"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," President Obama said in a December 2009 interview. Bankers, he said, are "still puzzled why is it that people are mad at the banks. Well, let's see. You guys are drawing down $10, $20 million bonuses ... and you guys caused the problem."
Obama's strong words suggest he would have little sympathy for, say, an executive whose bank collapsed, costing depositors and the FDIC millions; even less if it happened because of an irresponsible subprime lending strategy; and less still if the bank had targeted low-income customers for high interest rates, balloon payments and other mortgage gimmicks of recent unpleasant memory.
You'd at least expect him not to nominate that person for Commerce Secretary -- but then you'd be wrong.
The Commerce slot is one of the true spoils of victory in the federal government, usually given without too much concern for merit to some rich person, party hack or major donor. Few have suffered from (or probably even noticed) the post going vacant since last June.
But it is still incongruous for this bauble to go to Penny Pritzker, the billionaire hotel heiress whose family bank, Superior FSB, anticipated in its ugly details the recent financial crisis by more than seven years.
As the Chicago Tribune's David Mendell notes in his biography of Obama, Pritzker was one of the first from Chicago's wealthy and smart set to recognize Obama's talent and embrace his longshot bid for U.S. Senate in 2004. She has been a major donor and fundraiser and has served some top finance role in Obama's campaigns ever since.
But Pritzker is also everything Obama has inveighed against in public -- not just a person of enormous wealth which she did not build, but also one who ran a bank on principles he has specifically deplored.
Pritzker was Superior's chairwoman beginning in 1989, after her family had taken the bank over from previous failed management. In 1993, under her leadership, it adopted its fateful strategy of aggressive subprime lending to customers with "A-minus," "B" and "C" credit records. She left in 1994 to serve on the board of Superior's holding company, but was involved in its operations, according to Crain's Chicago Business, especially after 1999.
In May 2001, with Superior nearing collapse and her family involved in a last-ditch effort to save it, she wrote to its employees promising to "once again restore Superior's leadership position in subprime lending." But the effort fell through. The FDIC revoked the bank's charter on July 27 of that year and began an estimated $750 million bailout. About 1,400 depositors collectively lost millions.
Regulators at the Office of Thrift Supervision wrote that "Superior Bank suffered as a result of its former high-risk business strategy, which was focused on the generation of significant volumes of subprime mortgage and automobile loans for securitization and sale in the secondary market." The FDIC's inspector general wrote that Superior's board and managers "ignored sound risk-management principles and failed to adequately oversee Superior's operations," and "permitted the institution to concentrate its business too heavily in high-risk assets ... without maintaining adequate financial resources to withstand potential losses."
Perhaps that last bit sounds familiar. So might this: The liberal National Community Reinvestment Coalition complained in writing to regulators about Superior in 2000 for advertising itself in ways designed to shunt worthy but financially illiterate borrowers into the subprime category. But interestingly, the group also noted that Superior was selling investors on an issue of mortgage securities backed by 25 percent balloon loans and 67 percent loans with interest rates north of 10 percent.
After the collapse, the Pritzkers agreed to a $460 million settlement -- nearly $200 million less than $645 million incentive package that the FDIC had given them to take the bank over in 1988. The family finally finished paying the settlement last summer.
When he points to America's economic malaise, Obama frequently claims he is still picking up the pieces from a mess caused by others -- not just Republicans, but also bankers who did exactly what Pritzker's bank did. And so her nomination is meaningful gesture of the single-digit variety toward those who saved and lost their money in her bank, as well as those old enough to remember something about bankers' bad behavior playing a role in the nation's recent financial crisis.
Examiner columnist David Freddoso is editor of the Conservative Intelligence Briefing.