IN THESE TIMES
WITH LIBERTY AND JUSTICE FOR ALL...
On May 2, 2013, in the White House Rose
Garden, U.S. President Barack Obama announces his nominee for Secretary
of Commerce, Hyatt hotel heir Penny Pritzker. (SAUL LOEB/AFP/Getty
Images)
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Features » May 3, 2013
Obama’s Commerce Secretary choice raises serious questions.
'Penny Pritzker has still not answered for her and her family’s role in
the subprime mortgage meltdown of the world-wide economy,' says
bank-advisor-turned-banking-watchdog Tim Anderson.
BY David Moberg
Despite her business-friendly history, billionaire heir Penny Pritzker,
President Obama’s nominee for Secretary of Commerce, will likely face
standard Republican flak in her Senate confirmation hearings.
But progressive Democrats are the ones with real reasons to be upset
with her record and that of her family, which is among the wealthiest in
America. Here are just a few:
1)
Union-busting. Pritzker’s family businesses have often engaged in anti-union practices. She is a director of the Hyatt Hotels, which
fired and then
replaced long-time room cleaners in its Boston hotels with non-union
subcontracted workers. Hyatt has refused to settle several contract
disputes with UNITE HERE, some lasting nearly four years, on terms
similar to those accepted by other big hoteliers.
2) Conflicts of interest. The family’s $20 billion
empire was built on a diverse base of businesses, including Hyatt,
Marmon (an industrial conglomerate), the TransUnion credit rating
agency, and many others in industries such as container leasing,
insurance and travel.
The family has long had a reputation for not only
accumulating its wealth
through elaborate schemes of tax evasion, including offshore accounts,
but also for using its political clout to win favored treatment.
For example, community and teacher union critics berated Pritzker, who
recently resigned from the Chicago Board of Education, for supporting
the closing of dozens of public schools because of financial pressures.
At the same time, the highly profitable Hyatt was receiving financial
assistance from a Tax Increment Finance fund (a pool of money intended
to support blighted neighborhoods in the city) whose assets effectively
had been diverted from support of the schools. Pritzker also has drawn
fire for her leading role in promoting privately operated charter
schools, including networks of non-profits to which she has contributed.
While some Pritzkers support Republicans, others, like Penny, are
active patrons of corporate-oriented Democrats. Penny Pritzker, who knew
Obama before he ran for president, served as financial chair of his
first campaign and is credited with bringing in millions of dollars in
donations. Many observers see her appointment to the relatively weak—if
symbolically still important—commerce post as typical campaign spoils
for big contributors.
But if she is approved, it will burnish her reputation and increase her
potential influence. The Pritzkers, who have contributed large sums to
education, medicine, architecture and the arts in their hometown of
Chicago and elsewhere, gain protection from the fallout of their
questionable business practices through their public image as
philanthropists.
3) Shady business dealings. The Pritzkers have a long
history of business malfeasance at the expense of people of modest
means. In one notable case, Congress passed legislation in 2003 to
address issues raised by widespread charges that the Pritzker’s credit
rating agency, TransUnion, had made serious flaws in its credit reports
on individuals—and then failed to correct them upon discovery.
But perhaps the most infamous and pernicious Pritzker abuse of power
was the Superior Bank scandal, a predatory subprime mortgage
securitization racket that led to the failure of
Superior Bank in 2001 and prefigured the 2008 crash.
Penny Pritzker played a leading, decision-making role in the lead-up
to the failure, which ultimately lost 1,400 depositors an estimated $10
million and cost the Federal Deposit Insurance Corporation approximately
half a billion dollars. After the Pritzkers and a family friend took
over a failed suburban Chicago bank on very favorable terms in 1988,
they began aggressively pursuing high-interest, high-risk subprime
loans. They were able to repackage the loans in securities given an
investment grade, Anderson says, because they promised to replace any
failed mortgage with a good one. But as they pumped out profits for
themselves, they eventually failed to live up to their promises,
including a pledge to invest more capital.
Bert Ely, a prominent bank consultant, says that Superior Bank “was a
really sleazy operation” and “pretty gross.” The bank essentially told
others in the business to “bring us your crappiest loans you’ve got and
we’ll securitize them.”
In 2001, the bank collapsed. But thanks to an unusual deal with the
FDIC that allowed the Pritzkers to share in a lawsuit against the bank’s
auditors, Penny and her family ultimately profited from the failure.
They “didn’t own up to their responsibility,” says Ely. “My estimate is
that the owners of Superior ended up making big money on the deal after
taking into account tax laws, and it’s unconscionable that they made
money while pensioners lost money.”
When FDIC took over, the Pritzkers continued the operation, giving it
an air of legitimacy and setting up the global economy for disaster.
Superior’s exploitation of securitization of sub-prime loans, coupled
with federal regulators’ lax treatment of the Pritzkers, inspired other
lenders, helping to spawn the huge subprime loan market in exotic
derivatives that precipitated the 2008 Great Recession. “They plowed the
ground,” says former Federal Reserve staffer Walker Todd. “They were
the first to show how bankers could make money in the sub-prime
business.”
“Penny Pritzker has still not answered for her and her family’s role in
the subprime mortgage meltdown of the world-wide economy,” says
bank-advisor-turned-banking-watchdog Tim Anderson.
Why it matters
The power of the Commerce Secretary is limited, with many doing little
more than promoting American business. But when a Democratic president
chooses a business ambassador who has played so loose with the rules,
caused so much harm, and shown—despite the philanthropic overlay—so much
selfishness and greed in her business practices, it sends the wrong
message to an already out-of-control plutocracy.
Is this the model for American business that President Obama and the Democrats really want to promote?
ABOUT THIS AUTHOR
David Moberg, a senior editor of
In These Times, has been on the staff of the magazine since it began publishing in 1976. Before joining
In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for
Newsweek.
He has received fellowships from the John D. and Catherine T. MacArthur
Foundation and the Nation Institute for research on the new global
economy. He can be reached at davidmoberg@inthesetimes.com.
More information about David Moberg
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