What agency is systematically destroying American jobs? The mantra this election season is jobs, jobs, jobs, as both parties claim that putting people back to work is their top priority. But what if I told you that in the midst of the worst downturn since the Great Depression, one federal agency is throwing people out of work -- and that neither the Democrats nor the Republicans are lifting a finger to prevent it?
Forget "shovel-ready projects," the Federal Deposit Insurance Corporation under Chairwoman Sheila Bair is literally taking the working shovels out of the hands of hard-working Americans as it hijacks -- and then mothballs -- construction projects across the country. This is what "recovery" looks like in too many American towns: half-built projects rotting behind chain-link fences as desperate workers sit idle and politicians search for new shovels to fill with pork.
One of those projects is mine. For more than a year, a boutique hotel in my hometown of Charlottesville, VA has sat rusting within sight of Thomas Jefferson's Monticello. Other projects in places such as Los Angeles, Albuquerque and Milwaukee have met similar fates as Bair's FDIC refuses even to answer the phone calls of entrepreneurs who had the grave misfortune of being financed by banks that failed and were subsequently taken over by the FDIC.
Turns out, those bank failures were just the beginning of the cataclysm, as I and others learned. Many lost their life savings because of the FDIC's ineptitude and proclivity for cutting sweetheart deals with vultures like Barry Sternlicht's Starwood Capital -- a guy who notoriously told The York Times that his company is positioned to be "like the Saudis" in some real estate markets. Others, like me, have spent millions of dollars just to force the FDIC to the table in an effort to get our projects finished.
Meantime, Chandrakant Patel, 67, has been ruined. In the 1970s, he fled the anti-business repressive regime of Idi Amin in Uganda and built a thriving business in the United States. He has spent the past several months working as a security guard on the site of the Albuquerque hotel project he started and invested his life savings to build. The project was so close to completion that shipping containers had already arrived with the fixtures and furnishings. But then his bank failed. The federal government then failed Mr. Patel.
Earlier this month, the FDIC foreclosed after months of foot-dragging, misinformation and running Mr. Patel out of money.
Instead of putting ordinary Americans back to work, the FDIC is presiding over one of the greatest wealth transfers in American history. Many of the same unaccountable banks and financiers who wrecked the global economy out of sheer personal greed are now scooping up projects for pennies on the dollar -- with the help and blessing of the FDIC.
One in seven American now live in poverty, but the super-rich are fast becoming the mega-rich and the mythical American path to prosperity is being blocked, compliments of an agency whose original mission of safeguarding the deposits of ordinary citizens has mutated into protecting the banks at all costs. The FDIC claims it's all for the greater good, but as Bloomberg's Jonathan Weil recently noted: "The banks were saved by the American people. Now who will save the people from the banks?"
To understand how fiercely the FDIC protects the interests of banks over ordinary citizens, consider that it took me over a year and around $500K dollars in lawyer bills to just get the names of the eight syndicate banks that held the loan on my project after my original lender, Specialty Finance Group, collapsed in the largest bank failure in Georgia history. That's right: the FDIC didn't believe I had a right to know the names of the banks that stopped funding my project.
It's all part of an accounting scam. While the banks later claimed I defaulted, they never foreclosed on the project, which should have been the natural and expected course of action.
As a result of fancy accounting, eight banks show my loan as good on their books. But as the people of Charlottesville know all too well, the hotel is just a half-finished skeleton of concrete and steel looming over downtown. If you think Enron was bad, get this: these banks also show interest payments from me as revenue and profits! I assure you, I have not paid these banks one single red cent of interest since they stopped funding. But they continue booking this imaginary interest income and phantom profits and report it to shareholders and customers alike. Mission accomplished: hundreds of jobs destroyed and accounting fictions created, all in one tight package.If I was a customer of or investor in these banks, I'd want to know what I just told you, particularly since the "value" my loan makes up a significant portion of some of these bank's so-called "assets." According to iBanknet.com, the eight syndicate banks have an average of $33 million in equity; my original loan was supposed to be for more than $23 million. (Remember, bank customers, you are own on deposits over $250,000 when it comes to deposit insurance.) The banks, complete with the person in charge, are:
- River Community Bank in Martinsville, VA; Ronald Haley, President
- Pioneer Bank in Stanley, VA; Thomas Rosazza, President & CEO
- Old Dominion National Bank in North Garden, VA; Charles Darnell, President & CEO
- HomeTown Bank in Roanoke, VA; Susan K. Still, President & CEO
- Harrison County Bank in Lost Creek, WV; David Griffith, President
- Guaranty Bank & Trust Co. in Huntington, WV; Marc Sprouse, President
- First United Bank & Trust in Oakland, MD; William B. Grant, Chairman of the Board, President & CEO
- SuffolkFirst Bank in Suffolk, VA; T. Gaylon Layfield III, President & CEO
Chandrakant Patel tried for eight months just to get through to the right person at the FDIC after it took over his lender - coincidentally also part of Silverton Bank, which was being run for the FDIC by a former Ameriquest Mortgage executive named Claire Cotter. Ameriquest, you may recall, was fined $298 million for illegal lending practices before it went belly up. (I was able to get through to Claire Cotter in less than eight months, but she repeatedly hung up on me. Then the FDIC sought an injunction to prevent me from calling Cotter and other public officials at their government offices.)
Mr. Patel and his family were told by Claire Cotter that the agency would help them renegotiate the loan and then backpedaled. The FDIC told Patel one of the syndicate banks holding his note refused to renegotiate the terms so Patel could finish the final 15% of his project. When Patel asked to see the paperwork, he was denied.
The only alternative the FDIC offered Mr. Patel was to find someone else to buy his loan out. Keep in mind that this was during the height of the credit crisis. At a time when government officials from President Obama on down were telling the country that taxpayers were injecting money into the banks to enable lending, the government agency overseeing a big piece of that process was basically telling the Patels they were on their own.
More than 75 people lost their jobs when Mr. Patel's project stopped -- not counting the ongoing jobs the hotel would have created. Now he is facing foreclosure and bankruptcy.
In Los Angeles, developer Sonny Astani was well on his way to completing the first phase of his Concerto high-rise project, planned to include 629 residential units in twin 30-story towers. Then in the fall of 2009, his lender, Corus Bank, failed and was seized by the FDIC, which subsequently sold his loan and 100 others to a consortium of hedge funds led by Starwood Capital. Buoyed by the FDIC's sweetheart deal of 0% financing, Starwood began squeezing Astani out by turning off the spigot of construction funds needed to complete Concerto, costing hundreds of jobs and millions in tax revenue. Astani is now fighting desperately to keep Starwood from seizing his property and making it part of a portfolio of 50 other high-end properties wrested from other developers.
As for me, I had to put my hotel company into Chapter 11 bankruptcy to defend against what would have been a ridiculously expensive legal fight on multiple fronts. The FDIC wants to fight me in multiple venues in multiple states over the same set of facts; I'm trying to consolidate them in one venue. It's another absurdity in a case that has collectively cost me and taxpayers like you more than $12 million. For the record, my loan balance was only $10.3 million when the bank stopped funding and threw 100 people out work. Do the math.
There are likely thousands or even tens of thousands of stories like these all across the country, but the FDIC doesn't want people to hear them or to know what's being done with taxpayer money in the name of economic recovery. But if no one speaks up, the FDIC will continue to take what entrepreneurs like Mr. Patel, Mr. Astani and myself built and hand it off to for pennies on the dollar to international bankers.
Tomorrow, I am scheduled to begin a mediation hearing with the FDIC. My sole original goal was to end Charlottesville's nightmare and finish my project. But as I have learned the plight of Mr. Patel and many others, I now know that something more must be done to help entrepreneurial small business people protect themselves from rapacious banks seizing wealth and then killing jobs. We have given hundreds of billions of dollars to banks that don't lend.
Banks don't create jobs, the small businesses and entrepreneurs of America do. Yet banks won't even loan money that they are given expressly for that purpose. They just pay bonuses to themselves for taking no risks. Hard working entrepreneurs and small business people like Mr. Patel created the engine of American commerce and power our world-renowned willingness to invest and take risks. Somehow Washington has been seduced by the banks into thinking it is they who are the key to job growth. How can politicians confuse those who got us into this mess with those who will lead us out?
Don't get me wrong: banks play a function in economic growth, but only if they lend. In that way, a bank is like gasoline. Entrepreneurs are the engines that power our economy, but they need the gasoline of credit. When banks think they can exist on their own without the engine of small business, they are -- like gasoline -- nothing more than a highly combustible substance. We saw that when the banking "industry" threw a match on the global economy it now controls.
Entrepreneurs like me, Mr. Astani, Mr. Patel and many others are still waiting for the flames to die, but the FDIC seems intent on stoking the fire as long as it can.
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