Monday, December 8, 2008

Does Bank of America owe the Chicago sit-in workers any money?

As far as I can tell, Bank of America does not have any obligation to extend lending to a failed Chicago firm whose ex-workers are demanding severance and vacation pay -- from the bank. Sure, BofA has gotten bailout money from the government which it is expected to lend, but the theory is that lending is supposed to be to creditworthy borrowers. There was never any intention that the bank bailout investments were to be used for charity handouts.

That said, the workers' situation is a classic political "third rail." No Democratic politician is going to stand up and play the role of Mr. Scrooge three weeks before Christmas. Even a lot of Republicans, who personally think such an obligation on BofA is preposterous and outrageous, are going to keep their mouths shut.

Given that the amount at stake may be peanuts compared to the degree of blackmail that the State of Illinois is proposing to exercise against BofA, it might in fact be best for BofA to simply go ahead and make the "loan" to the dead business and simply write it off as the cost of doing business, Chicago style. The real downside of doing so is that it would create a truly horrendous precedent. There may not be a better option.

Another alternative would be to simply return the $15 billion bailout investment to the government and then watch Congress squirm and try to figure out how to bailout the workers even as they struggle how to bailout Detroit.

Obama seems to be on the workers' side, but I suspect that he also sees the situation as a classic "third rail" to be avoided and is essentially sitting on the fence and letting BofA take the heat, for now. He obviously knows how to play politics, Chicago style.

Shame on him. And double shame for failing to realize that this is a great opportunity to introduce a new government social safety net program to provide cash grants to ex-workers whose jobs have been permanently eliminated at a time when re-employment is extremely difficult. Workers in such a situation should be able to apply to have the government pay their mortgage or rent for at least six months to a year or even two, in addition to normal, temporary unemployment insurance payments. That would cushion the impact of abrupt company shutdowns such as this case. The government should also have the right to go to the head of the line as a creditor of the failed company to recoup any payments from the proceeds of any liquidation of the company.

-- Jack Krupansky

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