“HE SAID THERE WAS SOMETHING IN IT FOR ME, MICHAEL, FOR ME!”

3/1/10

In my 2/7/10 post, ALEXI’S LITTLE DIVIDEND, I examined the problems at Broadway Bank, the family business of the Giannoulias family, of whom Alexi Giannoulias, the Democratic candidate for Barack Obama’s old Senate seat, is the most prominent member. I pointed out in that post, as few others have, that any bailout of the bank would be an effective transfer of money from the taxpayers to the campaign of Senator Giannoulias. Consequently, not only will Mr. Giannoulias, should he win the seat, be able to fritter away taxpayer money in the Senate, but he will also be frittering away taxpayer money in his efforts to put himself in such a position.

As I reflect on reports that the Giannoulias family, or some other investors, will have to come up with $80mm (an amount, by the way, that exceeds the dividends the family took out of the bank in 2007 and 2008 by only $10mm) in the next month or so in order to shore up Broadway Bank’s finances or face federal seizure of the institution, I have come to two radically different conclusions: Either the money will be far easier to raise than is commonly thought or it will be, for all intents and purposes, impossible to raise.

How could raising the money be far easier than is commonly thought? Remember that the Giannoulias family is only one potential source of the spondulicks necessary to keep Broadway afloat. Certainly outside investors could be brought in if the family cannot see fit to put its dividends back into the bank. (The latter may be impossible if the family is telling the truth; the Giannoulias family contends that the bulk of those dividends was used to pay estate taxes in the wake of the death of the family’s patriarch.) And what would an outside investor get for its investment? Not only a bank with books that would make a mule gag, but the appreciation and eternal gratitude of a potential U.S. senator. Bailing out the Giannoulias family could be a transparent (and note, as I said a few posts ago, what a rage the use of the term “transparent” has been of late, though in an entirely different context) way of channeling money to a U.S. senator, a practice that, at least in its most blatant forms, has been illegal forever. Don’t think for a moment that legions of potential investors, including real estate speculators, local power brokers, national power brokers, and major financial institutions, who, despite pious protestations of fealty to the free market system always seem to manage to elbow their way to the front when the line at the federal trough is forming, aren’t thinking about the “extras” that may come with a bailout of Broadway.

How could raising money for Broadway, on the other hand, be nearly impossible? For the same reason. Any investor in Broadway would come under intense scrutiny by the media and those few citizens who remain concerned. So a Senator Giannoulias, no profile in courage (or he wouldn’t be in politics) might be especially vigilant in avoiding charges of conflict of interest and thus may go out of his way to avoid doing anything that might be remotely construed as helping anyone who saved his and his family’s livelihoods by bailing out his bank. A savior of Broadway might therefore shut himself off from the federal trough, clearly something the modern legions of “capitalists” would not want to do.

Which of the above scenarios is more likely? I’m betting on the first. People have short memories and Mr. Giannoulias has a very high opinion of himself, even for a politician. If there is a possibility that Giannoulias can get away with trading influence for a bailout of his family business, he would probably do so. And potential saviors of Broadway, given any kind of knowledge of how things work in Chicago and its environs (a knowledge that doubtless would be enhanced by reading my book, The Chairman, A Novel of Big City Politics) probably harbor the same suspicions.