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Shorebank Bailout to Be Investigated by Same FDIC that Pushed Bailout

John on June 23, 2010 at 2:54 pm

This is just pathetic. Republicans in Congress pushed for an amendment to the financial services bill and won:

An amendment offered by Rep. Judy Biggert, R-Hinsdale, requires the inspector general of the Federal Deposit Insurance Corp. to report by October 1 on “the influence of political pressure” by any employee or appointee of the executive branch related to private-sector assistance for any financial institution ordered to stop unsafe or unsound banking practices since January 2009.

After a fierce, politically charged debate, the measure was cleared by voice vote after Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, successfully modified the measure to delete a provision that would have prevented any bank from receiving TARP funds while under such an investigation.

So the Democrats are going to try and make sure Shorebank gets its $75 million in TARP money even as the investigation is ongoing. They have to because otherwise the bank will fail months before the report is issued.

The problem here is that, as I noted on May 26th, Chairman of the FDIC Sheila Bair was reportedly one of the administration’s agents applying “political pressure” to get the big banks to bail out Shorebank in the first place. So now she’s been tasked with investigating any political pressure in her own activity. Is she really likely to incriminate herself? I sort of doubt it.

It’s obvious that politics played a role here. Six of the biggest financial institutions on the planet don’t just happen to ally themselves to the tune of $150 million for a minor league bank in urban Chicago. The word got out that this would be a good idea (i.e. the administration would be pleased if this happened). I noted this news story from back in January where an Illinois banking official named Willian Brandt told a reporter the White House had expressed concern about Shorebank. I suspect Mr. Brandt will have a sudden memory lapse when the FDIC calls him, if they even bother.

The only hope for a real investigation is SIGTARP. They have yet to make any announcement.

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