Intervention in banks not without precedents

WASHINGTON -- For all of the thorny free-market issues raised, the big U.S. intervention in banks does have precedents in industry.

• During World War I, the government nationalized railroads, telegraph lines and Smith & Wesson.

• During World War II, it seized railroads, coal mines and Midwest trucking operators. President Franklin Roosevelt in 1944 briefly seized the Montgomery Ward department-store chain for defying a labor agreement.

• President Truman tried to nationalize the steel industry in 1952 to avert a strike he claimed would hurt Korean War efforts. The move was blocked by the Supreme Court, saying that he failed to cite legislative authority.

• In 1984, Washington took majority control of the failing Continental Illinois Bank and Trust. That bank continued to exist, with about 80% of its shares owned by the federal government, until 1994, when it was acquired by what is now Bank of America.

• More recently, the Resolution Trust Corp. (RTC) was set up to deal with the savings-and-loan crisis of the late 1980s and early 1990s. It took over more than a thousand failed S&Ls and all their assets, including an array of bad loans and foreclosed homes. It took six years and $125 billion in tax dollars to clean up that mess.

The RTC was modeled on the Reconstruction Finance Corp., which made loans and bought stock in distressed banks during the Great Depression.

One major friendly takeover remains today: The government-owned National Railroad Passenger Corp., doing business as Amtrak since May 1971.

Wariness of giving the government a direct role in U.S. companies, especially banks, is deeply ingrained in the nation's culture and history. Alexander Hamilton, the first Treasury secretary, established the nation's first central bank — the Bank of the United States — in 1791 while Philadelphia was still the nation's capital. Hamilton intentionally kept the direct U.S. stake at 20% so the government could not exercise majority control.