September 29, 2008
How allies of George Soros helped bring down Wachovia BankBy Ed Lasky
Wachovia Bank, a major institution, has seen its stock plummet and its continued viability called into question, as the nation's financial crisis muddles forward. [Update: shortly after publication of this article, Citigroup agreed to purchase Wachovia's banking operations in a deal facilitated by the FDIC.]
Largely ignored in this crisis is the key role played by Herbert and Marion Sandler, founders of Golden West Financial (GDW), one of the largest savings and loans in the nation. Wachovia purchased GDW for $24 billion dollars in 2006. This was one of the worst merger and acquisition deals of all time for the buyer, and remarkably excellent timing on the part of the seller. In essence, Wachovia bought a financial time bomb ticking away, one that exploded this year, bringing down yet another former financial titan and further wrecking Wall Street. [Update: see this commentary from Bllomberg on the role of GDW in the fall of Wachovia.]
How did this transpire and who are the Sandlers?
Herbert and Marion Sandler, a New York lawyer and Wall Street analyst respectively, bought a small California thrift in 1963 and built it into GDW -- one of the largest thrifts in the nation. The company's business was built on adjustable rate mortgages (ARMs. These were mortgages offered at low "teaser" rates that ratcheted upward as interest rates increased. They were often sold aggressively to unsophisticated home buyers who did not comprehend the vast financial risks they were taking, or who assumed that housing prices would rise high enough to provide a profit to them when they sold their houses. They were targets for lenders peddling mortgages that should have been stamped with a skull and crossbones, for these were among the most seductive and dangerous types of mortgage.
This book of business is the core reason for Wachovia's current difficulties
The Sandlers knew their business far better than any other person could. Not only were they the founders and major owners, they famously ran the company as a husband and wife team for all these years.
So why did they happen to cash out at precisely the right time? Did they see the handwriting on the wall, realizing the massive risks inherent in the mortgages they originated throughout one of the most overheated real estate markets in the nation's history? They are not talking, but when smart people cash in some of their chips, it's rarely a good time to bet against them. Nevertheless, Wachovia bet 24 billion dollars and lost big time.
The collapse was primarily caused by the GDW purchase, which became an albatross around Wachovia's neck soon after the purchase. "Wachovia found itself in ARM's Way" was the headline of a recent Wall Street Journal article. A huge percentage of these Wachovia ARMs were made to deep subprime borrowers with very poor credit scores. Most of these were "inherited from its ill-timed acquisition of Golden West" at the end of the housing boom in 2006.
The Sandlers have started to invest their billions of dollars politically, in the manner of George Soros, sugar daddy of many far-left wing groups and an early and prominent supporter of Presidential candidate Barack Obama. Soros has developed an empire of so-called 527 groups, putatively independent political activists groups that have influence within the Democratic Party. These 527 groups include the Center for American Progress, MoveOn.Org, Human Rights Watch, Media Matters and a slew of other like-minded groups .
This set of political organizations also includes the International Crisis Group, whose foreign policy staff is likely to contain the embryonic future of the State Department in an Obama Administration . Eli Pariser, who heads MoveOn.Org, boasts about his group's role in the Democratic Party:
They have already done so, in large measure.
The top four donors to these 527 groups in the last Presidential election cycle (2004) were Soros, Peter Lewis of Progressive Insurance, Steven Bing, and Herbert and Marion Sandler . Collectively they gave 78 million dollars to left-leaning 527 groups. That was just in 2004. They have become much more ambitious over the last few years.
Soros, Lewis, and the Sandlers form a core group of billionaire activists and Democrat partisans who have formed a group called The Democracy Alliance. They realized that they could magnify their power by working in unison and tapping other wealthy donors to further their agenda (the superb Boston Globe article "Follow the money" is a good primer on how money and 527 groups have come together to have a huge impact on politics in America).
The Democracy Alliance is a major avenue to help them achieve their goals. The roster of its growing membership consists of a list of billionaires and mere multi-millionaires who collectively hope to give upwards of 500 million dollars each year to further promote a left-wing agenda. A partial roster of the Democracy Alliance membership can be found here.
Half a billion dollars a year can purchase a great deal of influence.
The Sandlers certainly know quite a bit about leverage from their savings and loan days.
Among the beneficiaries of their largesse: Air America, ACORN (a group that has very close and long lasting ties to Barack Obama and has a long history of engaging in voter fraud. Citizens for Responsibility and Ethics in Washington (basically a private detective group focused on the private faults and foibles of Republicans), Media Matters, a media watchdog group that engages in harsh partisan attacks against media figures and articles it considers supportive of Republicans). The list goes on and on.
They are not merely out to elect Democrats, but to also permanently realign U.S. politics and shift our society and culture in a far-left wing direction.
One of the steps the Sandlers have taken on their own is to start ProPublica with a 10 million dollar donation, a sum which they promise to replenish annually. This is an outfit that will engage in investigative journalism and will provide its "findings" to larger media outlets for greater impact at no cost. American Thinker was among the first outlets to express wariness over ProPublica and the approach it would take given the ideology of its founding couple. Even Jane Mayer of the New Yorker described the Sandlers as hard-core partisans. Other publications shared our concern about ProPublica. Investor's Business Daily commented in an editorial:
I would be very surprised indeed if the malfeasance of ACORN will ever be investigated by Publica, for its undermining of fair elections.
Unsurprisingly, though, ProPublica has already shown that agenda-driven journalism is its founding principle. One of its first pieces of "investigative journalism" was an attack on the oil and gas industry for developing the Marcellus Shale (a vast natural gas reservoir located in northeast America). ProPublica reported that developing this domestic energy source would damage the environment and advocated that these resources not be developed.
Maybe the Sandlers are helping their political ally George Soros, a hedge fund manager who runs an offshore fund whose investors may well include some of the world's wealthiest and most anti-American petrocats. Shielded from scrutiny by offshore operations, the names of Soros's investors are a closely-guarded secret. But perhaps more than a few of them would look askance at expedited development of our own energy resources. We would be less dependent on petrodollar rich abroad, and the price of oil and gas would weaken, should domestic energy resources like the Marcellus Shale be developed.
While the Sandlers personally made 2.4 billion dollars on the 24 billion dollar sale of Golden West Financial to Wachovia, the employees (including their own former employees) and shareholders of Wachovia, including those who have invested their retirement money and children's college funds in Wachovia stock and bonds, are not doing nearly so well. Communities where Wachovia has branches that may be closed as a cost-saving measure will also suffer. But worst hurt of all will be the homeowners who were sold mortgages that they should have never been offered, by a lender far more sophisticated than they were.
And here I thought that Democrat partisans were supposed to protect the little people.
So far as I know, the Sandlers have not offered to reinvest any of their gains into Wachovia to help it recover. It appears to be far more fun taking those ill-begotten billions and use them to fund an ever-expanding "left-wing conspiracy."
Keep an eye on the Sandlers if Barack Obama becomes President. As I wrote, they know about leverage.
Ed Lasky is news editor of American Thinker.