Workers Emergency Recovery Campaign

A.F.L.-C.I.O. to Support Nationalizing Banks

March 4, 2009, 6:58 am

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 New York Times’s Steven Greenhouse reported.

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 high risk 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 high risk acquiring 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.”

Tags: labor unions, Nationalization, Obama