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Turnip Trucking: Have We Learned Nothing from the Financial Crises?

John Powers 19 May 2010 No Comment

In Chicago, outright bribes are generally used as simple graft, like a gifting a bottle of Seagrams 7 to your postman to encourage him not to throw away your mail. It works; is nearly harmless; and it is generally not prosecuted.

The “Chicago Way”, as relentlessly chronicled by John Kass, is much more complex. Chains of favors and appointments are traded to mechanically operate the City that works. Need parking at your Parish on Sunday Mornings? Hire the alderman’s loutish daughter to “teach” at the Catholic School. Need a building permit for the ugly building overlooking Grant Park? How about a nice donation to the Children’s Museum. However devoid of morals or ethics, The Chicago Way also works well enough to supports parks, museums, churches and other public facilities. It may even be legal, till you get on the wrong side of some aggressive and agitated prosecutor.

Where The Chicago Way falls down is when the city gets involved in the management of private business. It becomes very difficult to open a new retail store on the South Side, for example, if you have to consult with your competitors’ unionized employees to get approval of your store location. Completely sensible private businesses stay out of Chicago (and out of Illinois) because of the complex, self defeating economics of losing money on purpose to make politicians happy.  Well run corporations (i.e. those with Boards who refuse to pay bribes) stay clear of the Chicago because of the legal and ethical consequences of corruption.

Shorebank, headquartered at 7054 S. Jeffery Blvd. in Chicago has a long history of making politicians happy. From the Clinton administration to the current Obama administration, Shorebank has had a series of complex interactions with regulators and politicians anxious to be seen as doing community development in Barack Obama’s old Illinois State Senate District.

The Financial Times notes that:

The ShoreBank rescue is being facilitated by Eugene Ludwig, the former comptroller of the currency in the Clinton era, who heads Promontory Financial Group, a consulting firm.

while another key figure

Bob Nash, shows up as “Hillary Clinton’s deputy campaign manager in her campaign for the Democratic nomination for President. He was formerly vice chairman of ShoreBank Corporation, chairman of ShoreBank Enterprise Detroit and the Detroit Bank Advisory Committee, and chairman of the board for ShoreBank Neighborhood Institute and ShoreBank Enterprise Cleveland. He served as undersecretary of Agriculture, managing USDA’s small-community and rural development programs, and then as director of presidential personnel to former President Bill Clinton.

One fine blogger, from the Central Illinois 912 project has a full lineup linking up some of the star players in Illinois politics (and public corruption) here including

Howard Stanback, presently on the Board of Directors for the Shorebank Neighborhood Institute. He has also previously served as President of the Hyde Park Community Association and is a former Board Chairman of the Woods Fund. Before joining Shorebank he was employed by the New Kenwood LLC, a real estate development co-owned by Allison Davis (Barack Obama’s former boss at the Davis, Miner, Barnhill Law Firm) and Tony Rezko. He and Barack Obama previously served together on the board of the Woods Fund.

The Tribune, while editorially in favor of the bailout of the Shorebank, reports on the “friends in high places” manipulating the bailout of Shorebank noting that

Goldman Sachs, Citigroup, Bank of America, Chase and General Electric are throwing in at least $15 million apiece to help

Nice of them to do that, but why? If the bank is losing money now, why would all of these investors be rushing to pour good money after bad? Again from the Trib

Bill Brandt, chairman of the Illinois Finance Authority, a government financing body, said no arms were twisted. But Brandt quickly added that he “didn’t just fall off a turnip truck” : Given how some financial institutions have been vilified in the financial crisis, it’s understandable that they’d want to help ShoreBank, similar to how other industries try to position themselves in a good light, he said.

Illinois Gov. Pat Quinn, House Speaker Michael Madigan and U.S. Rep. Jan Schakowsky were all key to ShoreBank lining up the financing, Brandt said.

So backing the Turnip Truck up a bit…per the Illinois Finance Authority Act, Bill Brandt is supposed to be

Promoting the health, safety, morals and general welfare of all the people of the State

yet, Bill tells us that he is not naive and that this deal is not all it seems to be. So Bill, I will email you this article, and please tell us, if this deal is not exactly “promoting morals”, what are you doing about it as the head of the Illinois Finance Authority (as I understand you did not just fall off the turnip truck)?

When private business is bullied into making bad financial decisions for political reasons, the entire country suffers. Money-losing investments crowd out money-making investments and reward business for doing the wrong things. Business become reluctant to take reasonable risks, such as locating on the South Side of Chicago for example, because of the political payouts that are extracted as punishment for legitimate operations. We are left with a huge areas where businesses cannot operate a grocery store, a bank, a department store, a factory etc because of too much interference by our politicians.

Crain’s would have us believe that more investment would lead

the South Side lender, which made its name over three decades lending profitably in low-income neighborhoods, to qualify for about $75 million in bailout funds from the Treasury Department.

Which begs the question…if it is so profitable, why does Shorebank  need to be bailed out?  Maybe its not profitable, and Shorebank is just sucking money from investors and depositors, who knows?  But we’ll never find out if money is being poured in to the bank without regard to the profitability of the investment.

The insider trading at ShoreBank has shown that the USA has learned nothing whatsoever useful from the financial crises of the last 2 years. It does show that the “Chicago Way” has taken hold in Washington DC and Wall Street and is spreading our local poisonous financial dealings nationwide. Congresswoman Judy Biggert (R-IL-13) has called for an investigation, which is a reasonable idea. Until that time, perhaps we can hold our politicians accountable for strong-arming private business to assist political allies.


John Powers is the President of the Chicago Daily Observer

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