[Pen-l] AFL-CIO supports nationalization of banks (NYT)

[Ann Davis <davisa@xxxxxxxxxx>]

New York Times
March 4, 2009
A.F.L.-C.I.O. to Support Nationalizing Banks 
By

STEVEN GREENHOUSE
MIAMI BEACH ­ The

A.F.L.-C.I.O.?s executive council will call on the Obama
administration on Wednesday to speed the

nationalization of problem banks to stimulate lending and lift the
sagging economy.
The labor federation, a lobbying powerhouse that represents 10 million
workers, will thus become one of the first groups ­ and certainly the
most powerful ­ to call for moving more aggressively on nationalization,
both to counter Republican and business cries against it and to press the
Obama administration not to vacillate over such a move.
A.F.L.-C.I.O. officials asserted that the administration?s practice of
giving billions of dollars in dribs and drabs to distressed banks had
failed to restore their solvency, leaving them as zombie banks that
largely refrain from lending, thereby contributing to the economy?s
decline.
The executive council is scheduled to approve a statement that criticizes
the Obama administration for indulging shareholders of distressed banks
by not nationalizing the banks to speed the cleanup of their balance
sheets.
?We believe the debate over nationalization is delaying the inevitable
bank restructuring, which is something our economy cannot afford,? a
draft of the council?s statement said.
The labor leaders also asserted that the Obama administration, like the
Bush administration, had failed to obtain fair value for the tens of
billions it had invested in distressed banks.
?By feeding the banks public money in fits and starts, and asking little
or nothing in the way of sacrifice, we are going down the path Japan took
in the 1990s ­ a path that leads to ?zombie banks? and long-term economic
stagnation,? the draft statement said.
The statement makes clear that the group wants to add its political and
lobbying muscle to calls by

Joseph E. Stiglitz, Nouriel Roubini and other economists in favor of
nationalization. 
Labor leaders said the administration appeared to be vacillating on
nationalization partly out of fear of Republican attacks that it was
adopting socialist policies.
Banking executives have spoken out against nationalization, saying it
would hurt shareholders and insisting they can nurse their banks back to
health.
Some Obama officials voice fears that it will be hard to manage
nationalized banks and that nationalization could drive down the shares
of other financial institutions by generating fears that additional banks
will be taken over.
A.F.L.-C.I.O. leaders said they did not favor long-term nationalization
of banks, but rather temporary trusteeships in which the government would
take a controlling stake in a bank, clean up its balance sheet, then spin
it off. 
?The result should be banks that can either be turned over to bondholders
in exchange for bondholder concessions or sold back into the public
markets,? the executive council?s draft said.
James A. Baker, the

Treasury secretary under President

Ronald Reagan, wrote in The Financial Times on Tuesday that temporary
nationalization might be necessary to inject public funds into problem
banks.
?I abhor the idea of government ownership ­ either partial or full ­ even
if only temporary,? he wrote. ?Unfortunately, we may have no choice. But
we must be very careful. The government should hold equity no longer than
necessary to restructure the banks, resume normal lending and recoup at
least a portion of taxpayer investment.?
The labor leaders said that 43 percent of the nation?s bank assets were
held by four institutions ­

Citigroup,

Bank of America,

Wells Fargo and

JPMorgan Chase. One A.F.L.-C.I.O. financial expert said Citigroup and
Bank of America were insolvent and candidates for quick
nationalization.
?When these institutions are paralyzed, our whole economy suffers,? the
labor statement said, adding, ?However, government interventions must be
structured to protect the public interest, and not merely rescue
executives or wealthy investors.?
 


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