(MoneyWatch) The position of U.S. Commerce Secretary has often been a political plum for top fundraisers, so it was no surprise that President Obama continued that tradition today when he named Penny Pritzker, the Chicago billionaire heiress to the Hyatt fortune.
Said to be worth nearly $2 billion, Pritzker put together nearly $800 million for Obama's presidential campaigns.
Pritzker's appointment shows that the administration is abandoning even a fig leaf of a relationship with labor unions -- Hyatt has had many run-ins with its work force, and Pritzker herself was deeply unpopular with the Chicago Teachers Union during her tenure on the Chicago Board of Education.
The appointment also suggests the administration is betting that people don't care much anymore about the subprime meltdown that succeeded in bringing the world to the brink of financial ruin. Her role in the banking business may startle those not familiar with the history of the subprime meltdown.
The Pritzker family, along with a partner, bought the failed Lyons
Savings Bank in 1988 for $42.5 million, getting $645 million in tax
credits in the process and rechristening it Superior Bank. Under Pritzker, who served on the board, Superior bought Alliance Funding, which moved aggressively into subprime lending.
Bert Ely, an independent banking analyst who testified about the failure of Superior, noted the garish pitch the bank was making at the time. "I remember the basic message to mortgage brokers: 'Send us the applications that no one else will accept.' "
As one of the earliest pioneers of risky loans that were then bundled off and sold as securities, Superior was also one of the practice's earliest casualties: The bank collapsed in 2001. "The kinds of lending they were doing were outrageous," Ely said. "But what was also outrageous was that when Superior failed -- there were a lot of uninsured depositors who took losses. It was more outrageous given the wealth of the family, which may have walked away without any losses."
Tim Anderson, a retired banking consultant who has written and testified about the failure of Superior, said Penny Pritzker played a direct role in persuading people to park their money in a bank that was taking wild-eyed risks. He points to a letter she wrote in May 2001 to bank employees and managers, assuring them that the bank was being recapitalized. But while that pledge of support may have convinced people that the bank was sound, the recapitalization never occurred. In fact, the bank failed two months later.
The letter was also indicative of the approach the bank was taking, and of Pritzker's hands-on role in strategy. "Our commitment to subprime has never been stronger," she wrote.
Anderson said that when Pritzker goes before the Senate to defend her nomination, these questions should be front and center. "What has not been focused on until now is what was Penny's role in the subprime mortgage meltdown," he said. "It was the Pritzkers who got investment-grade ratings on subprime debt. It was the Pritzkers who were into subprime lending long before Wells Fargo, Countrywide and Washington Mutual. They were in the forefront of the subprime fiasco, but they have never been held accountable.
"The Senate needs to ask her what was her role in the subprime mess. Not her family's, but hers."
Meanwhile, in the world of labor unions, Pritzker's enemies are legion.
"Penny Pritzker has a long and storied history as being an anti-labor, anti-worker kind of boss," Chicago Teachers Union president Karen Lewis said in March when Pritzker resigned her seat on the Chicago school board. "She has supported policies that have had an adverse impact on working-class families and their children. As a member of the board of education, she has worked to close schools, destabilize neighborhoods and disrupt the economic lives of thousands of public school employees."
The teachers union and other critics have also taken aim at Pritzker for challenging the tax assessment on her family's mansion in Lincoln Park area of Chicago, criticizing her for trying to save 200,000 on property taxes, money that helps fund public schools.
While on the board of Hyatt, the company was the target of attacks by the AFL-CIO for everything from worker safety to discouraging union membership to laying off workers and replacing them with more cheaply paid employees. But perhaps for fear of alienating an administration that has offered them little, officials from the AFL-CIO and other unions did not return calls seeking, or declined, comment.
Of course, a hostile relationship with labor organizations could aid Pritzker's credibility among business leaders. But it's less certain that her family's foray into banking will earn her much respect from any side of the ideological spectrum.