BofA to Offer Loans to Illinois Factory

Bank of America  Corp. said it will provide a “limited amount” of additional loans to an Illinois door-and-window factory, just a day after sit-in protests escalated into an intense labor-relations fight that threatened to have financial ramifications for the banking giant.

Last week, the factory notified its nearly 300 employees, of which about 80% are unionized, that it would close by Friday because Bank of America had told the company it would be cutting off all financing.

President-elect Barack Obama offered support for the employees, saying at a news conference that they are “absolutely right.”

A factory in Chicago declares bankruptcy and the employees stage a sit in for back wages that were allegedly unpaid.  The company was forced to close after Bank of America refused to extend further credit to a bankrupt enterprise.   State and local politicians roundly condemn Bank of America and the president elect states that the workers were “absolutely correct”.

Result – Bank of America extends more credit to a bankrupt enterprise.

It’s bad enough that the politicians are using taxpayer money to bailout enterprises that perhaps do not deserve anything better than bankruptcy court.  Is this the new simpler method of bailout mania – forcing the insolvent banking system to further fund bankrupt companies?  Does this remind anyone of central government planning, the same methods that the former USSR employed?

The precedent set here will only lead to further destruction of capital.  If the politicians want to become lenders, let them start their own banks with their own capital; they can be certain that they will have many customers and many write downs.

Bank of American should have resisted the political pressure and maintained what little they have left of underwriting standards.

Questions:

How do you say no to the next 1,000 companies that close their doors?

Was this factory the “victim” of a poor economy and Bank of America, or where they just another poorly managed, overleveraged enterprise?

Could the money lent to this bankrupt company have been better employed elsewhere?

Will the government’s vastly increased control over the banking industry (due to bailout funds and equity ownership) result in capital allocation being based on political pressure rather than sound business judgment?