["A Quiet Windfall For U.S. Banks" WaPo (Reminds some of Iraq War Resolution)

[KoKo]

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 "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

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.

-snip-

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.

But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.

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?"

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

[acmavm]

1. Henry Paulson belongs in a cell with the rest of the liars, chislers,

and sticky fingered thieves. Why he's in charge of handing out OUR money will never make sense to me.

[On the Road]

2. Not Sure This is a Bad Idea

The original law was designed to prevent companies from making sham acquisitions for the sole reason of benefitting from tax-loss carryforwards. That's not what's happening here.

Some financials are acquiring others about to go bankrupt, often at the government's request. Regardless of who's to blame for the losses, the companies being acquired have real losses and it's questionable whether the new post-merger company should have to pay taxes on real losses.