Government boycott of Bank of America is misguided
Government officials have made a good point: The taxpayers are basically funding hundreds of billions of dollars to bail out banks. That money was supposed to be used to ease the credit crunch. (i.e. The banks were supposed to lend the money to customers.) But that's not really happening. Banks have been using the money to buy other banks, pay other costs, and hoard the cash. That's not how the bailout was pitched to the American people, and Illinois politicians want to force banks into making good on the deal.
Yet these public threats are the wrong way to go about finding a resolution to the situation. First, what makes Republic Windows & Doors so worthy of this chivalrous act? Aren't other private businesses equally worthy of such a grand gesture? Might there be other businesses that are more worthy of having politicians go to bat for them?
And what does the government know about Republic's financial situation? How can these politicians deem the company a good credit risk for a bank without some serious analysis of the financial statements, the industry, and the company's operations? It would seem that Illinois government officials have made a hasty determination that Republic indeed deserves some financing.
And even more importantly, the role of government is not to blackmail one business into doing business with another. If Bank of America doesn't want to extend credit to Republic, the company shouldn't be essentially forced into doing so. What if the government forced me into doing business with someone I thought wasn't going to pay their bill? Wouldn't that be unfair to me as a business owner? Wouldn't that put my company in jeopardy? Wouldn't that piece of bad business potentially keep me from doing business with other paying customers?
Don't get me wrong. I feel bad for the company and its employees. I hope they can weather this financial storm. I feel bad for lots of companies and workers who are in similar situations. But propping up one company with blackmail tactics isn't the way to solve the current financial crisis. (Just like bailing out certain big companies wasn't the right way out of our economic problems, either.)
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.