A quiet windfall for U.S. banks

[NeoConsSuck]

Source: MSNBC.COM

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.



Read more: http://www.msnbc.msn.com/id/27635885/

[Tandalayo_Scheisskopf]

1. These guys.

They could fuck up an air sandwich with their unerring gravitation to corrupt and venal practices. It would not surprise me if it was put in, at the last possible moment, by some minor and idealogical factotum, as a career move.

[MNReformer]

2. Naomi Klein interview on putting pressure on Obama ...

http://www.opednews.com/articles/3/Naomi-Klein-Interivew-with-by-Rob-Kall-081026-271.html

Klein: Well, the spin is that Paulson was really tough with the banks and forced them to sign against their will; I mean the terms of the deal are incredibly favorable to the banks; they didn't have to negotiate, because they couldn't have negotiated a better deal for themselves. They get the money but the government is taking no power, there's no voting right, so they've just been handed free money in the midst of an economic crisis; a lot of these banks, if they are not bailed out, they're going down. So this spin that Henry Paulson is so tough with the banks is absurd; he's the best thing that's ever happened to them, and he's one of them.

(snip)

But, you know, I think that there’s a feeling, there’s often a feeling, on the left in the United States where people are told that they’re a liability if they take too radical a position and there’s always this idea that you just sort of support the candidate until after the election, but then after the election the candidate’s going to be under a huge amount of attack from the right, so you have to support them against that.

So then there’s really never a moment of intellectual honesty. And I think this is, you know, I think this is a real test. I wish Move-On would use their incredible network to say, you know, “We don’t want Bob Rubin.” And really stand up for homeowners. And, you know, the networks are there, but there’s a real unwillingness to take these risks.

...and even if we just compare what Paulson did to what Paul Brown did, just on the straight level of what taxpayers are going to get paid back Gordon Brown and British taxpayers are getting 12% and American taxpayers are getting 5%.

They could have gotten a much better deal, so no wonder the banks agreed to it so quickly.

(snip)

There is one good thing that came out of the wrangling and the negotiation, which was a clause that gave Henry Paulson the ability (though it didn't mandate him), the ability to buy equity in the banks and now that clause is being invoked. They are not abandoning, and this is very important for people to understand: they are not abandoning the original terrible plan of buying up the toxic debt; they're just doing both, OK? They're contracting out the job of buying up the toxic debt to the same banks that are applying for the bailout and the levels of conflict of interest, I've been looking at the contracts and who they are being handed out to, I mean it just makes your hair fall out; the shamelessness is unbelievable. The law firm that has been given the contract to advise the government on the equity buyout is the law firm for seven of the nine banks. (laughs) OK?

You know what; I read it in Financial Times, OK? In an editorial in the Financial Times today they remarked on that. But the point is that there is still an election; politicians are still open to pressure so they have taken a step in the right direction in going for equity, but the deal has to be much better and it has to be power as well as risk that is transferred to the taxpayer.

So people need to stay engaged in this debate, because as you say, this crisis isn't ending and the stakes couldn't be higher. Anyone who cares about the promises that Barack Obama is making and his ability to make good on those promises, has to care about whether the Bush administration is currently in the process of bankrupting the next administration because the people who are selling this plan right now will go back to their think tanks after the election, if Barack Obama wins, and then—this is interesting, you know, Henry Paulson in a statement yesterday started talking about the financial crises and needing to re-examine entitlements. That's code for Social Security, Medicaid, right?—I mean they're already getting ready to go after what they call the entitlements programs. Which I find amazing even that phrase "Entitlement Programs" after seeing the sense of entitlement (laughs) from the financial industry it's pretty amazing.

But they will use the crisis that they themselves have created and they themselves have deepened as a rationale for saying everything Barack Obama is saying "Yes, we can," about is saying "No, you can't, we can't afford it; we're in the midst of a financial crisis."

*******

As Bush said after he stole the last election: I have political capital and I'm going to spend it.

WE the people who funded Obama's campaign and actually ELECTED him have REAL political capital and we need to SPEND it!

[Dover]

11. It seems to me the Dems were enthusiastic about the bailout

So perhaps they're all trying to push the unpopular corporate/financial welfare now while they
can blame it on the lame duck. And then after Jan. 20, when they fail to provide any of the
promises they can use the excuse that we're just too broke.

It's not like the Dems don't feed at the same financial trough. And now they won't have the Republicans as cover for their actions, so why not use that cover as long as they can?

[MNReformer]

26. Read this and tell me what you think.

http://www.huffingtonpost.com/2008/11/09/treasury-made-controversi_n_142552.html?page=11&show_comment_id=17849720#comment_17849720

[Dover]

27. It seems a separate issue from the bailout decision that the Dems agreed to.

My feeling is wait and see.

I think many Dems are just as caught up in the financial web of Washington.
But too early to say yet how all this will turn out and who is behind what.
This is a vulnerable window of time (lame duck) that I expect will be exploited by all sides.

[madrchsod]

3. meanwhile the chinese are investing over 500 billion directly into their economy

new construction projects,health-care,pollution control,and increase money for rebuilding earthquake areas. the usa on the other hand has roads and bridges that are impassible,no new investment in health care-care,no investment of inner cities or rural america,and we still have`t rebuilt new orleans,galveston/houston,and many areas of the upper midwest.

no we gave the money to the banks who make more money on the money we gave them....

[MNReformer]

4. Naomi Klein says we need to put pressure on Obama.

This is OUR victory. We must make our objections clear.

[Kolesar]

9. Congressman Barney Frank wants to cut the military budget by 25%

That's where the infrastructure budget is being wasted right now.

[truthisfreedom]

5. bushco's "Corruption-R-Us" administration wants to pretend to usher in Obama's admin smoothly...

But they are last-seconding hundreds of billions of TAXPAYER treasury money into their greedy corporate cronies' pockets.

[muriel_volestrangler]

6. "Section 382 was bad for businesses" - well, they would say that, wouldn't they?

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.

Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.
...
Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country's largest financial institutions.

Well, it may well have been a good thing to discourage mergers. One of the main problems was banks 'too large to fail'. And it does sound like a tax dodge, anyway. But the prize for chutzpah must go to:

The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company's losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.

A refund for doing badly? From the taxpayer? :wtf: That's not what I call a 'conservative economist' - it's a lobbyist for corporate welfare. We're not here to kiss it better for incompetent companies. These bailouts are only because the economy would be completely fucked if these bastards did go bankrupt.

[Kolesar]

8. They explain the tax dodge on page 2

companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books.
___\|/___\|/___\|/___\|/___\|/___
Thanks for compiling that summary. The author was a real tease.

[Supersedeas]

28. the devil is in the details

[FreeStateDemocrat]

7. Reverse it, immediately, you fucking corporate whores!

[blackbart99]

10. I keep saying it...

This was the one last big ripoff before they leave office...shock doctrine wins every freakin' time.
Now watch the supremes are gonna find a way to strip Obama of the presidency before he can take office.
We will just stand there with our mouths open and gawk...as liberty is murdered.
:puke: :hurts: watch while our country gets flushed:hurts:

We may have celebrated too early.

[No Elephants]

12. This is the tip of the iceberg. Bet on it. Bush had to have been treading water as fast as he

could to keep this from hitting the fan until the next administration. If I am right, at some point, he gave up on that and tried his darndest to keep it from hitting the fan before the election. There will be plenty of stuff buried here and there in public records and private records will have already been destroyed.

[Dover]

13. The big banks are putting the squeeze on community banks with the help of Dems

I'm afraid there is an ugly truth Dem supporters are gonna have to face about the
Dem agenda and who they align themselves with...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x47315

[seafan]

14. Paulson quietly abolished 20 years of tax policy to give $140 Bn windfall to banks.

So today, we discover that during the flurry of Congressional activity during the $700 Billion bailout package for the banking industry, Bush/Paulson secretly and unilaterally abolished two decades of tax policy in order to steer a $140 Billion windfall directly to banks.


To the Congress members who supported the Bush/Paulson $700 Billion bailout while the rest of us screamed our opposition: We. Told You. So.


Why is it that regular citizens are more astute than many in Congress? Maybe that *liberal base* ought to be heard. How about it, Pelosi and Reid?? By your foolish and cowardly actions, you have absolutely failed to protect the people.



A quiet windfall for U.S. banks

November 10, 2008
MSNBC

.....

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. ..... "It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."

More than a dozen tax lawyers interviewed for this story -- including several representing banks that stand to reap billions from the change -- said the Treasury had no authority to issue the notice. ..... Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.
Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.

.....

'The Wells Fargo ruling'

As turmoil swept financial markets, banking officials stepped up their efforts to change the law.

Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country's largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.
DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. "We received absolutely no requests from any bank or financial institution to do this," he said.

.....

The notice, which relaxed the Section 382 rules only for domestic banks, was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.
The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.
The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.
The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change. ..... Attorneys representing banks celebrated the notice. One week after it was issued, former Treasury officials now in private practice met with Solomon, the department's top tax policy official. They asked him to expand the notice even further, so that foreign banks could benefit from the tax break, too.

.....

In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.
"We're all nervous about saying that this was illegal because of our fears about the marketplace," said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. "To the extent we want to try to publicly stop this, we're going to be gumming up some important deals."

.....

Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely. ..... Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.
"It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"

INDEED.

[kpete]

15. A Quiet Windfall For U.S. Banks-With Attention on Bailout Debate, Treasury Made Change to Tax Policy

Source: Washington Post

A Quiet Windfall For U.S. Banks
With Attention on Bailout Debate, Treasury Made Change to Tax Policy

By Amit R. Paley
Washington Post Staff Writer
Monday, November 10, 2008; A01

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html

[prolesunited]

16. Sounds like economic terrorism

Give us what we want or we'll take the economy down.

[tazkcmo]

17. I agree

I'm a pretty hard headed shit and would prefer eatng dirt for dinner than letting this go. But, my kids are grown and can take care of themselves so I defer to those with younger children.

[goforit]

20. Basically it is a threat at the end of a gun. Well said!!! And Here comes the AUTO

Industry.
I'm sure they too will be rewarded for failure as well.

[kirby]

18. Blackmail is what it was... n/t

[Frustratedlady]

19. How many more of these tricks have they pulled?

Why aren't some of these people being prosecuted? WILL some of these people be prosecuted? Those that caused the bank failures and home foreclosures certainly come to mind, but these financial "wizards" who are manipulating the laws to favor the industry should also be on the list.

January 20th can't come soon enough, but I'm afraid our new president might let this situation slide. I think the people need to see some heads roll, to return confidence to the marketplace.

I have a lot of popcorn I haven't used yet and I want revenge for the raping this administration has given us over the last 8 years.

[Celebration]

21. the rule change is why Wells Fargo bought Wachovia

That part of it is pretty funny, because the Treasury had basically offered it up to Citi, without any kind of approval from Wachovia, or shopping it around. So, then they did the rule change and Wells Fargo basically snatched it away from Citi. Believe me, the powers that be were not happy about that.

What they want is more centralization of banking power, and Wells Fargo is the upstart.

I may be completely wrong on all this, because I am assigning all kinds of motives here, but that is my take on it.

[Solly Mack]

22. ....

"The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days


...congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin."

[RUMMYisFROSTED]

23. "Did the Treasury Department have the authority to do this?

I think almost every tax expert would agree that the answer is no..."

Every Constitution expert would say "no," too.

[lovuian]

24. Like I said every Congressman who voted for this robbery

should be put in jail and someday they will pay for what they have done to our children

[goforit]

25. Can congress adjust this part of the bill?