Direct U.S. stake in banks has precedent

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 seizure of hundreds of failed savings and loans in the 1980s.

Most nationalizations have been temporary, but some endure, like Amtrak.

Over the past century, 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 firearms maker Smith & Wesson.

During World War II, it seized railroads, coal mines, Midwest trucking operators and many other companies. As the war dragged on, President Franklin D. Roosevelt in 1944 even briefly seized the Montgomery Ward department-store chain for defying a labor agreement.

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 move was blocked by the Supreme Court, holding that he failed to cite any legislative authority.

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

In 1984, Washington took majority control of the failing Continental Illinois Bank and Trust. That bank 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.

More recently, the Resolution Trust Corp. 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 to clean up that mess. The RTC was modeled on the Reconstruction Finance Corp. which rescued distressed banks during the Great Depression.

Administration officials emphasize that the recent bank interventions are temporary and argue that they are in the national interest — even if seemingly at odds with hallowed private-enterprise principles.

“These measures are not intended to take over the free market, but to preserve it,” President Bush said on Tuesday.

Ever sensitive to wording, the administration disputes that its actions amount to nationalization, noting that the U.S. will be acquiring only nonvoting minority stakes. “The federal government will not be running banks,” said White House spokesman Tony Fratto.