The indictment of Gov. Rod Blagojevich wasn't the only thing happening in Illinois last week. Bank of America was the victim of a concerted shake-down operation that could be replicated around the country. Banks apparently now are expected to give money away to failed borrowers. This could become federal policy when Barack Obama, who supported this new example of Chicago blackmail, becomes president.
One of the casualties of the faltering housing market is Chicago's Republic Windows and Doors. Bank of America cut off the company's line of credit in response to falling demand. "If the bank saw some light at the end of the tunnel, maybe the bank would have extended a line of credit," admitted Amy Zimmerman, Republic's vice president of sales and marketing. "Banks are in the business to make money and at some point they have to make a business decision and that's what this is," Zimmerman added.
In the first week of December Republic laid off its workers and closed its doors. Under state law the company was supposed to give two months notice, with continued pay and benefits. So the employees launched a sit-in: "We're going to stay here until we win justice," said one.
Getting laid-off a couple weeks before Christmas isn't any fun -- I know that from personal experience. But no one was obviously to blame for Republic's failure: the company simply disappeared into the vortex of a collapsing housing market. Unfortunately, these days Republic employees aren't alone in their economic distress.
But there was a handy scapegoat: Bank of America. Since the institution collected $15 billion (with perhaps $10 billion more to come) from the taxpayers, Republic's employees argued that BoA had an obligation to bail out Republic. "Taxpayers would like to see that bailout money go toward saving jobs, not saving C.E.O.'s," said Leah Fried, an organizer with the United Electrical, Radio and Machine Workers of America (UE), which represented the Republic workers. "Frankly, it's shameful that a bank that got $25 billion in bailout money turns around and shuts down a factory by cutting off their credit." Picketers targeted BoA's Chicago offices, chanting, "You got bailed out, we got sold out!"
The sit-in provided an irresistible photo-op, drawing the usual suspects, rather like a light attracts moths. Gov. "Appointments for Sale" Blagojevich showed up before his indictment, as did both the "Rev." Jesse Jackson and Rep. Jesse Jackson, Jr., "Senate Candidate No. 5" in the Blagojevich case. Rep. Luis Gutierrez, another Senate contender, also visited, and demanded that the U.S. Departments of Justice and Labor investigate. Another senator-wannabe, Rep. Jan Schakowsky, made an appearance, while State Attorney General Lisa Madigan, yet another would-be senator, announced that she was opening an investigation of Republic's labor practices. President-elect Obama said of the workers, "I think they're absolutely right," adding that "these companies need to follow through on those commitments."
Fifteen Chicago aldermen proposed an ordinance cutting off business with the bank and limiting any zoning changes for its properties. Alderman Joe Moore contended that "It is outrageous for Bank of America to cut off credit, a company's lifeblood," after being bailed out. Moreover, Gov. Blagojevich announced that the state would withhold its business from the bank: "We hope that this kind of leverage and pressure will encourage Bank of America to do the right thing for this business." Cook County Commissioner Michael Quigley promised to introduce similar legislation.
The fact that Republic was going under didn't matter to advocates of this new form of financial slavery -- once a lender, always a lender. Thomas Balanoff, president of the Service Employees International Union Illinois Council, argued that the bank was "thumbing its nose at Congress by taking federal recovery funds while refusing to extend credit to a small manufacturing company with a long history of profitability." (A long history just like, oh, AIG, Lehman Brothers, and Bear Stearns!) UE's president, Carl Rosen, said, "There is always a demand for windows and doors. But with Barack Obama's stimulus proposal, there will be even greater demand for the products made by Republic's workers. It doesn't make sense to close this plant when the need is so obvious." (So obvious that lenders who would make money in such a case don't see it.)
Balanoff went even further. BoA's action "contradicts and undercuts President-elect Barack Obama's plan to stimulate the depressed economy by investing in weatherization of existing homes and buildings and in other infrastructure and energy-saving construction." (Then why doesn't the President-elect, or the Treasury at his direction, write Republic a check?)
Naturally, journalists and cameramen flocked to the scene, helping to turn the bank into the symbol of corporate wrong-doing. Washington Times columnist Adrienne Washington wrote that " a small band of factory workers refused to be disrespected and dismissed without due compensation." Balanoff claimed that "what's happening there at Republic is a much bigger story than just these workers getting what they deserve.…Are we gonna give billions of dollars to the bankers who put us in this mess already? Or are we gonna use that money to have a recovery that lifts up working families?"
ALL IN ALL, it was quite a show. Not only was Bank of America supposedly victimizing helpless workers, but it was sabotaging the president-elect's yet-to-be announced recovery program. Not bad for a day's work. But how did Bank of America's become responsible for Republic's failure?
Republic's faltering sales caused the bank to cut the line of credit. The latter had no control over the company's decisions to lay off the workers, close the plant, and fail to pay promised benefits. Loans are just that -- loans, which are supposed to be paid back. BoA can't remain in business very long if it gives away cash with no expectation of repayment. After all, the fact that so many banks made so many loans that have gone bad is one reason the financial system is in so much trouble. As for the bank bailout: stupid policy it might have been, but it was no gift. The government received stock in return. If Bank of America just gives away its new billions, it, and the financial system, will end up in worse financial shape than before.
But the facts didn't matter. The only question was how long it would take BoA to give in. And surrender the bank did, agreeing to provide Republic with a $1.35 million from the Bank of America in the form of a "loan" that will never be repaid. "Yes we did!", chanted the workers as they left the plant.
BoA presumably believes that it has bought off the shake-down artists. What, however, of Bank of America's shareholders and workers? Shortly after announcing its pay-off to Republic, the bank announced plans to cut 35,000 jobs over the next three years, roughly a tenth of its entire workforce. Who is going to help them?
Even worse, the Republic case may trigger a new and dangerous campaign of financial extortion across the U.S. The Community Reinvestment Act pushed banks to make more bad home mortgages in poor neighborhoods for political purposes. With all of the major banks and many smaller ones receiving -- in many cases over their protests -- federal funds, political hacks and union activists now have a tool to demand that financial institutions give away money to failing companies around the nation. Nor can more federal bailouts be far behind. AFL-CIO President John Sweeney lauded the workers, saying that "Our nation cannot afford to bail out banks and investment firms while leaving workers behind," including not just those at Republic but, he added, also the auto industry.
The were many good arguments against turning the Treasury and Federal Reserve into one vast corporate soup kitchen. Indeed, it has become sadly apparent that the administration had no idea what it was doing in tossing hundreds of billions of dollars hither and yon. But the Republic case demonstrates yet another danger: inviting the government to direct where banks should lend. If the federal bailout requires Bank of America to "lend" money to an insolvent company ready to close its doors, then we are descending to banana republic status. The economic ride is likely to become much bumpier.
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