Dec 09 2008
Republic vs. Bank of America
You have to feel for the both the workers of Republic Window and Doors and Bank of America. Imagine having worked a long time in a factory, then losing your job, your benefits, and perhaps even the pay you have due. No doubt, it stinks.
Now imagine being Bank of America. It examines Republic, an operation that is making a good product, but is in an industry that is suffering from a major downturn. The executives can’t manage the finances enough to close the plant after the workers get paid. This business comes to you, hat in hand, looking for money. For whatever reason, they can not pay their employees.
This is not a good credit risk. Why would anyone loan money to a business that looks as though it is going to go bankrupt? This should have been the end of the story. Instead, the governor of Illinois declares that no one related to the governmental operations should do any more business with Bank of America. Oh, and if that’s not bad enough, the workers, who are striking outside the plant, are visited by Jesse Jackson. Now the media is flocking to this like it’s a revival of the civil rights movement. The upper management of Republic blames Bank of America for failing to give them a line of credit. That’s good. If you have to get everyone out of your face, blame the bank.
Logical or not, everyone seems to be blaming the bank for not lending. However, the American Taxpayer seems to want the world to work both logically and illogically. They feel the bank should give the loan. They want banks to not make bad loans and get themselves into a situation where they need to be bailed out. It’s hard to imagine a more difficult position for a bank. They are in trouble if they loan, in trouble if they don’t.
The business owners are also caught in a bad spot. They are probably used to a credit line during slow periods, so it makes sense to not close the doors earlier. Most likely no one wanted to have layoffs before the holidays, either. Since it is a corporation, the owner, or owners can not step in with private money and shore up the business for both insurance, legal, and tax reasons. And you can bet that the upper management is not sleeping well these days.
But Bank of America is the one that is in the toughest spot now. Expected to give a loan that will probably never get paid back, this company will surely hear of how they should not loan to high risk borrowers. What a terrible position to be in.
Hi Beth,
Great blog. I’d be a lot more sympathetic of the bank’s position if they had actually used the 700 billion from the government to make loans to businesses that they’d been doing business with for many years. We give Chase 50 Billion and they won’t make the loan to the auto makers for 25 billion; they just kept it to shore up their own lousy decisions and investments. Didn’t they promise that this (first) bailout would fix the credit and loan problems? Maybe their own, but not the rest of the businesses’. So now Obama want’s to give 7 trillion (yes, 10 times the amount of the first failed bailout) to those yahoos and claims this is a bailout for main street. No, main street is paying for it and the poor decision making fat cats will take it, sit on it, and only loan what they feel like. In other words, if we make them rich enough in spite of their poor recent performance and decision making, they may condescend to help out those folks who made them irresponsibly rich in the first place.
I wonder which government official will give the Bill Cosby shrug and say “There’s nothing we can do about it; see, we tried.” I don’t feel comfortable trying to repair a 200 story building (our economy) built on a mountain of sand (our debt) by plowing more sand underneath it. Am I the only one feeling it swaying as the non-existent foundation slips a little further?
David
I agree with you about that foundation of debt. But I’ll bet BA will make loans if they consider the risk to be good. We probably don’t hear about the good loans they make. Did you know 3/4 of all Americans do business with BA in some way? (cited in an interview on 60 minutes) Thanks for giving your opinion. Nice to hear from you again!