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Take the Money and Run

November 10th, 2008

This from the WaPo (via Kevin Drum):

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 “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”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

Is it just me, or did we get snookered? And I don’t just mean the sudden and probably illegal huge tax break outlined in the article above, but the general bailout situation itself?

Remember, the $700 billion number was more or less pulled out of Henry Paulson’s ass; it did not represent a quantification of any real need, but a number that sounded good enough to calm investors’ fears. And I’m beginning to wonder if all or part of this whole thing has been a scam.

Not that there hasn’t been a financial crisis, but rather that there has been an opportunistic grab for money like there was after 9/11, only this one was far more immediate. Did we really need to give away $700 billion? Just like we were held hostage to our fear after 9/11, so have we been now; instead of fearing the specter of terrorism, we’ve simply been presented with a new boogeyman, and have been told to fork over ridiculous sums of money. And we’d better not complain or talk about not doing it, or else the financial markets will blow our economic brains out.

And yes, I know that Obama was in favor of the bill. I never said he was perfect, nor that I’d agree with him all the time–though his support for it is one of the few things that makes me wonder if I’m just being paranoid.

But even if the bailout is needed, I still am under the impression that we’re getting cleaned out, if not by the primary giveaway, then by the billions that will fall through the cracks, or are simply stolen via corruption in the system.

Either way, it seems like this is little more than a last-minute looting of the treasury by corrupt institutions which have become aware that the gravy train is soon ending. The change in the tax law comes across as a sign of the gates to the treasury being opened for the fatcats to charge in and plunder.

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  1. Tim Kane
    November 11th, 2008 at 07:39 | #1

    Let me take to defending Obama.

    Could it be that Obama was snookered too? And Krugman too?

    The financial system is a labyrinth for most of us. We don’t have the time to sit down and figure this all out. We are counting on our representatives. Obama knows the labyrinth of the law not finance. And who knows what goes on behind closed doors.

    I’ve always suspected that we were being snookered. Many on the right were saying let it all fail. The bailout was just to keep the system alive until January. That’s right, $700 billion to keep the system erect for 4 months until a real solution could be made. But the financial crisis was the inflection point of the election. If McCain had appeared to have handled it right and Obama had appeared to do the opposite, then McCain might be the president elect now.

    By my reckoning, the Bush administration represents a transfer of wealth to the top 3000 or so families of the United States of as much as 5 trillion dollars. That’s a hollowing out of the demand side of the economy. That hollowing out is what is causing the collapse. If people can’t buy houses and cars, then all assets based upon that demand is collapsing. I am comforted by the fact that Obama ended his first press conference stating that he was going to help the economy from the bottom up.

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