By David Freddoso
Barack Obama is casting quite a few stones over today’s financial crisis. He blames deregulation (wrong) and greed (partly right). But if he wants to know how the current economic crisis unfolded, he might want to look instead at his own campaign team. Not only does it contain two former CEOs of Fannie Mae -- the government-backed actor that caused most of today’s problems in the secondary mortgage market -- but it also includes a banker whose strategy of aggressive subprime lending caused a bank to collapse, according to federal regulators.
Penny Pritzker was that banker, and she currently serves as Obama’s national finance chairwoman. She has been a supporter of Obama ever since the summer of 2002, when she first agreed to help finance his 2004 U.S. Senate campaign. She is also one of America’s wealthiest women, coming from the family that owns the Hyatt hotel chain. In her family, they don’t fight over the remote control. They fight over who took a billion dollars from whose trust fund -- this was literally the subject of an intra-family lawsuit in 2002.
Aside from the money she has raised from others on Obama’s behalf, Penny Pritzker’s family contributed roughly $39,000 to his 2004 Senate campaign. They have continued their generosity toward his presidential effort, giving some $48,000 in all as of this summer.
Pritzker was chairwoman of the board for her family’s bank, Superior Bank FSB, until 1994, when she became director of its holding company. In 1993, she had overseen the fateful decision to adopt a new business strategy of aggressive subprime lending. The bank would actually come in for some criticism for this on the Left -- in 2000, the National Community Reinvestment Coalition (NCRC) sent a letter to federal bank regulators to alert them to Superior’s subprime lending practices, accusing the bank of poor risk management and of targeting minorities for subprime loans at a rate that far exceeded other financial institutions.
They were at least right about the poor risk management. But as Superior neared collapse in May 2001, Pritzker penned a letter promising to “once again restore Superior's leadership position in subprime lending.” Superior’s collapse that July caused 1,400 people to part of their savings, and prompted a $750 million bailout by the FDIC. Such bailouts do not directly affect taxpayers, but they do ultimately create extra costs for all banks and bank customers.
The subprime strategy that Pritzker had endorsed was a major part of the problem leading to the bank’s insolvency, according to the federal Office of Thrift Supervision. As that government agency reported at the time:
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 places much of the responsibility for the collapse on the board and managers at Superior, saying they “ignored sound risk-management principles and failed to adequately oversee Superior's operations.” The Pritzkers agreed to pay a $460 million settlement—$100 million up front, and the rest (without interest) over a period of 15 years. According to the Associated Press, the Pritzkers’ settlement “barred government action against the owners,” who “admitted no liability.”
In April 2008, Pritzker told USA Today: “I regret that Superior Bank failed.” She went on, “My family voluntarily agreed to pay the FDIC $460 million … without litigation or any allegation by federal regulators of wrongdoing. I am proud of how my family responded to this situation.”
In other words, she was proud that her bank had returned some of her customers’ money. For even after the large legal settlement and the FDIC bailout, some 1,400 account holders came up $10 million short, on aggregate. The Chicago Sun-Times quoted one of the people who lost money, a 63-year-old woman who had unfortunately deposited her retirement savings in Superior just before the collapse: “They still owe me $113,000,” she said.
Aggressive subprime lending is an important component of the economic crisis we currently face. So when you hear Barack Obama discuss the current problems, don’t forget that his campaign’s top money-woman was one of the actors in this drama, who gambled in the subprime mortgage market, and lost millions for her bank customers.
David Freddoso, a staff reporter for National Review Online. This essay is based on a section from Chapter 11 of his New York Times bestselling book, The Case Against Barack Obama: The Unlikely Rise and Unexamined Agenda of the Media’s Favorite Candidate.