Hey, the Banks Have a New Xmas Club, and They’re All Members!

There will be no worries about regifting in the financial sector this year! Just in time for Christmas, Santa Paulson has presents for banks, no matter if they have been naughty or nice! From The Washington Post:

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.

…snip…

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.


Original DVD cover.

The change to Section 382 of the tax code — a provision that limited a kind of tax shelter arising in corporate mergers — came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.

Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis.

…snip…

The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury’s work seemed focused almost exclusively on the bailout.

…snip…

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.

Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”

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.

But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.

…snip…

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.

During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 — issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll — criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury’s office of tax policy earlier this year.

Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury.

…snip…

The notice 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.

Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.

Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said.

Attorneys representing banks celebrated the notice. The 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 relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.

No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.

…snip…

Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.

…snip…

Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal.

…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.

…snip…

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?”

12 Comments

Filed under 9/11, Charles Schumer, Chimpy, Chuck Grassley, Congress, Democrats, George W. Bush, humor, IRS, movies, parody, politics, Republicans, September 11, snark, Wordpress Political Blogs

12 responses to “Hey, the Banks Have a New Xmas Club, and They’re All Members!

  1. Where’s Mini-Me Kashkari? He’d have made a great elf!

  2. i thought about cash-n-carry, neon vincent, but he wasn’t mentioned in the article, so i opted for the ones who actually carried out the orders from conservative central headquarters.

  3. Ugh. This whole bailout mess gives me a bad belly ache.
    The Senate should have tied the funds to Bush leaving office early.

  4. but, karen, if chimpy leaves early, then we have deadeye dick for over 2 months. the airports couldn’t handle the vast emigration of 79% of the american population.

  5. geez53

    Another good article and art nonnie, but in the interest of fairness you should have featured some of the supporting actors from our side.
    After nearly 8 years of “Bushco Studios presents”, our people should have an almost innate ability to sniff out the bad plot points before they green light the production. Instead, they became part of the editing and marketing effort.

  6. geez! 😀
    me fair? don’t be ridiculous (read that in your best balki voice).
    i try to pick out the most important parts of the articles. however, when one is as long as this one, there is just so much i can include. that’s why i always include the link so the raisinettes can read the article in its entirety.
    unfortunately, the real profession of the members of congress is running for reelection. they only know what is going on when it hits the newspapers and those pesky constituents start their ungrateful complaining. they don’t have time to actually pay attention to what they are voting on.

  7. geez53

    Can a gun totin’ redhead help out and old man here?
    Is there some sort of WordPress voodoo that will bring me back here after i log in? Or puts a link to da raisins on the geez page that login kicks me to?

    I’ve tried to find the magic widgets here, but i’m old and nearsighted, so they may have eluded me.

  8. geez,
    i’m not really sure what you’re asking. you can get here directly by using the rss feed. on the righthand side of the screen, right under the search box, is the big orange button that allows you to subscribe to the raisin. then you get a thing that looks like a folder at the top of your screen, and you can click on it to get here. does that help?
    i don’t have to sign in, so i’m not sure what screen you are getting. maybe one of the raisinettes can help. does wordpress take you somewhere other than the raisin when you log in to make a comment? i thought it takes you directly back here.

  9. jeb

    Nonnie/Geez, here’s the link: https://mikk2.wordpress.com/

    You shouldn’t have to login if you click on it, I never do even with my gender not allowing me full raisenette status.

    I saw this last night on Countdown. I don’t know what’s more appalling, another big corporate sweetheart deal from Bu$h that screws the rest of us or more of the same whiny hand wringing from Dems in Congress who whine that’s it’s unfair before slithering back under their seats. C’mon Pelosi and Reid, you won. Grow a pair!

  10. nightowl724

    This story makes me so mad that I could spit nails!

    But, nonnie, your poster and greeting cards are festive and fun.

  11. jeb,
    i don’t know why the dems are so damned timid! they have the power, so use it! chimpy is hiding somewhere so he doesn’t have to talk to anyone or do anything (for which we should be grateful). you would think that paulson is the prez. he seems to be doing whatever the hell he feels like doing with no restrictions.

  12. nightowl,
    i suppose that’s the mission statement for the raisin–take a story that makes you spit nails and temper it with a bit of humor to take the edge off.

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