3 Troubling Things To Know About Billionaire Penny Pritzker

Obama’s Commerce Secretary choice raises serious questions.

David Moberg

On May 2, 2013, in the White House Rose Garden, U.S. President Barack Obama announces his nominee for Secretary of Commerce, Hyatt hotel heir Penny Pritzker. (SAUL LOEB/AFP/Getty Images)

Despite her busi­ness-friend­ly his­to­ry, bil­lion­aire heir Pen­ny Pritzk­er, Pres­i­dent Obama’s nom­i­nee for Sec­re­tary of Com­merce, will like­ly face stan­dard Repub­li­can flak in her Sen­ate con­fir­ma­tion hearings.

'Penny Pritzker has still not answered for her and her family’s role in the subprime mortgage meltdown of the world-wide economy,' says bank-advisor-turned-banking-watchdog Tim Anderson.

But pro­gres­sive Democ­rats are the ones with real rea­sons to be upset with her record and that of her fam­i­ly, which is among the wealth­i­est in Amer­i­ca. Here are just a few:

1) Union-bust­ing. Pritzker’s fam­i­ly busi­ness­es have often engaged in anti-union prac­tices. She is a direc­tor of the Hyatt Hotels, which fired and then replaced long-time room clean­ers in its Boston hotels with non-union sub­con­tract­ed work­ers. Hyatt has refused to set­tle sev­er­al con­tract dis­putes with UNITE HERE, some last­ing near­ly four years, on terms sim­i­lar to those accept­ed by oth­er big hoteliers.

2) Con­flicts of inter­est. The family’s $20 bil­lion empire was built on a diverse base of busi­ness­es, includ­ing Hyatt, Mar­mon (an indus­tri­al con­glom­er­ate), the Tran­sUnion cred­it rat­ing agency, and many oth­ers in indus­tries such as con­tain­er leas­ing, insur­ance and travel.

The fam­i­ly has long had a rep­u­ta­tion for not only accu­mu­lat­ing its wealth through elab­o­rate schemes of tax eva­sion, includ­ing off­shore accounts, but also for using its polit­i­cal clout to win favored treatment.

For exam­ple, com­mu­ni­ty and teacher union crit­ics berat­ed Pritzk­er, who recent­ly resigned from the Chica­go Board of Edu­ca­tion, for sup­port­ing the clos­ing of dozens of pub­lic schools because of finan­cial pres­sures. At the same time, the high­ly prof­itable Hyatt was receiv­ing finan­cial assis­tance from a Tax Incre­ment Finance fund (a pool of mon­ey intend­ed to sup­port blight­ed neigh­bor­hoods in the city) whose assets effec­tive­ly had been divert­ed from sup­port of the schools. Pritzk­er also has drawn fire for her lead­ing role in pro­mot­ing pri­vate­ly oper­at­ed char­ter schools, includ­ing net­works of non-prof­its to which she has contributed.

While some Pritzk­ers sup­port Repub­li­cans, oth­ers, like Pen­ny, are active patrons of cor­po­rate-ori­ent­ed Democ­rats. Pen­ny Pritzk­er, who knew Oba­ma before he ran for pres­i­dent, served as finan­cial chair of his first cam­paign and is cred­it­ed with bring­ing in mil­lions of dol­lars in dona­tions. Many observers see her appoint­ment to the rel­a­tive­ly weak — if sym­bol­i­cal­ly still impor­tant — com­merce post as typ­i­cal cam­paign spoils for big contributors.

But if she is approved, it will bur­nish her rep­u­ta­tion and increase her poten­tial influ­ence. The Pritzk­ers, who have con­tributed large sums to edu­ca­tion, med­i­cine, archi­tec­ture and the arts in their home­town of Chica­go and else­where, gain pro­tec­tion from the fall­out of their ques­tion­able busi­ness prac­tices through their pub­lic image as philanthropists.

3) Shady busi­ness deal­ings. The Pritzk­ers have a long his­to­ry of busi­ness malfea­sance at the expense of peo­ple of mod­est means. In one notable case, Con­gress passed leg­is­la­tion in 2003 to address issues raised by wide­spread charges that the Pritzker’s cred­it rat­ing agency, Tran­sUnion, had made seri­ous flaws in its cred­it reports on indi­vid­u­als — and then failed to cor­rect them upon discovery.

But per­haps the most infa­mous and per­ni­cious Pritzk­er abuse of pow­er was the Supe­ri­or Bank scan­dal, a preda­to­ry sub­prime mort­gage secu­ri­ti­za­tion rack­et that led to the fail­ure of Supe­ri­or Bank in 2001 and pre­fig­ured the 2008 crash.

Pen­ny Pritzk­er played a lead­ing, deci­sion-mak­ing role in the lead-up to the fail­ure, which ulti­mate­ly lost 1,400 depos­i­tors an esti­mat­ed $10 mil­lion and cost the Fed­er­al Deposit Insur­ance Cor­po­ra­tion approx­i­mate­ly half a bil­lion dol­lars. After the Pritzk­ers and a fam­i­ly friend took over a failed sub­ur­ban Chica­go bank on very favor­able terms in 1988, they began aggres­sive­ly pur­su­ing high-inter­est, high-risk sub­prime loans. They were able to repack­age the loans in secu­ri­ties giv­en an invest­ment grade, Ander­son says, because they promised to replace any failed mort­gage with a good one. But as they pumped out prof­its for them­selves, they even­tu­al­ly failed to live up to their promis­es, includ­ing a pledge to invest more capital.

Bert Ely, a promi­nent bank con­sul­tant, says that Supe­ri­or Bank was a real­ly sleazy oper­a­tion” and pret­ty gross.” The bank essen­tial­ly told oth­ers in the busi­ness to bring us your crap­pi­est loans you’ve got and we’ll secu­ri­tize them.”

In 2001, the bank col­lapsed. But thanks to an unusu­al deal with the FDIC that allowed the Pritzk­ers to share in a law­suit against the bank’s audi­tors, Pen­ny and her fam­i­ly ulti­mate­ly prof­it­ed from the fail­ure. They didn’t own up to their respon­si­bil­i­ty,” says Ely. My esti­mate is that the own­ers of Supe­ri­or end­ed up mak­ing big mon­ey on the deal after tak­ing into account tax laws, and it’s uncon­scionable that they made mon­ey while pen­sion­ers lost money.”

When FDIC took over, the Pritzk­ers con­tin­ued the oper­a­tion, giv­ing it an air of legit­i­ma­cy and set­ting up the glob­al econ­o­my for dis­as­ter. Superior’s exploita­tion of secu­ri­ti­za­tion of sub-prime loans, cou­pled with fed­er­al reg­u­la­tors’ lax treat­ment of the Pritzk­ers, inspired oth­er lenders, help­ing to spawn the huge sub­prime loan mar­ket in exot­ic deriv­a­tives that pre­cip­i­tat­ed the 2008 Great Reces­sion. They plowed the ground,” says for­mer Fed­er­al Reserve staffer Walk­er Todd. They were the first to show how bankers could make mon­ey in the sub-prime business.”

Pen­ny Pritzk­er has still not answered for her and her family’s role in the sub­prime mort­gage melt­down of the world-wide econ­o­my,” says bank-advi­sor-turned-bank­ing-watch­dog Tim Anderson.

Why it matters

The pow­er of the Com­merce Sec­re­tary is lim­it­ed, with many doing lit­tle more than pro­mot­ing Amer­i­can busi­ness. But when a Demo­c­ra­t­ic pres­i­dent choos­es a busi­ness ambas­sador who has played so loose with the rules, caused so much harm, and shown — despite the phil­an­thropic over­lay — so much self­ish­ness and greed in her busi­ness prac­tices, it sends the wrong mes­sage to an already out-of-con­trol plutocracy.

Is this the mod­el for Amer­i­can busi­ness that Pres­i­dent Oba­ma and the Democ­rats real­ly want to promote?

David Moberg, a senior edi­tor of In These Times, has been on the staff of the mag­a­zine since it began pub­lish­ing in 1976. Before join­ing In These Times, he com­plet­ed his work for a Ph.D. in anthro­pol­o­gy at the Uni­ver­si­ty of Chica­go and worked for Newsweek. He has received fel­low­ships from the John D. and Cather­ine T. MacArthur Foun­da­tion and the Nation Insti­tute for research on the new glob­al economy.

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