Direct U.S. Stake in Banks Has Many Precedents

Article excerpt

Byline: Associated Press

WASHINGTON For all the thorny free-market issues raised, the big U.S. intervention in banks does have precedents from wholesale wartime takeovers of entire industries to the seizing of hundreds of failed savings and loans in the 1980s. Most nationalizations have been temporary, but some endure, like Amtrak.

The government has taken stakes in banks, railways, steel mills, coal mines and foreclosed homes.

During World War I, the government nationalized railroads, telegraph lines and the Smith & Wesson Company. During World War II, it seized railroads, coal mines, Midwest trucking operators and many other companies and even, briefly, retailer Montgomery Ward.

Not all takeover efforts go through. President Truman tried to nationalize the steel industry in 1952 to avert a strike he claimed would hurt Korean War efforts. But the Supreme Court stopped him, saying he failed to cite any legislative authority.

Others can last and last. One major friendly takeover remains today: the government-owned National Railroad Passenger Corporation, doing business as Amtrak since May 1971.

In 1984, Washington seized the failing Continental Illinois Bank and Trust. It continued to exist, with some 80 percent of its shares owned by the federal government, until 1994, when it was acquired by what is now Bank of America among the first banks in which the Bush administration will take an ownership stake.

The Resolution Trust Corp. took over more than a thousand failed savings and loan institutions in the late 1980s and early 1990s, including an array of bad loans and foreclosed homes. It took six years and $125 billion in tax dollars to clean up that mess. …