Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.
In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.
But here’s where it gets interesting:
Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.
If allowed to be completed, this investigation would pull the scab off the grave wound inflicted on this country by Bill Clinton, Robert Rubin, and Andrew Cuomo with the assistance of Penny Pritzker and Obama’s good friends at Goldman Sachs.
The involvement of Clinton, Rubin and Cuomo in creating the housing/financial crisis has been written about extensively in FA.
Penny Pritzker, not so much.
Pritzker is the financial genius who took a solvent bank and helped destroy it.
Chicago’s billionaire Pritzker family and their partners bought Lyons Savings for a quite reasonable $42.5 million, but were also given $645 million in tax credits. The kicker was that the buyers only had to come up with $1 million in cash, and got access to the $645 million, and all the bank’s deposits insured by the Federal Savings and Loan Insurance Corporation (FSLIC).
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,” said financial consultant Bert Ely in a Oct. 16, 2001, statement before the U.S. Senate Committee on Banking, Housing and Urban Affairs.
Penny Pritzker is known as the “Queen of the Subprime Mortgage” and for good reason.
Ms. Pritzker served as Superior chairman until 1994. During that period, Superior “embarked on a business strategy of significant growth into subprime home mortgages,” which were then packaged into securities and sold to investors, according to a 2002 report by the Treasury Department’s Inspector General.
Subprime mortgages were the Pritzkers’ junk bonds
“The [sub-prime] financial engineering that created the Wall Street meltdown was developed by the Pritzkers and Ernst and Young, working with Merrill Lynch to sell bonds securitized by sub-prime mortgages,” Timothy J. Anderson, a whistleblower on financial and bank fraud, told me in an interview.
“The sub-prime mortgages,” Anderson said, “were provided to Merrill Lynch, by a nation-wide Pritzker origination system, using Superior as the cash cow, with many millions in FDIC insured deposits. Superior’s owners were to sub-prime lending, what Michael Milken was to junk bonds.”
The Pritzkers needed a vehicle to ride those mortgages:
Ely stated, “Superior’s trick, or business plan” under Penny Pritzker’s leadership was apparently “to concentrate on sub-prime lending, principally on home mortgages, but for a while in sub-prime auto lending, too.” In December 1992, the Pritzkers acquired Alliance Funding, a wholesale mortgage organization.
She championed subprime mortgages until Superior Bank was seized by regulators in 2001. She never admitted any wrongdoing though her family paid out $460 million to defray the cost of the bank collapse.
1400 families lost their life savings.
This is also a story about how the Pritzkers made enormous amounts of money while shafting thousands of Americans:
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.
The Pritzkers made vast fortunes on subprime mortgages and raised boatloads of cash for Obama, and he has guarded their interests.
It all stems from the questionable practices of Penny Pritzker and the Superior Bank of Chicago. Prtizker, by the way, is a major bundler for the Obama campaign. Indeed, the scion of one of Chicago’s wealthiest families has raised between $200,000 and $500,000 for Barack Obama’s Presidential bid. Her family also donated over $40,000 to Obama’s 2004 Senate campaign. Now wonder why Obama is opposed to interest rate freezes and a moratorium on sub prime mortgages: most of his campaign cash is from those who have shamelessly profited from our current economic collapse.
So what does one do with a grifter? Give her a high level position.
Penny Pritzker was Barack Obama’s 2008 Campaign Finance Chairman
During the time Penny Pritzker was hawking subprime mortgages, Jim Johnson, President of Fannie Mae, was buying them as Andrew Cuomo pushed Fannie into buying 51% subprimes. Eager to sell subprime mortgages to Fannie, private institutions (think Countrywide) found predatory lending a windfall once Cuomo declared that the YSP was “not illegal, per se.”
Enter Goldman Sachs.
Goldman Sachs, interesting in
duping taking advantage of meeting the needs of investors seeking greater returns, started buying those mortgages from Fannie. After all, once Fannie bought those mortgages became backed by the full faith and credit of the United States.
To accomplish this, Goldman exploits the RMBS, or MBS.
Goldman buys up subprime mortgages, bundles them as MBS’s and sells them to investors.
In selling them, Goldman mislead investors.
Even though the MBS’s contained risky subprime loans and second loans, under rules set by Moody’s and S&P Goldman was allowed to rate them “AAA.” After all, they were guaranteed by the US Treasury. They weren’t worth a damn but Goldman failed to disclose that little detail.
Worst of all? Goldman shorted all those sales. They knew that those securities weren’t worth squat and they bet that they would fail. Again, without disclosing it to investors.
In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Wall St. was eventually bailed out by the Bush administration. The plan was devised by then-Treasury Secretary Hank Paulson.
Paulson’s Wall St. bailout has been labeled a “panic.” It might have been worse than that.
Goldman was saved by Paulson’s bailout plan. AIG was saved by Paulson. Lehman was allowed to fail.
Paulson is a former CEO of Goldman Sachs. Lehman was a competitor. If you were wondering why AIG was saved, this might be something to consider:
The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board’s blessing, AIG later used $12.9 billion in taxpayers’ dollars to pay off every penny it owed Goldman.
Goldman Sachs was the second largest contributor to Barack Obama’s Presidential Campaign, right after a state school.
It’s no wonder Barack Obama wants this investigation killed. It could get really messy for him and all involved.