Today it was reported that Goldman Sachs CEO Lloyd Blankfein has been calling Wall Street friends to cough up $125 million to save ShoreBank, which faces federal closure next week. Rep. Jan Schakowsky suggested in January that Illinois taxpayers foot the bill. That would have been the first state-led bank bailout in U.S history. The idea was abandoned–so it appears the government is shaking down Goldman Sachs instead.
ShoreBank has close connections to the Obama administration, including controversial figures such as former “green jobs czar” Van Jones. Its executives have contributed in the past to Rep. Schakowsky and other Illinois politicians. ShoreBank did not just make loans in poor communities–there are other local banks that do that without getting into trouble–but also specifically made loans that the recipients had little hope of repaying.
Now ShoreBank is calling in some political favors, and the politicians are responding with a classic Chicago-style shakedown. It is probably no coincidence that Goldman Sachs suddenly took an interest in ShoreBank after it was slapped with a federal civil fraud lawsuit and a criminal investigation. Many Wall Street observers believe that the charges against Goldman Sachs were politically motivated, in timing if not in substance.
Regardless, Mr. Blankfein got the message, telling Goldman Sachs shareholders last week that he would try to rebuild the company’s image. He called up other bailed-out institutions that are being threatened with federal charges–Bank of America, Citigroup, and JP Morgan Chase–and got them to cough up millions for ShoreBank. So although the ShoreBank bailout is “private,” American taxpayers are still indirectly on the hook.
Rep. Schakowsky played her own part in the shakedown. She chewed out Goldman Sachs executives in her office, and then boasted about it at the Huffington Post. She warned them:
“You are looking at one of the 57 members who voted against the repeal of Glass-Stiegel [sic] in 1999.”
Regardless of their views of the Glass-Steagall Act, the executives at Goldman Sachs got a first-hard lesson in Chicago-style management.By bailing out ShoreBank, Goldman Sachs and the other banks may hope to appease Rep. Schakowsky and the administration–and to meet their obligations under the Community Reinvestment Act (CRA) of 1977, a law that set the stage for the sub-prime crisis. Wall Street is learning that complying with the CRA does not mean actually helping working families, but bailing out politically-favored institutions like ShoreBank.
It is telling that Rep. Schakowsky did not stop the closure of community banks that are based in the district she represents, like the Bank of Lincolnwood, which failed last year. The irony is that Goldman Sachs and other bailed-out institutions will be protected by the financial reform bill, which does not fully end “too big to fail.” If spending $125 million on ShoreBank is the price of membership in the club, they’re apparently ready to pay.