Yesterday, President Obama was asked whether the government should be pressuring banks to make loans to businesses with bad prospects, in order to ensure that workers get contractually-guaranteed severance pay and/or avoid layoffs. Referring to the battle in Obama’s hometown over a Republica Windows and Doors plant, the specific question was, “Is there anything that can be done to put pressure on the bailed-out banks to keep the money flowing there?”
Obama’s answer was typically clear:
PRESIDENT-ELECT OBAMA: When it comes to the situation here in Chicago with the workers who are asking for the benefits and payments that they have earned, I think they’re absolutely right. And understand that what’s happening to them is reflective of what’s happening across this economy. When you have a financial system that is shaky, credit contracts; businesses large and small start cutting back on their plants, and equipment and their workforces. And so that’s why it’s so important for us to maintain a strong financial system.
But, it’s also important for us to make sure that the plans and programs that we design aren’t just targeted at maintaining the solvency of banks, that they’re designed also to get money out the door and to help people on Main Street. So, number one, I think that these workers, if they have earned these benefits and their pay, then these companies need to follow through on those commitments. And, number two, I think it is important for us to make sure that, moving forward, any economic plan that we put in place helps businesses to meet payroll so that we’re not seeing these kinds of circumstances again.
And one of the things I’ve asked my economic team to review is: Have we done everything that we can to make sure that credit is flowing to businesses, and to families, and to students who are trying to get loans, and homeowners who have been making their payments on their homes but are still finding their properties’ values so depressed that it becomes very difficult for them to make their mortgage payments? That’s where the rubber hits the road and that’s going to be the central focus of my administration. Okay.
To recap, Republic Windows and Doors, a Chicago-based manufacturer of… windows and doors is experiencing a “severe downturn.” According to company officials, “If the bank saw some type of light at the end of the tunnel, maybe the bank would have extended a line of credit to Republic.”
Carl Rosen, president of the union that represents the fired workers, contends that there is some sort of secret, invisible demand out there that the bank doesn’t see, and that indeed, the policies of the incoming administration will spur Americans to go out and… buy new windows and doors.
“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 workers. It doesn’t make sense to close this plan when the need is so obvious,” Rosen said.
Today Obama’s ally, Illinois Governor Rod Blagojevich, ordered all state agencies to stop doing business with Bank of America to pressure the company to make the loans. (Say, do any state employees have Bank of America accounts or lines of credit?)
Suppose that Bank of America knuckles under to the threat, and makes a loan to cover the severance pay. The workers get that pay and… Republic Windows and Doors’ plant is still out of business. The workers got what they were owed, but how is Bank of America going to get its loan paid back? The workers ought to get what their contract guarantees, but that’s the responsibility of Republic Windows, not Bank of America.
Now, we got into this mess when banks started making loans that defaulted. Bank of America finds the economic prospects for Republic Windows and Doors dire. Blagojevich and the protesting workers are arguing that because they took government assistance, Bank of America ought to ignore their judgment of the company’s prospects and make the loan, even though the company is likely to default on that loan… putting Bank of America back into the situation that started the mess and creating the reason they needed the government help in the first place.
The union rep on CNN says, “you have a choice, Bank of America, you can either go in and liquidate, sell off the equipment inside, or you can do the right thing.” The “right thing,” apparently, is to gamble with the taxpayer’s bailout money on a company with lousy prospects.
She says “the workers are not going to go quietly.” Great. Thuggery and threats.