This is the man who would keep our banks safe?
(Page 3 of 4)
A: Yeah. Why we’re doing this and what we see the benefits from it and it wasn’t that long of a presentation. They basically relied on the — the booklet.
Although Penny Pritzker later left the board of the bank, she remained on the board of the holding company, Coast. As Bracken explained, “it was mostly a time issue with her being on both boards. And with everything else she had going on with the Pritzker organization, she needed to be able to reduce her time commitment to the bank. And by maintaining — I believe she maintained her presence on the Coast-to-Coast board and thus being able to see everything that was going on at the bank at the same time.”
Superior bank executive Nelson Stephenson testified that Pritzker remained on the Coast board through his departure in January 2001:
A: Of which entity?
A: Yes, I believe she was.
Pritzker’s role as the Pritzker family point-person on Superior was well known. Shortly after the death of her father, Jay Pritzker, one Paul Merrion, writing in Investment News on Feb. 22, 1999, stated that “Penny Pritzker, 39, Tom [Pritzker]’s first cousin…oversees industrial real estate and the family’s interest in Coast-to-Coast Financial Corp., the Las Vegas-based parent of Superior Bank FSB, a $1.1-billion-asset thrift based in Oakbrook Terrace, Ill.”
AN INDEPENDENT BANKING expert, Rodolfo Engmann, was hired by the United States Department of Justice to analyze in detail who and what caused Superior Bank to fail. Engmann reviewed “numerous public studies [of Superior’s failure in July 2001] by various government agencies, including the Federal Deposit Insurance Corporation (FDIC) Office of Inspector General, the General Accounting Office, and the Department of the Treasury Office of Inspector General.”
Contrary to the story on Obama’s website, Engmann makes clear that Superior should have known on its own that its accounting overvalued its risky assets, and that regulators told Superior it should change its accounting.
Engmann explains that improper accounting inflated Superior’s risky assets by $420 million. The inflation came in two parts. One, amounting to $150 million of inflated value, had nothing to do with the outside accountants. The bank’s managers arbitrarily changed the discount rate they used concerning residual cash flows from 15% to 11%. As Engmann reports, “when asked by the regulators to provide support for this reduction in the discount rate, Superior could not provide sufficient documentary support. Therefore, in May 2001 the regulators required that Superior increase the discount rate back to 15% and the values of the residual interests were adjusted downward by $150 million in July 2001.”
The second part amounted to $270 million of inflated value. Engmann reports that:
But the bank persisted in using a different method, “cash in.” Regulators blew the whistle, but bank managers stopped up their ears: “During the January 2000 examination [of Superior and CCFC], the OTS and the FDIC questioned the accounting treatment for valuing the OC accounts…. However, both Superior/CCFC management and [Ernst & Young’s] Chicago-based audit team continued to take the position that the OC accounts should be accounted for on an undiscounted basis.”
Regulators were forced to take the matter “upstairs”:
Thus, contrary to the Pritzker spin Obama hosts on his campaign website, the accountants did not suddenly and unexpectedly change their minds. Instead, official accounting guidance from the Financial Accounting Standards Board was published no later than July 1999 that Superior ought to have applied on its own; when regulators saw this was not happening, they pushed Superior to correct its accounting, but Superior refused, and the Chicago-based auditors went along; finally the regulators told them to take it up with the accountants’ national headquarters; and Superior finally obeyed the accounting rules in May 2001, after almost two years of resistance.
Engmann wraps up the sorry tale: “The two accounting treatments, relating to the OC account and the discount rate, resulted in Superior’s assets and capital being overvalued by a total of $420 million. … This overstatement by management of Superior, CCFC, and Fintek masked the actual declines in income and capital resulting from the worse than projected performance of the securitization deals. Taking these adjustments into account, the cumulative reported ‘Revenue from Sale of Loans’ of $409 million would have been reduced to a deficit of $11 million.”
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?