Goldman Bails Out ShoreBank As Wall Street Tries To Win Back Favor With Obama

What does a failed community bank that is not TBTF or have its former CEO running the Treasury have to do to not end up on the TGI Bank Failure Friday dinner list of busted banks? Simple - be located a few blocks from where the president grew up and to which he has a sentimental attachment. Additionally, casually dropping a few mentions of criminal CDO investigation this, grand frontrunning jury that, is sure to bring instant wire transfers from a few TBTF parties (whose former CEO did run the Treasury), even if these parties are the same that last week were on the receiving end of yet another Wall Street themed fire and brimstone sermon. Today ShoreBank, which should have failed in a normal capitalist society, received a reprieve after the Obama administration did not force banks to bail it out. In fact categorically so. Because otherwise what kind of a fair and efficient system would we have, if preexisting ties and crony relationships were all that matter in determining life or death. After all that's how things worked in Russia. And Russia was an evil empire.

From Reuters:

A troubled Chicago community bank with a philanthropic reputation has won uncommon Wall Street backing to save it from a government takeover, while similarly sized rivals flounder and fail.

Privately owned ShoreBank, a community development lender on Chicago's South Side near the home base of President Barack Obama and some of his top aides, is getting assistance from a consortium of Wall Street banks including Goldman Sachs Group Inc, Citigroup, JPMorgan and Bank of America, sources have said.

Spokesmen for Citigroup and General Electric Co each confirmed $20 million investments on Tuesday, and JP Morgan previously said it was ready to inject $15 million. Another source said Goldman injected $20 million.

ShoreBank, which has $2.3 billion in assets, was reported to have exceeded the $125 million in rescue capital it needed to avoid a takeover by the Federal Deposit Insurance Corp.

And here is the reason why ShoreBank was spared:

Small banks across the nation are failing at a rapid pace due to troubled real estate loan portfolios, but ShoreBank's dedication to community development and environmental causes apparently secured its special status.

"I think this is a very unique circumstance. But ShoreBank is kind of a unique institution in that regard," said Geoff Smith, senior vice president at the Woodstock Institute, which studies lending in poor communities.

"When you think of other banks, they don't usually get bailed out in this manner," he said.

Smith and others say ShoreBank's philanthropic reputation -- it traditionally provided loans for small residential renovation projects in impoverished areas -- and its Washington ties may have saved it from a fate suffered by other banks.

We are not going to even go there. But since it is Wall Street's money for once saving an Obama crony organization, we couldn't really care. We will be disappointed however, if the $20 million in FDIC money that is still on Goldman's balance sheet via the TLGP that was used to prevent the FDIC from saving ShoreBank, is what it takes for the SEC to mysteriously realize it needs to drop its case against Goldman. Disappointed but not surprised.

And here is the official spin claiming lack of impropriety from the administration:

Bill Brandt, chairman of the Illinois Finance Authority, said there had been no political arm-twisting to win investments for ShoreBank. He said Wall Street banks were happy for a chance to align themselves with a community bank that has a national reputation for philanthropic investments.

"People were fighting to get into this deal, as odd as that sounds," Brandt said. "Many of these organizations are aware they are under public scrutiny and they take a philanthropic vision to improve communities very seriously. The White House had nothing to do with this."

Goldman has been trying to burnish its image after confronting political pressures and populist anger over its quick turnaround and perceived lack of concern over the economic downturn. Its image was further tarnished last month when the U.S. Securities and Exchange Commission brought fraud charges against the firm.

Which makes us wonder: how did so many other failed Chicago banks not realize that all they needed to do was call up the president and pitch their philanthropy, in order to avoid failure? Well, now that the president is fully empowered to blackmail the banks, especially those with pending civil and criminal litigation, we expect to see no more bank failures from the south side of Chicago. Ever.