses. There is a corporate crime wave in this country of unprecedented proportions, but if you look at the FBI crime statistics, what do you see? Have you ever seen a company on the `Ten Most Wanted’ list? Do you ever see statistics as to how much corporations stole from consumers?
“My job is to try to bring these issues out in the open where they cannot be ignored. The only real defeat is giving up, just as the only real aging is the erosion of one’s ideals.”
The same book also noted:
“The New Party, formed in the aftermath of the 1968 Democratic Convention in Chicago to provide an alternative for those who were no longer willing to compromise their views or vote for the `lesser of evils’ candidates, was the first political entity to reach out for Nader…The party consisted…of…young political activists. Its platform included plans endorsing everything from the Gay Liberation movement to a call for `a 30-hour week at 40-hour pay,’ and abolition of the CIA…
“As the average voter-in-the-street about Nader as presidential candidate, and you get a puzzled look followed by an expression that seems to say, `Why not?’…”
In 1975, Nader And The Power Of Everyman by Hays Gorey recalled:
“At the height of the Watergate scandals, Nicholas Von Hoffman had written in the Washington Post that `there is one man in public life who is clean enough, who has stature enough to restore respect for politics and public office, and that’s Ralph Nader, our national ombudsman…’ His distance from both major parties was a distinct asset, Von Hoffman had written, `in a period when parties are generally regarded as packs of marauding thieves and housebreakers.’
“Besides, `who knows more about how the federal government works on every level? Who could attract more talent to government? Who would more quickly shed the monarchical trappings the Presidency has acquired over the years?’”
One reason the New York Times/Boston Globe/Boston Metro media conglomerate was not eager to report on Ralph Nader’s 1996 [and 2008] presidential campaign is that, as early as 1972, Nader suggested that a consumer-oriented study of the New York Times media conglomerate should be made. In Nader: The People’s Lawyer by Robert Buckhorn, Nader made the following recommendation:
“There should be a study of The New York Times. Why the Times covers what it does? What are the priorities? Why doesn’t it have more investigative reporters? Why is it so poor on coverage of the way big banks manipulate the economy? What about the likes and dislikes of its editors? How high up are the decisions on editorials made? The Times is a world of its own and a study would be worth doing…”
(Downtown/Aquarian Weekly 4/10/96)
Monday, October 27, 2008
Third Parties & The Big Media Historically
The Corporate Male's Big Media has a history of attempting to rig U.S. presidential elections by denying news coverage to anti-establishment independent or third party presidential candidates like Nader [and McKinney]. As The Other Candidates: Third Parties In Presidential Elections by Frank Smallwood concluded in 1983:
"The final major complaint of the third-party candidate involved the issue of the exposure--or more accurately, the lack of exposure--in the national media...Most were unable to obtain any significant coverage from the large television networks or national newspapers. According to the Rosenstone study, `in 1980 Reagan and Carter received about 10 times more coverage in leading newspapers and weekly magazines than did all the eleven third party...candidates combined. This disparity existed in network television news coverage as well.'...
"A review of the ballot access, the campaign finance, and the media issue reveals that the third-party...candidates face...institutional and procedural obstacles. During recent years these obstacles have increased in severity with...the erosion of equal-time access to broadcast media.
"Despite the homage that is paid in American politics to the concepts of free enterprise and free competition, the two major parties are intent on doing everything possible to kill off their third-party rivals..."
(Downtown 3/20/96)
"The final major complaint of the third-party candidate involved the issue of the exposure--or more accurately, the lack of exposure--in the national media...Most were unable to obtain any significant coverage from the large television networks or national newspapers. According to the Rosenstone study, `in 1980 Reagan and Carter received about 10 times more coverage in leading newspapers and weekly magazines than did all the eleven third party...candidates combined. This disparity existed in network television news coverage as well.'...
"A review of the ballot access, the campaign finance, and the media issue reveals that the third-party...candidates face...institutional and procedural obstacles. During recent years these obstacles have increased in severity with...the erosion of equal-time access to broadcast media.
"Despite the homage that is paid in American politics to the concepts of free enterprise and free competition, the two major parties are intent on doing everything possible to kill off their third-party rivals..."
(Downtown 3/20/96)
Saturday, October 25, 2008
Nader & McKinney's Independent Vote In Battleground States
The U.S. Establishment's Big Media and the Democratic Party's Obama campaign undemocratically excluded 2008 independent presidential candidate Ralph Nader and 2008 Green Party presidential candidate Cynthia McKinney from the 2008 televised presidential debates. One reason was because both the Big Media gatekeepers and the Obama campaign's media consultant realized that Nader and McKinney, if allowed to debate Barack Obama on U.S. television, would likely obtain the votes of many independent antiwar U.S. voters in closely-contested "battleground states."
In 2000, for example, over 117,000 voters in Ohio, over 103,000 voters in Pennsylvania, over 90,000 voters in Colorado, over 29,000 voters in Iowa, over 84,000 voters in Michigan, over 126,000 voters in Minnesota, over 38,000 voters in Missouri, over 22,000 voters in New Hampshire, over 21,000 voters in New Mexico, over 59,000 voters in Virginia, over 10,000 voters in West Virginia, over 94,000 voters in Wisconsin and over 97,000 voters in Florida voted for Ralph Nader--even though Nader was also excluded from the 2000 televised presidential debates.
In 1992, when an independent presidential candidate named Ross Perot was allowed to participate in the 1992 televised presidential debates, Perot ended up receiving:
over 1 million votes in Ohio;
over 900,000 votes in Pennsylvania;
over 360,000 votes in Colorado;
over 253,000 votes in Iowa;
over 824,000 votes in Michigan;
over 562,000 votes in Minnesota;
over 518,000 votes in Missouri;
over 121,000 votes in New Hampshire;
over 91,000 votes in New Mexico;
over 348,000 votes in Virginia;
over 108,000 votes in West Virginia;
over 544,000 votes in Wisconsin; and
over 1 million votes in Florida.
In 2000, for example, over 117,000 voters in Ohio, over 103,000 voters in Pennsylvania, over 90,000 voters in Colorado, over 29,000 voters in Iowa, over 84,000 voters in Michigan, over 126,000 voters in Minnesota, over 38,000 voters in Missouri, over 22,000 voters in New Hampshire, over 21,000 voters in New Mexico, over 59,000 voters in Virginia, over 10,000 voters in West Virginia, over 94,000 voters in Wisconsin and over 97,000 voters in Florida voted for Ralph Nader--even though Nader was also excluded from the 2000 televised presidential debates.
In 1992, when an independent presidential candidate named Ross Perot was allowed to participate in the 1992 televised presidential debates, Perot ended up receiving:
over 1 million votes in Ohio;
over 900,000 votes in Pennsylvania;
over 360,000 votes in Colorado;
over 253,000 votes in Iowa;
over 824,000 votes in Michigan;
over 562,000 votes in Minnesota;
over 518,000 votes in Missouri;
over 121,000 votes in New Hampshire;
over 91,000 votes in New Mexico;
over 348,000 votes in Virginia;
over 108,000 votes in West Virginia;
over 544,000 votes in Wisconsin; and
over 1 million votes in Florida.
Friday, October 24, 2008
Nader In 1994: `Establish Audience Network!'
In an essay that appeared in State Of The Union 1994 [2008 Independent U.S. Presidential Candidate] Ralph Nader proposed that the U.S. mass media system be reformed in the following way:
"To give the audience access to the airwaves that it already owns, the [Democratic] Clinton administration should support the establishment of a new broadcast vehicle, the Audience Network. This national, nonprofit, non-partisan membership organization would be granted one hour of prime-time television and one hour of drive-time radio on every commercial channel each day. It would function as a separate licensee, airing diverse programming shaped by the membership. It would be open to all citizens over age sixteen for a nominal fee, such as $10 annually, and be democratically controlled. Finally, Audience Network would represent consumer interests before the Federal Communications Commission (FCC), Congress and the courts. This would redress the longstanding disenfranchisement that millions of viewers and listeners have suffered under the current regulatory regime.
"Audience Network and its professional staff would be managed by persons accountable to the membership through a direct elective process...Major abuses that are not publicized for years by the commercial media would receive more prompt attention free of the constraints of corporate advertisers.
"Over time, Audience Neetwork would gradually transform a powerless, voiceless audience, which has been conditioned to accept a debased regime of programming, into an active audience with the ability to initiate new, innovative, and consequential programming..."
(Downtown 1/24/96)
"To give the audience access to the airwaves that it already owns, the [Democratic] Clinton administration should support the establishment of a new broadcast vehicle, the Audience Network. This national, nonprofit, non-partisan membership organization would be granted one hour of prime-time television and one hour of drive-time radio on every commercial channel each day. It would function as a separate licensee, airing diverse programming shaped by the membership. It would be open to all citizens over age sixteen for a nominal fee, such as $10 annually, and be democratically controlled. Finally, Audience Network would represent consumer interests before the Federal Communications Commission (FCC), Congress and the courts. This would redress the longstanding disenfranchisement that millions of viewers and listeners have suffered under the current regulatory regime.
"Audience Network and its professional staff would be managed by persons accountable to the membership through a direct elective process...Major abuses that are not publicized for years by the commercial media would receive more prompt attention free of the constraints of corporate advertisers.
"Over time, Audience Neetwork would gradually transform a powerless, voiceless audience, which has been conditioned to accept a debased regime of programming, into an active audience with the ability to initiate new, innovative, and consequential programming..."
(Downtown 1/24/96)
LaFollette's Third-Party Platform Similar to Nader-McKinney Platforms
Nearly 17 percent of all people who were allowed to vote in 1924 supported Robert LaFollette's third-party presidential candidacy, which (similar to the platforms of 2008 alternative presidential candidates like Ralph Nader and Cynthia McKinney) favored "reduction of federal taxes...particularly by curtailment of the 800 million dollars now annually expended for the army and navy in preparation for future wars" and "such amendments to the Federal Constitution as may be necessary...to extend the initiative and referendum to the federal government, and to insure a popular referendum for or against war except in cases of actual invasion." According to LaFollette's Progressive Party of 1924, an alternative third party was needed by U.S. anti-war and anti-corporate progressive folks in the United States for the following reasons:
"The necessity for an independent Progressive movement lies in the failure of the two old parties to purge themselves of the influences which have caused their administrations repeatedly to betray the American people.
"...Both party organizations have fallen under the domination and control of corrupt wealth, devoting the powers of government exclusively to selfish special interests...
"To break the combined power of the private monopoly system over the political and economic life of the American people is the one paramount issue of the 1924 campaign...
"From 1912 until the present time no honest or continuous effort has been made by a single administration, either Republican or Democratic, to protect the American people from the exactions of private monopoly by enforcement of the criminal sections of the antitrust laws...
"Popular government cannot long endure in this country without an aggressively progressive party..."
(Downtown 10/18/95)
"The necessity for an independent Progressive movement lies in the failure of the two old parties to purge themselves of the influences which have caused their administrations repeatedly to betray the American people.
"...Both party organizations have fallen under the domination and control of corrupt wealth, devoting the powers of government exclusively to selfish special interests...
"To break the combined power of the private monopoly system over the political and economic life of the American people is the one paramount issue of the 1924 campaign...
"From 1912 until the present time no honest or continuous effort has been made by a single administration, either Republican or Democratic, to protect the American people from the exactions of private monopoly by enforcement of the criminal sections of the antitrust laws...
"Popular government cannot long endure in this country without an aggressively progressive party..."
(Downtown 10/18/95)
Wednesday, October 22, 2008
Obama Campaign's Pritzker/Superior Bank Scandal Link?
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 [2001],” 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 Penny 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 in the early part of the 2008 Democratic Party presidential primary campaign “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.”
And, coincidentally, Obama recently supported the use of billions of dollars more of U.S. taxpayer money to bail out the billionaire bankers (like the Obama presidential campaign's national finance chair) who helped create the current U.S. economic crisis by engaging in financially reckless predatory subprime mortgage lending and the securitization of subprime mortgages during the 1990s and early 21st century.
Incidentally, former Superior Bank Chairman Penny Pritzker contributed $100,000 to the Democratic National Committee [DNC] in 2000.
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 [2001],” 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 Penny 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 in the early part of the 2008 Democratic Party presidential primary campaign “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.”
And, coincidentally, Obama recently supported the use of billions of dollars more of U.S. taxpayer money to bail out the billionaire bankers (like the Obama presidential campaign's national finance chair) who helped create the current U.S. economic crisis by engaging in financially reckless predatory subprime mortgage lending and the securitization of subprime mortgages during the 1990s and early 21st century.
Incidentally, former Superior Bank Chairman Penny Pritzker contributed $100,000 to the Democratic National Committee [DNC] in 2000.
Saturday, October 18, 2008
Was Obama Campaign's National Finance Chair Involved In 2001 Superior Bank Scandal?
(The following article by David Moberg originally appeared in the November 8, 2002 issue of the Chicago-based alternative weekly newspaper, In These Times. (www.inthesetimes.com/ ) Former Superior Bank board member Penny Pritzker is now the Obama campaign’s national finance chair.)
Breaking The Bank
by David Moberg
After federal regulators closed the $2.3 billion Superior Bank in July 2001, investigations revealed that the suburban Chicago thrift was tainted with the hallmarks of a mini-Enron scandal. New legal developments are adding additional twists, including racketeering charges. And yet the bank’s owners, members if 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.
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. In the end, more than 1,000 uninsured depositors lost millions of dollars in savings in one of the biggest bank failures of the past decade.
Yet unlike Enron, the people behind Superior’s collapse were not nouveau-riche corporate hustlers, but members of Chicago’s Pritzker family. The Pritzkers, whose two current patriarchs—Robert and his nephew Thomas—tie for 22nd place on Forbes’ list of the richest Americans, own an empire valued at more than $15 billion, including the Hyatt hotel chain, casinos, manufacturers and real estate, and they are major contributors to both political parties. They were equal partners in the private ownership of Superior with New York real estate developer Alvin Dworman, a longtime associate of Thomas’ father, Jay Pritzker, who died in 1999.And Superior’s accounting and consulting was not provided by the disgraced Arthur Andersen, but by Ernst & Young.
When regulators shuttered the bank, the publicity-shy Pritzkers, who take pride in their philanthropy (such as the prestigious international architecture award in the family name) quickly negotiated what appeared to be a generous settlement to stay out of the newspapers and the courtrooms. But now both the Pritzkers and Ernst & Young may face the legal and public relations uproar they were trying to avoid.
On November 1, the Federal Deposit Insurance Corporation (FDIC) sued Ernst & Young for more than $2 billion. The FDIC alleges that the firm concealed its improper accounting practices at Superior to facilitate the sale of its consulting unit for $11 billion, leading to Superior’s insolvency and ultimately costing the FDIC $750 million. Ernst & Young denies responsibility, blaming the bank’s managers and board, failed regulation and changing economic conditions. Investigators from the FDIC, Treasury Department and the General Accounting Office (GAO) had cited all those causes for Superior’s failure, but also had criticized Ernst & Young’s flawed work and conflicts of interest.
Meanwhile, in a case that has received no public notice, uninsured depositors are bringing a charge of financial racketeering against one-time board chairwoman Penny Pritzker, her cousin Thomas Pritzker, Dworman, other bank principals and Ernst & Young. In this federal class-action suit filed under the RICO (Racketeering Influenced and Corrupt Organizations) statute, plaintiffs’ attorney Clint Krislov claims that those who controlled Superior induced depositors to put money in the bank, “corruptly” funneling money out of the bank to “fraudulently” profit the owners.
Pritzker attorney Stephen Novack says that the defendants will ask to dismiss the case as having no merit. Such a RICO suit has rarely, if ever, been used to recover money lost in a bank failure, partly because the owners in such cases, in the words of bank consultant Bert Ely, “usually don’t have a pot to piss in.” But the Pritzkers have a gold-plated pot.
This may not be the last of legal battles stemming from the Superior failure. Published reports indicate that a federal grand jury has been investigating potential criminal wrongdoing and that the Internal Revenue Service could press claims against the owners for tax evasion.
The problems at Superior Bank date back to at least 1988, when the Federal Home Loan Bank Board, in an effort to conceal the depths of the developing savings-and-loan crisis, hastily made generous arrangements for the takeover of several failed thrifts. The Pritzkers and Dworman bought the failed Lyons Federal for the relatively modest price of $42.5 million, with each using a shell corporation to control half of Coast-to-Coast Financial Corporation (CCFC), a holding company created to own Superior.
Superior opened for business with substantial federal assistance and guarantees, but the Pritzkers also reportedly received $645 million in tax credits as an inducement to buy Lyons. This was not the first Pritzker-Dworman joint venture into banking. In 1985, the partners had acquired New York-based River Bank America. But in 1991, federal and state regulators closed River Bank, which was engaged in large-scale real estate speculation, when they discovered that the bank had inadequate capital and was badly managed. Nelson Stephenson, the chief financial officer of River Bank, later became chairman of Superior.
In 1992, the Pritzkers and Dworman transferred ownership of Alliance Funding Company, a nationwide mortgage banking company the partners had founded in 1985, to Superior Bank, which began specializing in selling securities backed by subprime mortgages. Prospective homeowners with less-than-stellar credit ratings often must turn to such subprime lenders, which typically charge higher interest rates to compensate for the higher risk of default.
But a great many subprime lenders also unfairly exploit borrowers, seeking them out through aggressive television, direct mail and telemarketing techniques, then charging excessively high interest rates and exorbitant fees. Since many borrowers are in difficult situations and financially unsophisticated, they often are duped into agreeing to harsh conditions, such as stiff penalties for pre-paying their mortgages if their credit improves or interest rates drop, or improper costs, such as having the entire dividend for a 30-year-mortgage insurance policy included up-front in their mortgage.
Superior Bank accumulated mortgages that originated from its own branches or Alliance offices, as well as those bought from other brokers. They would then issue securities with high credit ratings but lower interest rates than what they charged borrowers. As collateral, these securities were backed by the stream of income from the mortgages. Superior Bank would retain “residual interests”—part of the collateral mortgages plus some of the excess mortgage interest—but they also retained responsibility for all of the potential losses, or what’s known in the business as “toxic waste.”
Because of the greater risks of subprime lending, it was difficult to project the future value of Superior’s residual interests. But aided by Fintek, another subsidiary of CCFC, and abetted by Ernst & Young, Superior made extremely rosy projections and—like Enron—booked those projected profits as immediate, or “imputed,” earnings. The extremely optimistic value of some residual interests was also counted as part of Superior’s capital, which banks must maintain at regulated levels—depending on their condition and type of business—to make sure that depositors can be repaid.
Examiners from the Office of Thrift Supervision (OTS) expressed concern about aggressive subprime policy, the value of residuals, the level of capital and other bank practices early in the ’90s. But Superior’s managers and board filed erroneous reports and repeatedly failed to take any of the action that regulators recommended.
Nevertheless, according to investigators, the OTS did not take any corrective action. They were persuaded that management was experienced (even though two top managers had been involved in large losses or failures at other thrifts); that Ernst & Young had given its approval in annual audits without any reservations (even though the firm had a long history of penalties and censure for its involvement in high-profile thrift failures); and that “because of their financial status, the OTS placed a great deal of reliance on the ability of the owners to inject capital if the institution encountered any financial difficulties,” as the FDIC inspector general’s report stated.
Meanwhile, Superior was growing rapidly: Loan volume rose from $200 million generated in 1993 to $2.2 billion in 1999, with the value of securities issued reaching $9.4 billion. The bank reported a return on assets that was 12 times the industry average. But its reliance on the risky residual interests from its mortgage securitization soared to levels far out of line with the rest of the industry, and by 2000 the bank’s residual interests were valued at more than four times its less fictional capital (such as stockholder equity). Superior expanded its business to subprime auto loans, then had to pull out because it was clearly failing.
All this should have looked like a sea of red flags to regulators, but they issued modest warnings and failed to follow up when management ignored their recommendations. Superior’s management actually revised its accounting methods in 1997 to further exaggerate its projected earnings, and it more than doubled the volume of the lowest quality loans in the following years. It was all a house of cards, but a very lucrative one for the owners. During the ’90s, the bank paid CCFC—and thus the Pritzkers and Dworman—more than $200 million in dividends.
There was a small problem, however. From 1995 on, investigators concluded, Superior was actually losing money, except for the fictional “imputed” earnings. So the dividends effectively were being paid out of the growing deposits, a practice that Ely describes as having “Ponzi-like characteristics.”
Furthermore, in 2000 Superior sold loans to CCFC, which the holding company immediately resold for a $20.2 million profit. Such a sale of assets at less than fair market value to insiders is a violation of federal law. There were other loans made to CCFC and its affiliates totalling $36.7 million—all in violation of the Federal Reserve Act—that were never repaid, the inspector general reported.
Superior also supposedly loaned the Dworman family’s shell company $70 million in 1996, but even though Dworman promised to pay it all back by the end of 1999, the inspector general found no evidence of any payments being made. (Dworman reportedly claimed that the money was a dividend payment concealed as a loan, which would raise questions about tax evasion.)
All these transactions enriched the Pritzkers and Dworman at the expense of the bank—and ultimately the FDIC insurance fund and uninsured depositors.
In the spring of 1999, both the OTS and FDIC downgraded Superior’s rating. Over the course of nearly two years, Superior and Ernst & Young resisted the analysis and recommendations of the regulatory agencies, but by January 2001 Ernst & Young finally agreed that the accounting of the residual assets had been wrong. The bank was deeply troubled even in good times, but the vulnerabilities would only increase. As interest rates declined, borrowers would try to pay off high-interest loans and refinance; as unemployment rose, increasing numbers of subprime borrowers would default. After downgrading the bank further, regulators concluded that it was “significantly undercapitalized” and needed an infusion of $270 million, which the Pritzkers—with some participation by Dworman—agreed in March to provide. Then in July regulators reported that, as a result of overly optimistic assumptions, the bank would need to write off an additional $150 million of of its residual interests. The Pritzkers pulled out of the agreed capital plan, and the feds closed the bank.
Wanting to avoid a lawsuit, the secretive Pritzkers quickly agreed to what the FDIC hailed in December as the biggest settlement they had ever negotiated. The Pritzkers would pay $100 million immediately, then $360 million over 15 years. But there were lots of little provisions in the agreement that benefit the Pritzkers. First, as former bank consultant and longtime thrift watchdog Tim Anderson notes, the $100 million doesn’t even quite pay back all of the unpaid loans made to the owners. The Pritzkers also pay no interest on the $360 million, and since it is paid over many years, the real cost to the Pritzkers may be only around $250 million. As of September 2002, according to FDIC figures, the insurance fund was still out $440 million after this settlement.
But it gets even sweeter for the Pritzkers. The FDIC also agreed to pay the Pritzkers 25 percent of any claim won in a lawsuit against Ernst & Young. Since the FDIC is now suing for $548 million, the Pritzker share could be $137 million. On top of that, the agreement stated that the Pritzkers get half of any civil penalties from such a lawsuit (after certain agency expenses). The FDIC is asking for triple damages, or $1.64 billion; the Pritzker share could be over $800 million.
Even taking into account the “record” settlement they made with the FDIC, the Pritzkers could make more than $700 million in additional profit for running a financial institution into the ground. They had already profited handsomely, sharing in the more than $200 million in dividends to the owners in the ’90s. They accomplished all this with an investment of about $21 million for each partner—though the Pritzkers had also already benefited from $645 million in tax credits.
Meanwhile, roughly 1,000 depositors who had deposits above $100,000 in a Superior account—money above the FDIC-insured limit—lost about $65 million. Most of them were middle-class individuals, attracted by Superior’s high interest rates. In the three months just before the bank was closed, there was a surge of $9.6 million in uninsured deposits. Since about 54 percent of the uninsured money has since been repaid as Superior was sold off, the depositors have still collectively lost about $30 million. (That just happens to be the amount that the Pritzkers gave to the University of Chicago’s Pritzker School of Medicine earlier this year.)
Some of that money could have paid back Fran Sweet for the roughly $138,000 that she has still not recovered from her deposits at Superior. After retiring as a manager at a telecommunications company, Sweet was seeking a secure place to put her entire retirement savings of about $500,000.
“I knew the Pritzkers were owners of the bank,” she says, “and they were a reputable name in Chicago. I had no idea that the bank was in trouble.”She even asked a bank manager if there was anything wrong with the bank. “She said, ‘No, nothing is wrong, We’re owned by the Pritzkers,’ ” Sweet recalls. “I want it all back. I worked 23 years for a company and got this money from them as a buyout, and the Pritzker family and Dworman stole it from me.”
People at the other end of the deal—who borrowed from Superior—are also still hurting as a result of the scam. The National Community Reinvestment Coalition, which monitors bank lending, last year accused Superior of participating in a variety of predatory practices, including overly aggressive telemarketing, targeting low-income minority borrowers, and disproportionately incorporating problematic “balloon payments” in the loans.
One borrower in Philadelphia, represented by attorney Brian Mildenberg, ended up in bankruptcy partly because Superior didn’t properly credit him for payments he had made. In another case, Cleveland construction worker Dan Sutton claims that a broker for Superior falsified papers to inflate his mortgage and charged exorbitant fees.
The Pritzkers are likely to make out like bandits, which is exactly what customers like Sweet and Sutton think they are. All of the government studies of Superior’s failure agree that there’s plenty of blame to spread around.
As the FDIC inspector general’s report concluded, the bank managers pursued an ultra-risky strategy based on unrealistic assumptions and unjustifiably pumped dividends and illegal, unpaid loans out of the bank and into the owners’ coffers.
Ernst & Young provided inaccurate audits, resisted regulators, and did not test or properly disclose crucial financial assumptions. The OTS didn’t investigate or follow up on problems adequately, ignored warning signs for years, and unduly relied on the expertise of managers, the auditor’s report, and the promise of the wealthy owners to put their money behind the bank’s strategy, which they ultimately refused to do.
While the FDIC lawsuit against Ernst & Young correctly highlights the accounting firm’s sorry record of accounting malpractice, it ignores the dubious history of the Pritzkers and Dworman in cases ranging from tax evasion to bank mismanagement, instead praising the Pritzkers for their charity.
What looked like a good deal for the FDIC in resolving Superior’s failure is now looking like yet another opportunity for the wealthy Pritzkers to further profit from their misdeeds. Certainly, the record suggests that Ernst & Young bears responsibility, but so do the Pritzkers and Dworman. The question is not just who will extract money from whose pocket in the aftermath of the bank failure, but also whether the rich are simply above the law. The RICO lawsuit against bank managers, owners and auditors raises the issue of criminal conspiracy and at least attempts to recover damages for the uninsured depositors. But beyond that, argues thrift watchdog Anderson, “I think there ought to be a criminal investigation.”
Breaking The Bank
by David Moberg
After federal regulators closed the $2.3 billion Superior Bank in July 2001, investigations revealed that the suburban Chicago thrift was tainted with the hallmarks of a mini-Enron scandal. New legal developments are adding additional twists, including racketeering charges. And yet the bank’s owners, members if 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.
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. In the end, more than 1,000 uninsured depositors lost millions of dollars in savings in one of the biggest bank failures of the past decade.
Yet unlike Enron, the people behind Superior’s collapse were not nouveau-riche corporate hustlers, but members of Chicago’s Pritzker family. The Pritzkers, whose two current patriarchs—Robert and his nephew Thomas—tie for 22nd place on Forbes’ list of the richest Americans, own an empire valued at more than $15 billion, including the Hyatt hotel chain, casinos, manufacturers and real estate, and they are major contributors to both political parties. They were equal partners in the private ownership of Superior with New York real estate developer Alvin Dworman, a longtime associate of Thomas’ father, Jay Pritzker, who died in 1999.And Superior’s accounting and consulting was not provided by the disgraced Arthur Andersen, but by Ernst & Young.
When regulators shuttered the bank, the publicity-shy Pritzkers, who take pride in their philanthropy (such as the prestigious international architecture award in the family name) quickly negotiated what appeared to be a generous settlement to stay out of the newspapers and the courtrooms. But now both the Pritzkers and Ernst & Young may face the legal and public relations uproar they were trying to avoid.
On November 1, the Federal Deposit Insurance Corporation (FDIC) sued Ernst & Young for more than $2 billion. The FDIC alleges that the firm concealed its improper accounting practices at Superior to facilitate the sale of its consulting unit for $11 billion, leading to Superior’s insolvency and ultimately costing the FDIC $750 million. Ernst & Young denies responsibility, blaming the bank’s managers and board, failed regulation and changing economic conditions. Investigators from the FDIC, Treasury Department and the General Accounting Office (GAO) had cited all those causes for Superior’s failure, but also had criticized Ernst & Young’s flawed work and conflicts of interest.
Meanwhile, in a case that has received no public notice, uninsured depositors are bringing a charge of financial racketeering against one-time board chairwoman Penny Pritzker, her cousin Thomas Pritzker, Dworman, other bank principals and Ernst & Young. In this federal class-action suit filed under the RICO (Racketeering Influenced and Corrupt Organizations) statute, plaintiffs’ attorney Clint Krislov claims that those who controlled Superior induced depositors to put money in the bank, “corruptly” funneling money out of the bank to “fraudulently” profit the owners.
Pritzker attorney Stephen Novack says that the defendants will ask to dismiss the case as having no merit. Such a RICO suit has rarely, if ever, been used to recover money lost in a bank failure, partly because the owners in such cases, in the words of bank consultant Bert Ely, “usually don’t have a pot to piss in.” But the Pritzkers have a gold-plated pot.
This may not be the last of legal battles stemming from the Superior failure. Published reports indicate that a federal grand jury has been investigating potential criminal wrongdoing and that the Internal Revenue Service could press claims against the owners for tax evasion.
The problems at Superior Bank date back to at least 1988, when the Federal Home Loan Bank Board, in an effort to conceal the depths of the developing savings-and-loan crisis, hastily made generous arrangements for the takeover of several failed thrifts. The Pritzkers and Dworman bought the failed Lyons Federal for the relatively modest price of $42.5 million, with each using a shell corporation to control half of Coast-to-Coast Financial Corporation (CCFC), a holding company created to own Superior.
Superior opened for business with substantial federal assistance and guarantees, but the Pritzkers also reportedly received $645 million in tax credits as an inducement to buy Lyons. This was not the first Pritzker-Dworman joint venture into banking. In 1985, the partners had acquired New York-based River Bank America. But in 1991, federal and state regulators closed River Bank, which was engaged in large-scale real estate speculation, when they discovered that the bank had inadequate capital and was badly managed. Nelson Stephenson, the chief financial officer of River Bank, later became chairman of Superior.
In 1992, the Pritzkers and Dworman transferred ownership of Alliance Funding Company, a nationwide mortgage banking company the partners had founded in 1985, to Superior Bank, which began specializing in selling securities backed by subprime mortgages. Prospective homeowners with less-than-stellar credit ratings often must turn to such subprime lenders, which typically charge higher interest rates to compensate for the higher risk of default.
But a great many subprime lenders also unfairly exploit borrowers, seeking them out through aggressive television, direct mail and telemarketing techniques, then charging excessively high interest rates and exorbitant fees. Since many borrowers are in difficult situations and financially unsophisticated, they often are duped into agreeing to harsh conditions, such as stiff penalties for pre-paying their mortgages if their credit improves or interest rates drop, or improper costs, such as having the entire dividend for a 30-year-mortgage insurance policy included up-front in their mortgage.
Superior Bank accumulated mortgages that originated from its own branches or Alliance offices, as well as those bought from other brokers. They would then issue securities with high credit ratings but lower interest rates than what they charged borrowers. As collateral, these securities were backed by the stream of income from the mortgages. Superior Bank would retain “residual interests”—part of the collateral mortgages plus some of the excess mortgage interest—but they also retained responsibility for all of the potential losses, or what’s known in the business as “toxic waste.”
Because of the greater risks of subprime lending, it was difficult to project the future value of Superior’s residual interests. But aided by Fintek, another subsidiary of CCFC, and abetted by Ernst & Young, Superior made extremely rosy projections and—like Enron—booked those projected profits as immediate, or “imputed,” earnings. The extremely optimistic value of some residual interests was also counted as part of Superior’s capital, which banks must maintain at regulated levels—depending on their condition and type of business—to make sure that depositors can be repaid.
Examiners from the Office of Thrift Supervision (OTS) expressed concern about aggressive subprime policy, the value of residuals, the level of capital and other bank practices early in the ’90s. But Superior’s managers and board filed erroneous reports and repeatedly failed to take any of the action that regulators recommended.
Nevertheless, according to investigators, the OTS did not take any corrective action. They were persuaded that management was experienced (even though two top managers had been involved in large losses or failures at other thrifts); that Ernst & Young had given its approval in annual audits without any reservations (even though the firm had a long history of penalties and censure for its involvement in high-profile thrift failures); and that “because of their financial status, the OTS placed a great deal of reliance on the ability of the owners to inject capital if the institution encountered any financial difficulties,” as the FDIC inspector general’s report stated.
Meanwhile, Superior was growing rapidly: Loan volume rose from $200 million generated in 1993 to $2.2 billion in 1999, with the value of securities issued reaching $9.4 billion. The bank reported a return on assets that was 12 times the industry average. But its reliance on the risky residual interests from its mortgage securitization soared to levels far out of line with the rest of the industry, and by 2000 the bank’s residual interests were valued at more than four times its less fictional capital (such as stockholder equity). Superior expanded its business to subprime auto loans, then had to pull out because it was clearly failing.
All this should have looked like a sea of red flags to regulators, but they issued modest warnings and failed to follow up when management ignored their recommendations. Superior’s management actually revised its accounting methods in 1997 to further exaggerate its projected earnings, and it more than doubled the volume of the lowest quality loans in the following years. It was all a house of cards, but a very lucrative one for the owners. During the ’90s, the bank paid CCFC—and thus the Pritzkers and Dworman—more than $200 million in dividends.
There was a small problem, however. From 1995 on, investigators concluded, Superior was actually losing money, except for the fictional “imputed” earnings. So the dividends effectively were being paid out of the growing deposits, a practice that Ely describes as having “Ponzi-like characteristics.”
Furthermore, in 2000 Superior sold loans to CCFC, which the holding company immediately resold for a $20.2 million profit. Such a sale of assets at less than fair market value to insiders is a violation of federal law. There were other loans made to CCFC and its affiliates totalling $36.7 million—all in violation of the Federal Reserve Act—that were never repaid, the inspector general reported.
Superior also supposedly loaned the Dworman family’s shell company $70 million in 1996, but even though Dworman promised to pay it all back by the end of 1999, the inspector general found no evidence of any payments being made. (Dworman reportedly claimed that the money was a dividend payment concealed as a loan, which would raise questions about tax evasion.)
All these transactions enriched the Pritzkers and Dworman at the expense of the bank—and ultimately the FDIC insurance fund and uninsured depositors.
In the spring of 1999, both the OTS and FDIC downgraded Superior’s rating. Over the course of nearly two years, Superior and Ernst & Young resisted the analysis and recommendations of the regulatory agencies, but by January 2001 Ernst & Young finally agreed that the accounting of the residual assets had been wrong. The bank was deeply troubled even in good times, but the vulnerabilities would only increase. As interest rates declined, borrowers would try to pay off high-interest loans and refinance; as unemployment rose, increasing numbers of subprime borrowers would default. After downgrading the bank further, regulators concluded that it was “significantly undercapitalized” and needed an infusion of $270 million, which the Pritzkers—with some participation by Dworman—agreed in March to provide. Then in July regulators reported that, as a result of overly optimistic assumptions, the bank would need to write off an additional $150 million of of its residual interests. The Pritzkers pulled out of the agreed capital plan, and the feds closed the bank.
Wanting to avoid a lawsuit, the secretive Pritzkers quickly agreed to what the FDIC hailed in December as the biggest settlement they had ever negotiated. The Pritzkers would pay $100 million immediately, then $360 million over 15 years. But there were lots of little provisions in the agreement that benefit the Pritzkers. First, as former bank consultant and longtime thrift watchdog Tim Anderson notes, the $100 million doesn’t even quite pay back all of the unpaid loans made to the owners. The Pritzkers also pay no interest on the $360 million, and since it is paid over many years, the real cost to the Pritzkers may be only around $250 million. As of September 2002, according to FDIC figures, the insurance fund was still out $440 million after this settlement.
But it gets even sweeter for the Pritzkers. The FDIC also agreed to pay the Pritzkers 25 percent of any claim won in a lawsuit against Ernst & Young. Since the FDIC is now suing for $548 million, the Pritzker share could be $137 million. On top of that, the agreement stated that the Pritzkers get half of any civil penalties from such a lawsuit (after certain agency expenses). The FDIC is asking for triple damages, or $1.64 billion; the Pritzker share could be over $800 million.
Even taking into account the “record” settlement they made with the FDIC, the Pritzkers could make more than $700 million in additional profit for running a financial institution into the ground. They had already profited handsomely, sharing in the more than $200 million in dividends to the owners in the ’90s. They accomplished all this with an investment of about $21 million for each partner—though the Pritzkers had also already benefited from $645 million in tax credits.
Meanwhile, roughly 1,000 depositors who had deposits above $100,000 in a Superior account—money above the FDIC-insured limit—lost about $65 million. Most of them were middle-class individuals, attracted by Superior’s high interest rates. In the three months just before the bank was closed, there was a surge of $9.6 million in uninsured deposits. Since about 54 percent of the uninsured money has since been repaid as Superior was sold off, the depositors have still collectively lost about $30 million. (That just happens to be the amount that the Pritzkers gave to the University of Chicago’s Pritzker School of Medicine earlier this year.)
Some of that money could have paid back Fran Sweet for the roughly $138,000 that she has still not recovered from her deposits at Superior. After retiring as a manager at a telecommunications company, Sweet was seeking a secure place to put her entire retirement savings of about $500,000.
“I knew the Pritzkers were owners of the bank,” she says, “and they were a reputable name in Chicago. I had no idea that the bank was in trouble.”She even asked a bank manager if there was anything wrong with the bank. “She said, ‘No, nothing is wrong, We’re owned by the Pritzkers,’ ” Sweet recalls. “I want it all back. I worked 23 years for a company and got this money from them as a buyout, and the Pritzker family and Dworman stole it from me.”
People at the other end of the deal—who borrowed from Superior—are also still hurting as a result of the scam. The National Community Reinvestment Coalition, which monitors bank lending, last year accused Superior of participating in a variety of predatory practices, including overly aggressive telemarketing, targeting low-income minority borrowers, and disproportionately incorporating problematic “balloon payments” in the loans.
One borrower in Philadelphia, represented by attorney Brian Mildenberg, ended up in bankruptcy partly because Superior didn’t properly credit him for payments he had made. In another case, Cleveland construction worker Dan Sutton claims that a broker for Superior falsified papers to inflate his mortgage and charged exorbitant fees.
The Pritzkers are likely to make out like bandits, which is exactly what customers like Sweet and Sutton think they are. All of the government studies of Superior’s failure agree that there’s plenty of blame to spread around.
As the FDIC inspector general’s report concluded, the bank managers pursued an ultra-risky strategy based on unrealistic assumptions and unjustifiably pumped dividends and illegal, unpaid loans out of the bank and into the owners’ coffers.
Ernst & Young provided inaccurate audits, resisted regulators, and did not test or properly disclose crucial financial assumptions. The OTS didn’t investigate or follow up on problems adequately, ignored warning signs for years, and unduly relied on the expertise of managers, the auditor’s report, and the promise of the wealthy owners to put their money behind the bank’s strategy, which they ultimately refused to do.
While the FDIC lawsuit against Ernst & Young correctly highlights the accounting firm’s sorry record of accounting malpractice, it ignores the dubious history of the Pritzkers and Dworman in cases ranging from tax evasion to bank mismanagement, instead praising the Pritzkers for their charity.
What looked like a good deal for the FDIC in resolving Superior’s failure is now looking like yet another opportunity for the wealthy Pritzkers to further profit from their misdeeds. Certainly, the record suggests that Ernst & Young bears responsibility, but so do the Pritzkers and Dworman. The question is not just who will extract money from whose pocket in the aftermath of the bank failure, but also whether the rich are simply above the law. The RICO lawsuit against bank managers, owners and auditors raises the issue of criminal conspiracy and at least attempts to recover damages for the uninsured depositors. But beyond that, argues thrift watchdog Anderson, “I think there ought to be a criminal investigation.”
Friday, October 17, 2008
CBS's Bank of America Connection
The Big Media Monopoly conglomerate news departments (with the exception of Rupert Murdoch's right-wing Fox News propaganda agency) have generally been acting like press agents for the Democrataic Party's Obama presidential campaign in 2008.
One reason might be because Obama endorsed the U.S. imperialist government's bipartisan economic program of using the public funds of U.S. taxpayers to provide billions of dollars worth of corporate welfare investment grants to the big banks of the same ultra-rich folks who helped create (along with the Obama campaign's national finance chairperson, former Superior Bank board member Penny Pritzker) the current U.S. economic crisis--by engaging in financially reckless predatory sub-prime mortgage lending and the securitization of sub-prime mortgages.
Coincidentally, one of the board members of CBS News' CBS parent company, Charles Gifford, also sits on the board of the same Bank of America in which $25 billion of public funds was recently invested under the U.S. government's bipartisan "corporate welfare for Wall Street" economic program. Another member of the Bank of America's corporate board, former PBS President and CEO Patricia Mitchell, is also the President and CEO of the "non-profit" CBS-linked Paley Center for Media, from which she takes home an annual salary of $522,837 per year.
Like the Bank of America, Citicorp also was recently handed $25 billion in public "investment" funds under the Obama-McCain-endorsed "corporate welfare for Wall Street" economic program, which the CNN newsroom press agents for the Obama campaign helped promote. And, coincidentally, the chairman of the board of CNN's Time-Warner media conglomerate parent company, Richard Parsons, also sits on the board of directors of Citicorp. Not surprisingly, Time Warner/CNN Chairman of the Board Parsons also made three campaign contributions, totalling $6,900, to Obama's 2008 presidential campaign between August 20, 2008 and August 31, 2008.
One reason might be because Obama endorsed the U.S. imperialist government's bipartisan economic program of using the public funds of U.S. taxpayers to provide billions of dollars worth of corporate welfare investment grants to the big banks of the same ultra-rich folks who helped create (along with the Obama campaign's national finance chairperson, former Superior Bank board member Penny Pritzker) the current U.S. economic crisis--by engaging in financially reckless predatory sub-prime mortgage lending and the securitization of sub-prime mortgages.
Coincidentally, one of the board members of CBS News' CBS parent company, Charles Gifford, also sits on the board of the same Bank of America in which $25 billion of public funds was recently invested under the U.S. government's bipartisan "corporate welfare for Wall Street" economic program. Another member of the Bank of America's corporate board, former PBS President and CEO Patricia Mitchell, is also the President and CEO of the "non-profit" CBS-linked Paley Center for Media, from which she takes home an annual salary of $522,837 per year.
Like the Bank of America, Citicorp also was recently handed $25 billion in public "investment" funds under the Obama-McCain-endorsed "corporate welfare for Wall Street" economic program, which the CNN newsroom press agents for the Obama campaign helped promote. And, coincidentally, the chairman of the board of CNN's Time-Warner media conglomerate parent company, Richard Parsons, also sits on the board of directors of Citicorp. Not surprisingly, Time Warner/CNN Chairman of the Board Parsons also made three campaign contributions, totalling $6,900, to Obama's 2008 presidential campaign between August 20, 2008 and August 31, 2008.
Wednesday, October 15, 2008
CNN's Big Bank Connection
One reason Time-Warner's CNN cable news network subsidiary has been pushing to provide public "corporate welfare" funds for the super-rich Wall Street folks who control big banks like Citicorp may be because the the chairman of the board of Time-Warner/CNN, Richard Parsons, also sits on the board of directors of Citicorp.
Another member of the board of CNN's parent company, Time-Warner board member Herbert Allison, Jr., is also the president and CEO of Fannie Mae and a former chairman of Merrill Lynch--two other U.S. financial institutions which are receiving public "corporate welfare" hand-outs, despite being responsible (along with the failed Superior Bank of the Obama campaign's national finance chairperson, Penny Pritzker) for much of the sub-prime mortgage crisis which helped produce the recent collapse of U.S. imperialism's capitalist banking system.
Another member of the board of CNN's parent company, Time-Warner board member Herbert Allison, Jr., is also the president and CEO of Fannie Mae and a former chairman of Merrill Lynch--two other U.S. financial institutions which are receiving public "corporate welfare" hand-outs, despite being responsible (along with the failed Superior Bank of the Obama campaign's national finance chairperson, Penny Pritzker) for much of the sub-prime mortgage crisis which helped produce the recent collapse of U.S. imperialism's capitalist banking system.
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