'Firestorm' Promised to Save Politically-Connected Chicago Bank
According to a story over the weekend from the Chicago Tribune, the $135 million that the Obama Administration reportedly coerced from TARP recipients like Goldman Sachs and Citigroup may not be enough to save ShoreBank, the politically connected “community” lender whose big bank bailout was supposed to make it eligible for its own TARP funds. From the Tribune:
The bailout of Chicago-based ShoreBank has hit a serious snag as the Federal Reserve and Treasury drag their feet on whether to provide funding to the ailing South Side lender, sources close to the situation say….
The Treasury is deferring to the Federal Reserve. One source said some at the Fed want ShoreBank to raise more private dollars before it gets government money.
The source said the private investors are unlikely to kick in any more money. Many of the big banks received federal bailout money and have since repaid it. On June 15 they extended their escrow period by a week.
The development has made those trained in the Chicago Way indignant. After all, so much “hard work” went into twisting arms and guilt trips that for the Feds to monkey with the process is worthy of a revolt:
Bill Brandt, chairman (appointed by former Gov. Rod Blagojevich) of the Illinois Finance Authority, a government financing body (i.e., gubernatorial slush fund) that has looked at ways to help ShoreBank, is disappointed by the developments. He says ShoreBank plays a unique role in helping downtrodden communities, particularly those in black neighborhoods.
”Given all the time and effort that went into this, the board of the Illinois Finance Authority, the local civic leaders on the South Side of Chicago and others I’d imagine, would be outraged over this development,” Brandt said….
He said he’s particularly disappointed by Treasury Secretary Timothy Geithner.
“It’s now clearer than ever to me that while he’s happy to have these people clean his apartment and those of his cronies on Wall Street, he’s not comfortable with them getting mortgages for their homes,” Brandt said.
“Mark my words: After this Herculean effort by so many people, should Treasury allow this bank to fail because of the utter lack of leadership coming from Washington, there will be a firestorm in Chicago,” he said.
A little background on the IFA, spilling out from Blagojevich’s corruption trial:
- “Ali Ata…the former head of the Illinois Finance Authority, has repeated his claim from (convicted felon Tony) Rezko’s 2008 trial that he was named to his post after giving campaign contributions to former Gov. Rod Blagojevich.” (Tribune, 6/17/10)
- “(Rezko had) David Gustman, an attorney for Rezko and his companies, …installed as chairman of the Illinois Finance Authority.” (Tribune, 6/12/10)
- “According to [an] affidavit, intercepted phone calls revealed that the Tribune Company, which owns the Chicago Tribune and the Chicago Cubs, has explored the possibility of obtaining assistance from the Illinois Finance Authority relating to the Tribune Company’s efforts to sell the Cubs and the financing or sale of Wrigley Field.…Intercepted calls allegedly show that Blagojevich directed (chief of staff John) Harris to inform the Tribune and an associate, identified as Tribune Financial Advisor, that state financial assistance would be withheld unless members of the Chicago Tribune’s editorial board were fired, primarily because Blagojevich viewed them as driving discussion of his possible impeachment.” (Chicago Sun-Times, 12/9/08)
Clearly behaviors haven’t changed under Brandt’s leadership since Blagojevich left office, as Democratic Sen. Dick Durbin and U.S. Rep. Jan Schakowsky have both exerted influence on IFA to bail out ShoreBank, according to a January report by Crain’s:
"None of us are prepared to let ShoreBank slip below the waves," says…Brandt, calling it a "unique, singular institution in banking history."
Banking experts say they're not aware of any previous bank bailout by Illinois or any other state. Federal bank regulators usually handle such bailouts. And banks the size of ShoreBank, with assets of $2.5 billion, don't ordinarily attract attention at the upper levels of government.
But ShoreBank has been lauded by presidents for making loans in economically disadvantaged areas many lenders avoid. And its political ties run all the way to the White House, where President Barack Obama and the first lady are former neighbors of ShoreBank executives.
Mr. Brandt says the IFA, an economic development arm of state government, won't consider similar assistance for Illinois' numerous other small banks beset by the same real estate loan troubles.
"We're not in the business of saving banks," he says.
Now the Tribune reports that, in addition to making threats, Brandt is changing his tune on employing IFA as a political tool in a bailout. “If ShoreBank has the time and desire, the IFA’s door is still open and will always try to consider any reasonable request” from ShoreBank, Brandt said.
Assuming the “firestorm” against Treasury and the Fed doesn’t work first, of course.
Paul Chesser is an NLPC Associate Fellow.