Monday, July 21, 2008

One Down, More Need to Go

Well Squaliforme champion Phil Gramm's mouth finally did him in, which should improve McCain's chances of being elected this fall. In a typical 'let them eat cake' moment, the Godfather of predatory lending and bank deregulation spoke a partial truth - but it wasn't well crafted enough and revealed the mind-set that permeates the Washington lobby culture. Gramm will have to go back and suffer in his role at UBS.

Now the Obama campaign needs to step up to the plate and dump Penny Pritzker - legendary former owner of the sup-prime predatory lending squaliforme Superior Bank. Pritzker and Dworman (the owners) are still handing out multi-million dollar payments every year to the FDIC (part of the deal where no one had to admit any wrongdoing at Superior).

But the settlement was a pretty good gamble for the Pritzkers. The FDIC went after the auditors, Ernst & Young for compensatory damages in excess of $500 million and $1.5 billion in punitive damages. If the FDIC had gotten two billion dollars, Pritzker and Dworman would have been entitled to almost $500 million under their settlement agreement with the FDIC - without having to spend anything in chasing Ernst in court.

But their strategy fell apart when the courts decided the FDIC (as receiver) and Ernst were bound to settle their issue in arbitration. Instead of $500 Million, Pritzker and Dworman wound up getting only $30 Million back.

$460 Million sounds like a lot of money. But it was $100 Million there in 2001 and the rest of over 14 years, or roughly $25.7 Million per year - minus the $30 Million from Ernst. I won't bore you with the time-value-of-money view but you can bet they did.

But the FDIC paid out roughly $700 Million in the fiasco. And over a thousand depositors in the bank had amounts of more than the $100,000 threshold that weren't covered, so they're out of luck to the tune of $40 Million - their suit against the owners and managers was dismissed in 2004.

So if you feel sorry for the Pritzkers and Dwormans having to pay $25+ Million per year for a few years, imagine how quickly you'd be be behind bars if you ran a company that did what Superior Bank did.

Until regulators and prosecutors show some backbone in the all-too-cozy game of not having to admit wrongdoing, none of this kind of abuse is going to stop.

The Honorable Judge Roy Bean

1 comment:

Mer said...

Dworman didn't pony up a dime! The uninsured depositors have received almost 70 percent of their money from the Pritzker family payments. I'm sure the people that had their money at Indy Mac wish it had been owned by the Pritzkers. They won't see a penny above and beyond the FDIC insured funds. The WSJ is just rehashing old news to attack Obama. Here's a blog that has the facts: