AFL-CIO Plans To Espouse Nationalizing Banks

Oh boy, do I hate writing this post.

The AFL-CIO Executive Council is supposed to announce tomorrow its support for nationalizing problem banks. The NYT has this report:

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.

So, if you’ve been pushing for this outcome you have a new bedfellow. Never has the old saying, “Be careful what you wish for” been more apropos. You have a powerful ally but be very careful of their long-term goals.

The union asserts that it views the move as a necessary short-term strategy, not a permanent solution. 

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.

And here is why I hate writing this. John J. Sweeney, the President of the union, is an avowed socialist. He makes no bones about it and it would be irrational to assume that his lieutenants harbor much different philosophies.

I know, I sound like some 1950’s McCarthyite. But facts are facts. Mr. Sweeney, whom I actually think quite highly of, espouses a philosophy that contends that state control of key sectors of an economy is a beneficial outcome. To take the statement that the union views nationalization as a temporary solution at face value is to believe water flows uphill.

At least the battle is being joined quickly.

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