May
27
2010

Hey, let’s visit ShoreBank!

…No, that’s not Broadway Bank.  Broadway Bank is the Illinois bank that Alexi Giannoulias (D CAND, IL-SEN) used to brag about being involved with, right up to the point that it came out that his family was using it to give $20M loans to bookies and pimps, not to mention driving it into the ground.

No, ShoreBank is the latest Illinois bank on-track for being bailed out:

…Federal Deposit Insurance Corp. chairman Sheila Bair has recommended that the Treasury accept ShoreBank’s application for a new life, sources tell FOX Business, which, if approved by Treasury would pair the $140 million with $75 million in taxpayer money from the Troubled Asset Relief Program, the government program used to bail out the big banks during the 2008 financial meltdown.

The doubts about ShoreBank’s future add a new wrinkle to the controversy surrounding the bank’s bailout. Executives at several of the banks told FOX Business they will not give any additional bailout money, meaning that if the funding falls short the U.S. taxpayer may be asked to make up the difference once again. Meanwhile, officials at several of the banks that joined the consortium have complained that they received some political pressure to come up with the cash from people with ties to the Obama administration, including from Bair herself.

But wait: there’s more.

The bailout that appeared to be coming together last week drew scrutiny in Washington. There were accusations from conservative lawmakers that Citigroup, GE Finance and Goldman Sachs — which had put together a group to bail out the bank — did so for political reasons. The legislators also called for an investigation into an expected $70 million loan to ShoreBank by the federal Troubled Assets Relief Program.

In fact, questions about political pressure on behalf of ShoreBank go back further than last week. Minutes from a board meeting of Illinois’s bank regulator show that the Illinois Department of Financial and Professional Regulation was receiving calls from the corridors of power in both Washington and New York at least since the beginning of the year. Senator Richard J. Durbin, the No. 2 Democrat in the United States Senate, contacted the department “with a request to work with I.F.A. and the F.D.I.C.,” according to the minutes. Representative Jan Schakowsky also called, and the regulator initiated talks with the bank and the state legislature.

Both links via Verum Serum (here and here, respectively).  I know that it’s hard keeping track of which Illinois bank is being saved for crass political purposes – you should have seen the first version of this post! – but that’s not really my problem.  It’s the problem of an administration that doesn’t seem to grasp that sometimes you let failures fail.

Even if the failure is ideologically embarrassing: you see, ShoreBank was an agent for social responsibility first and a business entity second.  Under certain circumstances, there’s nothing wrong with ranking your priorities in that fashion… as long as you accept that the ‘certain circumstances’ include ‘you are permanently subsidizing your bank operations with your own money.’  The government is instead apparently planning to subsidize bank operations with your and my money, which is another story entirely.

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