I wrote a blog post about Penny Pritzker, 2008 campaign finance chairman for Barack Obama 2 weeks ago titled, “Is Obama for the People or the Banks?” and in that post I quoted Earl Ofari Hutchinson from the Huffington Post.
I had to do more research into this and expose the truth behind the Pritzker family, their involvement in the Superior Bank failure and what it means to the American people, who need to know the truth.
The Pritzkers, one of the nation’s wealthiest families and heirs to the fortune created by the Hyatt hotels, agreed today to pay a record $460 million to the federal government to avoid being punished for the failure of Superior Bank F.S.B., the big savings and loan institution that regulators seized last summer.
Federal officials said the payment, which will be spread out over 15 years, is the largest settlement ever in the failure of a banking institution. The failure itself is one of the largest in the last decade, one that some estimate could cost the government up to $1 billion.
Unbelievable isn’t it? The failure of Superior Bank, based in Hinsdale, cost the F.D.I.C. about $700 million, making it one of the largest federally insured financial institutions to fail in a decade. Regulators said Superior had collapsed because of poor lending practices and sloppy bookkeeping.
One of the unfortunate victims who suffered as a result of the poor lending practices at the hands of the Pritzker family was Fran Sweet, who was written about in the In These Times in 2002 (emphasis and italicized comments added):
Meanwhile, roughly 1,000 depositors who had deposits above $100,000 in a Superior account—money above the FDIC-insured limit—lost about $65 million. Most of them were middle-class individuals, attracted by Superior’s high interest rates. [Ed. note: it is presence of FDIC itself that allows unsound banks to offer high interest rates like this.] In the three months just before the bank was closed, there was a surge of $9.6 million in uninsured deposits. Since about 54 percent of the uninsured money has since been repaid as Superior was sold off, the depositors have still collectively lost about $30 million. (That just happens to be the amount that the Pritzkers gave to the University of Chicago’s Pritzker School of Medicine earlier this year.)
Some of that money could have paid back Fran Sweet for the roughly $138,000 that she has still not recovered from her deposits at Superior. After retiring as a manager at a telecommunications company, Sweet was seeking a secure place to put her entire retirement savings of about $500,000. “I knew the Pritzkers were owners of the bank,” she says, “and they were a reputable name in Chicago. I had no idea that the bank was in trouble.”
She even asked a bank manager if there was anything wrong with the bank. “She said, ‘No, nothing is wrong, We’re owned by the Pritzkers,’ ” Sweet recalls. “I want it all back. I worked 23 years for a company and got this money from them as a buyout, and the Pritzker family and Dworman stole it from me.”
The political blogosphere has debated the Pritzker/Obama relationship and it is the same ole BS bashing of words, comments and rants. While I have a tendency to rant, a lot, my rants focus on the American people who are getting screwed by corporate America and not the men and women in the glass towers like Obama and the Pritzker family.
I wanted to share these words from a victim of the Pritzker family and with everyone around the world. Fran Sweet just left this comment on my blog (a victim of Superior Bank):
I’m the person mentioned in the article “Breaking the Bank” published in In These Times, 11/08/02.
As of this date I have not been repaid full the amount stolen from me by Penny Pritzker & Superior Bank. To add insult to injury approximately one year after stealing $42 million, the Pritzker family gave a $30 million dollar gift to the University of Chicago. My letters sent to Edgar D.Jannotta, Chairman of the Board of Trustees University of Chicago and other board members asking them to examine their conscience on receiving this money from the same family that stole $42 million dollars from Superior Bank depositors went unacknowledged.
I wonder if Michelle Obama was associated with the University of Chicago Board of Directors at during this time?
In addition, except for Stephanie Tubbs-Jones, letters sent to the 21 U.S House of Representatives Committee on Financial Services Subcommittee on Oversight & Investigation members regarding the Pritzker theft went unacknowledged. Included in this committee were Luis V. Gutierrez (IL) and Janice Schakowsky (IL). These people have no regard for everyday people, caring only about the billionaire class. Needless to say, I have no respect for Senator Obama who has aligned himself the likes of these people.
Could Senator Obama actually be considering Ms. Pritzker for a position on his administration?
If we are to use a person’s judgment as a voting criterion, as Senator Obama suggests over and over again, then the best thing would be a vote against a man with such poor judgment, i.e. Barack Obama. He was in Chicago at the time of the Superior Bank failure & has full knowledge of what went on and the cause of the collapse.
Here is an interview with Fran Sweet and Dennis Bernstein of the Pacifica radio network conducted yesterday in which Fran shared her experience in the original subprime mortgage debacle and expressed her thoughts on Barack Obama and Penny Pritzker.
It amazes me that the media has been virtually silent about the Penny Pritzker and her family’s involvement in the banks failure and her new position with the Obama campaign as his finance chair. Especially in light of the mortgage and housing melt down that is blamed on the same issues that caused the failure of the Pritzkers’ Superior Bank.
Regulators say Superior was badly managed and insolvent when they closed in July 2001. The bank specialized in loans to people with poor credit histories, a practice called subprime lending. Sound familiar?
Here we are, 7 years later and if you truly think about it, Superior Bank was the leader and pioneer of reckless lending and poor accounting in the lending industry. Maybe Aaron Krowne should place this bank at #1 on his infamous implosion list of failed and imploded lenders which now is at 242.
On July 27, 2001, the Office of Thrift Supervision officially closed the banks doors and issued this pess release. These words are straight from the OTS:
OTS Closes Superior Bank FSB; Hinsdale, Ill. Thrift is Insolvent
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. OTS found that the bank also suffered from poor lending practices, improper record keeping and accounting, and ineffective board and management supervision.
Superior became critically undercapitalized largely due to incorrect accounting treatment and aggressive assumptions for valuing residual assets. The bank also experienced significant losses during 2000 from its automobile lending program.
OTS has determined that Superior Bank is insolvent, having incurred losses that have depleted all or substantially all of its capital. OTS also determined that Superior Bank was no longer able to transact business in a safe and sound manner.
OTS notified the bank of its serious concerns in July 2000.
The bank was purchased by two families in 1988 — the Pritzker family of Chicago, owner of Hyatt Hotels and other interests, and the Dworman family of New York, with interests in real estate and financial services activities — and was operated through a complex network of holding companies.
In light of these findings, OTS determined that closure and the appointment of FDIC as receiver were necessary to protect the interests of the bank’s insured depositors.
As of March 31, 2001, the failed bank had total assets of $1.9 billion and total deposits of $1.5 billion. FDIC insures depositors’ accounts up to the statutory limit of $100,000.
Superior is the only bank that OTS has closed in 2001, and only the fourth OTS-regulated institution closed in the past five years.
The FDIC has established a toll free telephone number for customers of Superior. That number is 1-800-331-6306, and will be available until midnight tonight and then from 7 a.m. to 7 p.m. daily thereafter.
And guess who bought the servicing portfolio rights of the failed bank? From the FDIC:
The assets were sold to EMC Mortgage Corporation, a wholly owned subsidiary of Bear Stearns & Co., Inc.. The FDIC recovered $517 million (net) from the residual interest portfolio since Superior’s failure on July 27, 2001, including $471 million in sales proceeds. The transfer of the servicing rights to EMC Mortgage Corporation is expected to be completed by the end of June.
So the glorious Federal Reserve bails out Bear Stearns, TO THE TUNE OF $30 BILLION and Bear Stearns was involved in buying all the toxic crap from Superior Bank in 2001? Holy smokes Batman! What the hell is going on here? I am sure the guys at Bear packaged and sold that stuff fast. Rinse and repeat. They now have found the new business model that they will duplicate over and over to where we sit today folks.
Pritzker is the national finance chair of Obama’s presidential campaign. She’s from one of America’s richest families, the founders of the Hyatt hotel chain, and is herself the 135th richest person in America.
She also has an ugly history as the former chair of Superior Bank in Illinois, which (1) was created thanks to a giant S&L bailout by the government; (2) then helped invent the securitization of subprime mortgages; and (3) then collapsed in 2001 thanks to massive financial chicanery.
Interestingly, she lives in a fancy Chicago neighborhood just a short stroll away from Austan Goolsbee, a University of Chicago professor who’s one of Obama’s main economic advisors. It’s really quite wonderful how Goolsbee can maintain his deep admiration for the Free Market while living a few blocks away from billionaires who use massive government power to create and subsidize their businesses. (Both Pritzker and Goolsbee are, of course, graduates of Stutts University.)
I have been wondering why the Clinton camp has been silent on this matter and here is a theory on why:
One reason we don’t hear the Clinton campaign raising this as an issue is because Penny’s brother has apparently been playing a spokes-person role in Hillary’s campaign. Reminds me of Enron buying off both Republicans and Democrats, along with accounting firms, the media, law firms, regulators, ….
Interesting reads on the Pritzkers, the Superior Bank failure.
FDIC Failed Bank Information – Superior Bank
OTS Closes Superior Bank FSB; Hinsdale, Ill. Thrift is Insolvent
OTS Announces Resolution of Charges Against Auditor of Closed Superior Bank FSB
The Consent Order requires that Ernst & Young pay $85,000,000 to the Federal Deposit Insurance Corporation (FDIC) as receiver for Superior Bank. Ernst & Young agreed to issuance of the Consent Order without admitting or denying that its conduct in auditing Superior Bank did not comply with any professional accounting standards.
Ernest & Young Order from the OTS – PDF
Ernst & Young LLP Stipulation and Consent to Issuance of Consent Order – PDF
Ernst & Young to Pay U.S. Over Bank Collapse in ‘01 – NY Times
Dennis Berstein:“Obama’s Sub-Prime Conflict”
Earl Ofari Hutchinson:“If Obama’s For Real on the Sub-Prime Crisis, He’ll Dump His Campaign Finance Chair”
Bob Feldman:“Obama Campaign’s Pritzker/Superior Bank S&L Scandal Link?”
Flashpoints Radio:“An investigative report into Penny Pritzker”
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Have we all forgotten about the Bush family and the failure of Silverado Savings and Denver?
Bush is history. We have to look at our current candidates and see through the smiles and commercials that are all paid for….
The Federal Reserve is a fraud.
America’s elite are no more than tyrants and murdering, thieving criminals. The American people need to understand this quickly and be there for each other. Keep hold of your guns because the biggest danger to America is the Corpocratic/Globalists who are taking everything the founders envisioned America should be. You need to keep the right to bare arms in order to defend yourselves against these degenerates. Don’t vote! Simply prepare to take back what has been stolen, because if you don’t it’s going to be unimaginable.
Bush is history? He hasn’t left the building yet and doesn’t intend to, IMO. Wait and see.
Pyramid scams require new suckers to fill in the bottom. There are billions of muslum, hindu, and budist pyramid players to come in the eastern sectors of the globe. See why we have these new wars,,, for the solvency of the loan markets.
Let it all fall down now, it wil be easier to crawl back up while you are younger.
What can we say about banks. Thought we learned this lesson in the thirties, the eighties, and now we have this. Abolish the Federal Reserve.
Guns and bullets .Lots of bullets.
The financial frauds that comprise our predator elite know how you all feel about them, and that is why they went ahead with a massive nuclear build up; to be certain that they could kill us before we figured it all out.
For themselves they have built an elaborate underground world designed to protect them from the nuclear holocaust that we are scheduled to endure here on the surface.
They have in place and well stocked comfortable long term underground shelter for themselves and their thieving murdering war crime committing associates.
This is one of the secrets of why nuclear weapons were built. To shut us all up, once and for all. Believe it: They are not joking with us; the plan is still to exterminate us all with nuclear weaponry.
The plot to destroy humanity also helps to explain why the Extraterrestrials have been buzzing our world for over the last half century. ET told our nuclear war fighting elite not to ‘do’ a nuclear war, but our nuclear war fighting elite pretend that they are hard of hearing, and have ignored the wise advice of the high level powers.
The “Trigger” has been pulled on us many times over the decades. The ET have taken the ‘Keys’ to the nuclear arsenal away from our nuclear war fighting elite, and have so far; prevented our extermination.
We are all the “LIVING DEAD.”
This is why there is so much pressure on Bush and Cheney to continue to attempt to get a full blown nuclear holocaust underway, and soon. Our nuclear war fighting elite have not included in their plans any tribunals that they may be sitting in front of.
One thing is certain, Our nuclear war fighting elite are finished; the only question is: Will they be able to get around the Extraterrestrials and kill us before we get them into custody and place them in mental institutions for treatment of their aggressive criminal insanity?
Former FBI director J. Edgar Hoover was quoted: “The individual is handicapped by coming face to face with a conspiracy so monstrous, that he cannot believe it exists.”
The plan to exterminate us is real, It exists folks. That is why we are the “LIVING DEAD.”
I think She’s just a product of her upbringing. If you were in her shoes, you would understand. Obama, Hillary, McCain. Three controlled people who will further the greed that the wealthy have been doing for centuries to increase their wealth, while robbing the populous.
Too bad Ron Paul had to drop out. The only person who would have really made a difference in America.
Cheers.
TOO BAD THE MAIN STREAM MEDIA OR CABLE NEWS PROGRAMS WON’T DO THEIR JOBS AND INVESTIGATE OBAMA. THEY SEEM TO KNOW WHAT TIME HILLARY HAS LUNCH AND WHEN SHE GETS HER HAIR STYLED BUT NOT A WORD ABOUT THEIR “GOLDEN BOY”! ARE WE JUST DOOMED?
I ran across this “discussion” by chance, and really shouldn’t take the time, but I can’t help commenting.
The fact that FDIC insurance is limited to $100,000 has been widely publicised and is known to any investor with more than that amount to invest. Investors should also know that a higher rate of return is always acompanied by increased risk. There are other banks, and putting the amount limited to insurance coverage in each of a half dozen would have saved a lot of loss and grief. I’m sure Fran Sweet and her financial advisor knew this, and knowingly took this risk for an additional 1 or 2% yield. Why label her as a victim, or blame the bank for her deliberate decisions?
Penny Pritzker is a member of the “elite” families that engineer the finances of the U. S., the “insiders.” All the ranting in the world won’t change that one iota. All politicians know, have to know, members of these families. Just because they know them, if only socially, doesn’t mean they necessarily know all of their business dealings. So far as I can tell from the above blogs, there is no evidence of illegal activity by any of the participants. Finding of such activity should be cause for investigation by the FDIC. Ethics, you may bring it up, but some people don’t know the word even exists. If the government continues to bail out any major financial institution that gets into trouble, of course they will take risks. Pin the label on the responsible party, the U S Congress, which has the responsibility of oversight and has refused to take that responsibility seriously. How can it, when 95% of them are beholden to the bankers. “Vote wrong and I’ll pull my support.”
I object to the philosophy of guilt by association. Barack Obama may or may not have known everything his pastor said over 20 years. I have seen nothing in the media, absolutely nothing, about all the good he may have done in that time. What I see is that he is looking out for his clientle, just like the unions, the attorneys, the doctors, the farm bloc, the federal workers, and fifty other pressure groups are pressuring government on behalf of their members. He uses rather strong language to express himself. I haven’t heard him say anything that sounds like treason.
And how can the fact that Goolsbee and Pritzker live in the same neighborhood have any relevance?
As long as we are a society which accepts debt as wealth, we are going to be in trouble. Bruce and Franny Ward have it about right. The Federal Reserve Bank, a private bank owned mostly by foreignors, has brought the country from a republic to the brink of a dictatorship. What all “findings” that we don’t know about are buried in the files of the present and past administrations? And there is that further pressure, the Republicans and Democrats are almost equally divided, and rather than being concerned about the country, they’re concerned about the party. What we need is statesmen, not politicians
I was amazed and delighted that Ron Paul actually got between 5 and 10% of the Republican vote. If he were to get the daily coverage that a couple of spoiled brats calling each other names are getting, the country might have a chance.
God bless America.
God save America.
PENNY PRITZKER – SUPERIOR BANK FAILURE
It amazing the latest new federal bank bail out is Bear Stern. I am ashamed to say at my age that I was also dupped as well by The Queen Pritzker and her merry men. This woman ruin so many people’s lives, and really believes that she is so well respected and loved. This woman should be ashamed of what she did to so many, but she has no shame, only greed.
Where are the 1406 depositor’s – all the borrowers that could not afford these loans, paying unaffordable rates of interest alot of these being low income families and minorities that were also taken advantage of, where is the media, let’s be more interested in something that is fact and more important that another lie about Hillary dodging bullets.
He is a billionaire that instead of making a wrong – a right – passed all of her wrong doing on to the taxpayers, and then she is helping elect our new President, and he wants to remain blind to this. Another fact of the wealthy – large corporation taking advantage of the hard working men and women and being able to get away with it.
Go ahead, keep sensationalizing guilt-by-association stories that will bring down the best chance this country has seen for positive change in decades. Clarence’s comments above are astute, although the Ron Paul reference is a little nutty.
The Clintons had a income of over 300 million in the past 6 years! They had control of this a long time ago but they were self serving as they are now! They don’t care about the housing market they just want the presidency! They’ll say whatever will get them votes. Even SNIPER FIRE!!!
Gee a crooked politician bought off by the uber rich. Who would have quessed.
Its called bad judgment on both their parts. The Dems and Rep will not look out for the aver citizen. Also, there is a such thing as guilt by association and it is used against the mob,Hells Angels and Outlaws, its called RICO. They say the same thing, not all of us do bad things we are just friends. There is no diff between the groups. Its called fucking citizens over to gain money and power.
Where is the disclosures about mccain? Media Bias???
Phil Gramm who is a discreditted corrupt GOP lobbyist and works for UBS and is mccain main strategist. Hello? He proposed a lot of policys in the 90’s that have helped lead our country into this financial system breakdown. tisk tisk.
Is there anyone out there with any background in finance NOT affliated with the subprime fiasco? All of the banks were involved, all of wallstreet and the entire global investment community profited and everyone who owned a home in america saw there value increase and promptly liquidated their equity for a plasma tv…I would like to see you write about Phil Graham, Keating 5, Long Term Capital Management, who voted to strike down the Glass-Stegall act, why the OCC isn’t acting on behalf of the American consumer, the list goes on. My take is, all politicians talk a good game, make promises for change etc. but the truth always follows the paper trail. Aside from “who” is advising the candidate, the larger question is “where” is their money coming from? McCain knows who rights his checks, which explains the 180 degree change in his political views. The Clintons have political backing since the early 90’s from heavy donors, but Obama gets $35mil a month from donors that avg $98 per donation. So who will win? The rich few or the masses?
This is total nonsense. I am a total Obama supporter and after 2 minutes of research I managed to put this whole thing to rest. Moe should really do his research before blogging without even trying. It irritates me when people don’t do their due diligence, especially after how much money she has raised for our (hopefully) future President!
Obama had this to say about the whole thing:
“Penny Pritzker was never accused of any wrongdoing nor did she receive compensation in relation to the closing of Superior Bank in 2001, and instead of walking away as millions of homeowners and stockholders suffered, the Pritzker family entered into a voluntary settlement and agreed to pay the government $460 million to defray its losses. Former FDIC Chairman William Isaac said he had ‘never known any investor in a failed bank to take responsibility as the Pritzkers have done.’ Senator Obama believes that the current housing crisis was caused by lax regulation and a system that put the interests of corporations before the interests of homeowners and investors and he has proposed an aggressive plan to step up the regulation of our financial markets to restore fairness and balance to our economy and to prevent a housing crisis of this scale from occurring again.”
And Penny had this to say:
“I regret that Superior Bank failed in 2001. I was chair of the bank from ‘91-94 and over those years, the bank achieved high ratings from the Office of Thrift Supervision. Superior ’s failure was complex. In short, the bank failed in 2001 because regulators concluded that the valuation of certain assets in Superior ’s financial statements, which had been audited by Ernst & Young for many years and previously approved by regulators, was overstated and as a result the bank was not capitalized sufficiently. My family voluntarily agreed to pay the FDIC $460M to help defray costs incurred by the government and other losses in connection with the bank’s closure. We did this without litigation or any allegation by federal regulators of wrongdoing. I am proud of how my family responded to this situation.”
To Elizabeth from April 4:
I’m the Fran Sweet mentioned in the article. Elizabeth apparently you are a very gullible Obamaite. You believe Penny Pritzker? Wow what world do you live in!? Please see the Chicago Sun Times article dated Aperil 28, 2008, titled: Obama’s Subprime Pal which provides proof (a letter signed by Penny) that Penny Pritzker was actively involved in the management of the privately owned Superior Bank as late as May 31, 2001. Penny has never been accused of any wrong doing? Why do you suppose that is? Check out the unpaid loan the bank made to one of the bank’s owners. Note: Bear Stern bought some of the Superior Bank subprime loans after the bank’s failure. In addition, less than one year after Penny Pritzker stole $42 million dollars from the depositors of Superior Bank (not to mention the loan shark interest rates charged the subprime mortgage and auto borrowers)she had the audacity to give a philanthropical gift of $30 million to the University of Chicago. The same elitist university Barack Obama happens to have worked for as a professor of law and at which Michelle Obama worked at in a high level position. I suggest, Elizabeth that you continue your research on the Pritzker sweetheart deals with the government. How is they were able to obtain the Naval base land which closed near Orlando Florida for so little money? How is it the Ernst & Young accounting firm settlement resulting from the Superior Bank failure gave the Pritzkers 25% of the settlement and none to the stiffed depositors? Check into the relationship between Ernst & Young and other Pritzker businesses. (Smell like Enron does it?)
To John Jason and Elizabeth: Unfortunately for Barack Obama we are judged by the company we keep, i.e Jerimiah Wright, Penny Pritzker, Tony Rezko. Like Jerimiah Wright, Penny Pritzker is more than a casual acquaintance of the Obamas, see the Wall Street Journal article Money Maven. When candidates have political positions that are the same or very similar, wise people judge them by their character. One of the factors in judging character is the company a person keeps.
To Rod M – If we are to believe the newspapers Penny Pritzker, Obama’s Subprime Pal, has raised over $188 million for Obama in his campaigns for Illinois office and this presidential campaign.
There’s a grave difference between managing a business and owning and masterminding a business, i.e Maggie Williams (Clinton) and Penny Pritzker (Obama). See the Chicago Sun Times article, April 28, 2008, title Obama’s Subprime Pal. Unfortunately for Barack Obama we are judged by the company we keep, i.e Jerimiah Wright, Penny Pritzker, Tony Rezko. Like Jerimiah Wright, Penny Pritzker is more than a casual acquaintance of the Obamas, see the Wall Street Journal article Money Maven. When candidates have political positions that are the same or very similar, wise people judge them by their character. One of the factors in judging character is the company a person keeps. Penny Priztker states she is proud of how her family responded to the Superior Bank failure. They agreed to pay the FDIC $460 Million over 15 years at no interest and at an escalating devaluation of the dollars owed. The Superior Bank failure will cost the FDIC over $700+ million. Does Penny mean to say she’s proud she was able to get away with stiffing the government for over $250 Million and the Superior Bank depositors of the remaining $15 Million she still owes them?
Elizabeth, you are walking around with blinders on mam. Money does wonders when you are facing prosecution. You know hundreds of millions seem to make things go away. While people like Fran Sweet get screwed.
You need to look more than 5 minutes. This article is based on several hours of research and not your 30 second google search.
Sorry, but your comment is funny and you may want to take your blinders off.
The blinders you refer to belong to Ms. Sweet, who obviously had them on when she walked into the bank and didn’t see any of the signs (that are posted everywhere) saying only $100,000 is FDIC insured. This FDIC guarantee is universal all over the country and was no different at Superior Bank. When one dollar over the $100,000 went into the bank, that dollar was at risk. Nobody stole Ms. Sweet’s money. She risked it for a higher return. She could have easily spread it around to five banks and would have been at no risk. I think we should really take a look at who’s being greedy here.
I love how Ms. Sweet is ignoring the fact that she has received $367,000 out of her original $480,000 deposit. If my math is correct, that is a sight more than the $100,000 that she was legally entitled to. I wonder where the other $267,000 came from… Hmmm, could it be from the Pritzker family?
Also, I am entirely amused when Ms. Sweet is constantly crying poor mouth. I don’t know about anyone here, but I don’t have $367,000 sitting around in my bank account. Not to mention the million dollar publicity campaign she’s running.
Regardless, the amount of money Ms. Pritzker has raised for the Obama campaign and her cutting edge ideas on fundraising are impressive and there is no getting around that.
And so the next article will be a “What ever happened to the McKeating Five?”
Keating Five folks….Keating Five….
Everyone really needs to understand how the system is set up…it was, always has been and always will be desigen to support the big banks. The fed was set up as a way to funnel wealth to the big banks and squeeze out the competition to them(S&L’s, Thrifts, Investment Bankers).
The fed has a cetain level of tolerance of wealth being taken out of the banking system before they reign in the supply. The fed had given many warnings the past several years to those institutions mentioned above as competition to the banks to back off mortgage banking. The fed basically telegraphed what was going to happen and if you notice the players who are in the best position now are the big 4 (chase, BofA, citi and wells fargo).
The feds agenda is to have big banks in charge or the flow of capital for the simple fact banks are the way the Fed is able to control the flow and distribution of wealth.
The federal reserve was never set up to help or protect the average person. Anytime there is competition to the big banks (jp morgan, wells fargo, BofA, citi) the fed basically adjusts the spigot to re-distribute the wealth back to the big banks(oddly enough there are 2 ways to do this…-raise the fed funds rate so high to make it almost impossible for anyone other than big banks to function or to lower the fed funds rate so low that the big banks have cheap money to take over the competition, and pay very little to do so). You can see one side of this with the dilution of stock value with the capital infusions that most of the mid-smaller sized institutions have had to aquire to attempt to stay in the money game.
What is really going on is that almost all investment banks that stepped out of line and involved themselves in the big banks territory are being cut down at the knees. (The black knight being dismembered in monty python and the holy grail is a great example).
You would have seen all the Investment bankers go down if it had not been for the fact the IB’s were smart enough to entangle themselves with derivatives which created counter-party risk.
The fed could afford bears stearns to go down in flames and hand over the carcass to JP Morgan (It was not a bailout as the media is promoting), This was a warning shot to the other investments bankers to shap up and shift their activities back to bond trading and other such business and get out of the banking sector.
The discount window is only for banks who are under control of the federal reserve and was set up as a saftey net for capital emergencies…the IB’s did not have the ability to go to this window until after the fed made sure bears stears was insolvent.
Even then the fed allowed this window to be open to the IB’s only due to counter party risk.
It is amazing to see the dominoes fall in line—-Bear Stears was an 80 year old company….for this company to go down the way it did is crazy.
The IB’s that are left that do not have connections will go down as well or be gobbled up by a big bank.
Watch Lehman and Merrill…it will be a battle for these IB’s to survive.
Keep your eye on the big banks as they are the source and beneficiaries of all this chaos. Chase, BofA, Citi and Wells Fargo will be left standing with a greater share of the pie and in control of the market.
I would put my money on that once this shift of wealth occurs, the fed will announce some special program(s) and congress will sign a special incentive bill to assist the banks who step in to help those troubled homeowners to catch up or to refinance their homes and then housing will mysteriously stop the free fall and enter a stable period of appreciation- (appreciation by virtue of the special programs that will allow the surplus inventory of REO’s to be purchased similar to the FHA programs back in the mid-late 90’s to get rid of the REO inventory from the late 80’s S&L “crash”). I see the end game- The fed funds rate be pushed up at least 1-2% to help the cause-oil will drop, mortgage rates will come down and the dollar will get stronger so that the imported inflation will be knocked back somewhat.
In the meantime those of us who are being beaten down need to keep our chins up and keep fighting back. Keep fighting and requesting to get a modification or reduction because there is hope. We are getting closer to the turning point. By June of next year this enviroment will be much different mostly for the better.
Good Luck…