Over the last two decades, governments in Europe and the United States have been massively using taxpayer subsidies to sponsor favoured industries, under the smoke screen of National Industrial Policy. The theory, developed by Harvard economist and former Secretary of Labor in the Clinton Administration, Robert Reich, stated that governments must “deliberately and strategically” speed the movement of capital and labor into “higher-valued production” or suffer social decline; with infant mortality rates rising and employment and life expectancy falling. Reich championed National Industrial Policy planners would more efficiently allocate capital and labor resources to satisfy consumer demand than large corporations who inefficiently use marketing to bend customer demand to their needs. He claimed it was the duty of government to induce through direct subsidies and worker retraining grants uncompetitive companies to scrap production and steer investment in industries of the future.

Europe adopted National Industrial Policy through the introduction of the Euro currency and banking deregulation. Southern European countries like Portugal, Italy, Greece and Spain got low-interest German and French bank loans to scrap supposedly uncompetitive local manufacturing and “cushion” the transition of workers into leisure services and retirement housing development. Germany and France got elimination of competition and export growth to Southern Europe. Europeans were ecstatic for 15 years; the South had a real estate and banking boom, the North had a manufacturing and banking boom.

The U.S. adopted a National Industrial Policy during the Clinton Administration in 1999 by tying bank deregulation to a colossal expansion of the Community Reinvestment Act. The big banks got unlimited ability for multi-state banking and abolition of the 1933 Glass–Steagall Act prohibitions against banks engaging in high risk securities and derivative trading for their own accounts. Planners got huge quota requirements for loans to inter-city and rural communities. President Clinton hailed that the signing of the Gramm-Leach-Bliley Act “establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act”.

Fed Chairman Ben Bernanke would later blame this legislation for a surge in bank mergers and an explosion of sub-prime lending. Now that real estate has crashed, Europe and America are suffering the dark side of National Industrial Policy.

The initial bail-out costs for Greece, Ireland and Portugal, which make up only 5% of $15 trillion European Union GDP, are $338 billion. The Portuguese default now threatens defaults by Spain and Italy, which are also heavily indebted and have economies 450% larger than Greece, Ireland and Portugal combined! Metastasizing Europe’s problems is a banking system that is also leverage at 11.1 times versus the international standard of 4 times. The reason Germany and France are providing bail-outs to these PIIGS (Portugal, Italy, Ireland, Spain & Greece), is their banks are the prime holder of PIIG debt. The European Central Bank, headquartered in Germany has been lending to banks at “zero interest rates” to keep real estate prices from taking another plunge, but Portugal’s demise will multiple increases in rates over the two years.

The United States got into National Industrial Policy ten years after the Europeans. After an epic bank bail-out and a doubling of the national debt on dubious stimulus spending, Americans are now serious about cutting deficit spending. Senator Chris Dodd, the architect of expanding the Community Reinvestment Act and the elimination of Glass-Steagall, retired rather than face certain defeat in last year’s Congressional wipe-out of big spenders. Major U.S. banks have restructured to eliminate low-quality loans and curtail risky trading practices. For the first time in history, Congress is aggressively debating curbs on entitlement spending and irresponsible politicians in California, Illinois, and other municipalities who maximized spending and public employee are ion notice U.S. taxpayers will not provide new bail-outs.

Who would have thought a quaint little country like Portugal could rattle international finance to its knees. Portuguese planners were obedient followers of the Southern European plan. Tourists and retirees flocked to their sun-drenched beaches and historic villages along the Atlantic coast. But Europe has reached its financial tipping point; interest rates are rising and deficit spending is about to get slashed. As the crisis builds across the continent, expect big tax increases and widespread layoffs to fill the streets with violent right-wing and left-wing protestors. National Industrial Policy planners claimed they would be more efficient masters of market forces. Their legacy will be unleashing of brutal market forces that will strangle nations trying to unwind staggering debt burdens.

Yesterday afternoon, Fox Business News reported that Shorebank will now be the target of a federal investigation, to look into whether political pressure was exerted on Wall Street banks to give money to help the troubled Chicago community lending bank reach the monetary threshold needed to allow the bank to qualify for federal TARP funds.

Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (TARP), has said that he will begin looking into whether or not top-level political operatives (e.g., Eugene Ludwig, former comptroller of the currency under President Bill Clinton) and FDIC chief Sheila Bair were involved in exerting direct pressure to force Wall Street banks such as JP Morgan Chase, Goldman Sachs, and others to give money (which now totals more than $150 million) to the ailing bank.  Interestingly enough, Shorebank has been involved in raising private capital to qualify for TARP funds despite the fact that Shorebank senior vice president Michelle Collins emphatically stated just last year that Shorebank would take “no TARP money.”

Although the Obama administration has officially denied any involvement in helping to prop up Shorebank, the rush by other banks to come to its aid has been nothing short of remarkable.  More than a few eyebrows have been raised in response to the general flurry of activity shown by other, larger banks seeking to involve themselves in helping to rescue Shorebank.

For example, Lloyd Blankfein, Goldman Sach’s chief executive, was personally involved in making phone calls to encourage other Wall Street banks to inject capital into the the failing Shorebank.  This, in a stated effort to allow Goldman Sachs to fulfill its obligations under the 1977 Community Reinvestment Act.  (Interestingly, Ron Grzywinski, one of the founders of Shorebank, was the only banker to testify before Congress in favor of the Community Reinvestment Act.)

According to the Financial Times (UK):

John Taylor, the president of the National Community Reinvestment Coalition, said banks such as Goldman were under pressure to “do something good”, especially for a bank widely seen as a “favourite son” of the community banking movement.

The involvement of FDIC chief Sheila Bair is not surprising, given her previously stated appreciation for Shorebank’s founder, Ron Grzywinski.  In due time, Barofsky’s investigation should be able to tell us more as to whether or not she was actually more closely involved in trying to bring about a Shorebank rescue.

In a related story, it is looking more and more as if Shorebank may not be able to keep its doors open, after failing to receive a much-anticipated $75 million in federal funds.  The approximately $150 million received from Wall Street banks earlier this summer (which has been sitting in an escrow account since that time) will be given back to investors later today unless federal funds are made available or some other solution is proposed.

As we previously wrote, Shorebank would potentially be eligible for TARP funds if it were to be recognized as a “Community Development Financial Institution.” In order to to received needed federal TARP money and prevent seizure by the FDIC, Shorebank needed to receive appropriate matching funds from private sources.  News stories have been released over the past several days indicating that Shorebank has potentially received such funding.

Shorebank has reportedly received $20 million from General Electric, $20 million from Goldman Sachs, and $20 million from Citigroup – with additional large funds being promised by J.P.Morgan Chase, Bank of America, and Morgan Stanley. Shorebank also has received funds from the Northern Trust Corporation, State Farm, and Harris N.A.  It has been reported that the bank could also receive funds from Wells-Fargo and PNC Financial Services.  Assistance from these financial institutions puts Shorebank’s raised capital from private sources within the range needed to make it eligible for TARP funds.

As we reported previously, Citigroup, Bank of America, and Chase all received tens of billions of dollars in taxpayer money from TARP.  Does this then mean that Shorebank is being bailed out by bailout money?

And still yet, there is another layer to Shorebank’s impending bailout that must be exposed: cronyism. Mary Cahillane was named Executive Chair of Shorebank in November.  Cahillane had previously worked at Bank of America as an operational risk executive. Goldman Sachs executive Lloyd Blankfein has been reported to have been personally involved (*site subscription required to access this link) in arranging for the assistance given to Shorebank.

Such assistance from Goldman Sachs would enable that bank to fulfill its “responsibilities”  under the Community Reinvestiment Act (CRA) of 1977 to prevent discriminatory lending practices and increase lending in poor neighborhoods.  And who was a strong advocate for the the passage of CRA?  One of Shorebank’s founders, Ron Grzywinski, who appeared before Congress to advocate for the bill (and was the only banking executive to do so) and who served as on President Carter’s National Consumer Bank Board.

In addition, Goldman Sachs’ relationship with the White House has concerned some, as its executives have met with President Obama and/or his officials on multiple occasions – and Goldman Sachs and its employees have donated nearly a million dollars to President Obama’s presidential campaign.

In addition to Shorebank’s ties to President Clinton, Secretary Clinton, and President Obama, Shorebank also has ties with one of President Obama’s chief advisors, Valerie Jarrett. Jarrett served on the Board of Directors for Chicago Metropolis 2020, a civic organization headed by Shorebank director Adele Simmons.The ties between Jarrett and Simmons are depicted pictorially on Muckety.com.

Additionally, Ms. Jarrett works for Navigant Consulting. Current President and CEO of Navigant, William Goodyear, is currently an advisor to Shorebank.

These associations — and the eagerness displayed by various financial institutions to “rescue” Shorebank – lead necessaily to the questions now being asked by two Republican Congressmembers, Spencer Bachus (AL) and Judy Biggert (IL). A letter has been sent by Bachus (Ranking Member of the House Financial Services Committee) and Biggert (Ranking Member of the Subcommittee on Oversight and Investigations) to President Obama asking him to respond by June 2nd to a series of questions relating to Shorebank.

So our question is this: How is it that the federal government got into the business of picking winners and losers? Ten other Illinois banks closed in 2010 alone.  Did those banks have the same opportunities as Shorebank?  How is it that only Shorebank was able to secure such huge amounts of private funding?  Do the intimate connections that the banks and individuals who are working to bail out Shorebank have with the Obama administration have anything to do with its ability to secure such funds?  These questions must be answered, and we at the Central Illinois 9/12 Project will continue to ask these questions and seek their answers.

The goal of the “action” –in organizing parlance— is a show of force calculated to intimidate bank lobbyists and show support for sweeping anti-bank legislation pending in Congress.

The action, called The Showdown on K Street, is listed at the website of Jobs With Justice. JwJ works closely with ACORN, other community organizing groups, and the labor movement.

“This is the first time that they’re going to hit K Street all out,” said a source in the progressive movement. “They want to intimidate bank lobbyists, who aren’t used to this kind of confrontation.”

“It’s an anti-Wall Street march. In many ways it mirrors what happened on Wall Street about a month ago.”

The source was referring to another in-your-face anti-bank march on April 30 in New York City’s financial district led by National People’s Action (NPA). Also known as National People’s Campaign, the Chicago-based organization filed its first tax return in 2008.

As Andrew Marcus reported, the federal government cut off funding for NPA’s sister organization, the National Training and Information Center (NTIC) in 2003. Investigators found NTIC had misused millions of taxpayer dollars by spending them on training community organizers to lobby the government instead of on community development projects. NTIC also committed fraud by carrying out a cover-up.

NPA’s executive director is George Goehl who says he supports efforts to create “a more fair and just economy.” NPA takes credit for enacting the disastrous Community Reinvestment Act in the 1970s.

Marxist front group Americans for Financial Reform is also participating in the action. It is headed by executive director Heather Booth, an old hand at leftist astro-turfing operations. Booth is an Alinskyite who founded the Midwest Academy, a training institute for radical community organizers. “Alinsky is to community organizing as Freud is to psychoanalysis,” she has been quoted saying.

Booth has also been described as a “guiding force” for ACORN and was an avowed supporter of Bill Ayers’s Weather Underground terrorist group.

Other leftist groups participating are the Service Employees International Union (SEIU) and the AFL-CIO.

SEIU produced a tongue-in-cheek video in advance of the May 17 event. It’s called ”How to Stay Safe on K Street”:

Follow me on Twitter.

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.

You might be thinking “Crap. Not another Alinsky community organizing group and its damn acronym!” – but this is one to which you need to pay very close attention. This group is at the very center of the real estate bubble-bust brought on by the dreaded CRA, and they are organizing an army of unions to march on Wall Street and blame the entirety of the economic disaster on the evil rich.

The first thing that you need to know about NPA is that their now-deceased leader, Gail Cioncotta, is credited in community organizing circles for authoring the Community Reinvestment Act. Her group is also credited with honing the tactic of storming into banks and occupying their lobbies.

Another thing you need to know is that in 2003, NPA’s sister organization, the National Training and Information Center (NTIC), was busted by the Justice Department for misappropriating millions of federal grant dollars from community development projects,  using the funds instead to train community organizers to lobby the government. On top of that, the Justice Department found that they committed fraud as they tried to cover up their actions.

The overall purpose of the audited grant was to provide training, technical assistance, and funding to community-based organizations, and more than half of NTIC’s grant funds were awarded to these sub-grantees. Although the sub-grantees were supposed to have been selected competitively based upon their ability to run a successful community program, evidence in the grantee’s files and statements by NTIC staff revealed that the majority of sub-grantees were instead selected based upon their connection to influential lawmakers. Moreover, while a major element of the grant was to provide training to these sub-grantees and significant funds were spent for training conferences, considerable portions of these sessions were dedicated to conducting congressional lobbying visits and training sub-grantees in how to conduct successful lobbying activities. Most importantly, we believe that NTIC intentionally misled OJP and attempted to conceal its true activities. As a result of these systemic improprieties, we question the entire amount awarded, or $3,162,580.

…..

We began our audit in October 2003 and contacted the OIG Investigations Division in February 2004. Due to the initiation of the criminal investigation, we postponed reporting our results until the conclusion of the criminal investigation. The Executive Director of NTIC pleaded guilty and served his sentence related to the criminal case. As of March 2008, a civil action under the False Claims Act was pending against NTIC.

As a result of their crimes, NPA and NTIC lost their federal funding. This marginalized their organization’s influence in community organizing circles and further radicalized their remaining members. Without the federal dollars streaming in, there was no need to hide the real agenda – which is to destroy corporate America.

Pay very close attention starting at 2:20 in the video below

Notice the stars in their logo at the beginning of the video below

With the downfall of ACORN as a “respectable” brand, NPA and NTIC are stepping in to fill the void. They are “cleaning up” their look, having removed the red stars from their current logo.

Last year, together with Andy Stern and SEIU, NPA led an angry march against “greedy” bankers in Chicago.*

Now, SEIU and NPA are working together with other unions to organize a series of marches and demonstrations aimed at Wall Street and capitalism. From the description of their next march:

National People’s Action (NPA), and our allies at SEIU, the AFL-CIO, and Jobs With Justice are calling for a Showdown on K Street.  The big banks destroyed our economy and have hijacked our democracy.  Corporate lobbyists representing the big banks paved the way to deregulate Wall Street and are now standing in the way of reforms that would protect people and strengthen our economy.

This all begs the question:  did Andy Stern leave SEIU because it would look very unseemly for one of the most frequent visitors to the Obama White House to be leading unionized-angry-street-mobs against corporate America? Did Andy Stern leave SEIU to protect the Obama Administration from charges of coordinating protests in the streets of our nation?

That would be a fundamental transformation of our country -  if the Executive Branch coordinated directly with unions to shake down corporations and vilify fellow Americans. A dark transformation indeed.

To quote the great Glenn Reynolds: “We are in the very best of hands.”

*For more information on NPA’s Chicago Showdown, please contact Senator Dick Durbin and/or FDIC Chair, Sheila Bair. They both addressed the group at an NPA breakfast held the morning of the protest.

After all, it wasn’t Goldman that passed the Community Reinvestment Act that forced banks to make loans to people who could never pay them back. It wasn’t Goldman that created and supported Fannie Mae and Freddie Mac. And it wasn’t Goldman that drove interest rates down to a below market level to cause a housing rush not seen since gold was found in them thar’ hills in the mid-1800s.

But if Senators were really interested in finding out the cause of the housing bubble, they would call one Eric Stein to the dais.

Mr. Stein is currently that Deputy Secretary of Treasury for consumer protection and is likely to head the vastly powerful Consumer Bureaucracy currently being pushed by big banks and Wall Street. But prior to his appointment to Treasury, Mr. Stein the bag man for the Center for Responsible Lending and its many Self Help subsidiaries, was singly responsible for more bad loans than all Goldman employees together. Working with billionaire con-man John Paulson, Stein lobbied to pass the laws at the root of the crisis and pressured banks to make bad loans that caused their portfolios to collapse when the economy turned. They were the Bonnie and Clyde of the subprime mortgage world.

It’s time for a hearing focusing on the real cause of the housing bubble. It’s time to call Eric Stein up to the Hill for questioning under oath.