[Vision2020] A hidden bailout

Dave tiedye at turbonet.com
Mon Oct 6 20:12:37 PDT 2008


You forgot to mention that Minnick was also against the bail out (BTW we 
ain't talkin' hay hear).  And IMO his reasons make a lot more sense.

Dave


g. crabtree wrote:
> "And why are our local conservatives (loud proponents of free 
> enterprise/free markets) not screaming about this unneeded, unfair, 
> totally anti-capitalistic humongous infusion of *CORPORATE WELFARE*?"
>  
> Speaking strictly for myself, it's been because instead of yammering 
> in multiple fonts and colors, I've been busy nagging my 
> representatives to the effect that if they ever wanted my vote in the 
> future they would vote no to any bale out plan what so ever. (or at 
> least anything even remotely to any of the plans I heard mentioned) 
> For what it was worth, Mike Crapo and Bill Sali were on board. Craig 
> and Simpson caved. Jim Risch indicated that he was not in favor of the 
> measure. Sali walked the walk and will definitely be getting my 
> support (again) LaRocco, being his usual waste of perfectly good 
> oxygen wouldn't commit one way or the other and as a result Risch will 
> get my vote, not that there was much chance of it being otherwise.
>  
> Does that answer your question?
> g
>
>     ----- Original Message -----
>     *From:* Art Deco <mailto:deco at moscow.com>
>     *To:* Vision 2020 <mailto:vision2020 at moscow.com>
>     *Sent:* Monday, October 06, 2008 9:49 AM
>     *Subject:* [Vision2020] A hidden bailout
>
>     Below:  an article on an under-the-table bailout of banks, one in
>     addition to the $700 Billion publicized one.  Notice this change
>     in tax regulation was made by edict from the Treasury Department,
>     not by the congress, and is probably unconstitutional.
>      
>     And why are our local conservatives (loud proponents of free
>     enterprise/free markets) not screaming about this unneeded,
>     unfair, totally anti-capitalistic humongous infusion of *CORPORATE
>     WELFARE*?
>      
>     W.
>      
>      
>     Providence (God) is always on the side of the big dividends. --Saki
>      
>     _______________________________________________________
>      
>     *After Change In Tax Law, Wells Fargo Swoops In
>     *
>
>     By Binyamin Appelbaum
>     Washington Post Staff Writer
>     Saturday, October 4, 2008; A01
>
>     Wells Fargo's deal for Wachovia
>     <http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=WB&nav=el>
>     could cost the federal government billions of dollars in lost
>     revenue as the San Francisco company takes advantage of a new
>     change in federal tax regulations designed to encourage bank mergers.
>
>     The change was made Tuesday by the Treasury Department
>     <http://www.washingtonpost.com/ac2/related/topic/U.S.+Department+of+the+Treasury?tid=informline>,
>     one day after Wachovia agreed to be rescued by Citigroup
>     <http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=C&nav=el>,
>     and two days after Wells Fargo walked away from the table, leaving
>     Citigroup as the only bidder.
>
>     With the change in place, Wells Fargo renewed its pursuit of
>     Wachovia, and yesterday announced a surprise deal to buy the
>     entire company for about $15.4 billion, topping Citigroup's $2.2
>     billion deal for most of it. Citigroup still could sue or make a
>     counteroffer. The winner will become the largest bank in the
>     Washington area.
>
>     In touting the deal, Wells Fargo executives said they did not need
>     money from the Federal Deposit Insurance Corp.
>     <http://www.washingtonpost.com/ac2/related/topic/Federal+Deposit+Insurance+Corporation?tid=informline>,
>     which had agreed to limit Citigroup's losses on a portfolio of
>     Wachovia's most troubled loans.
>
>     "This agreement won't require even a penny from the FDIC," Wells
>     Fargo chairman Richard Kovacevich said.
>
>     But experts in tax law said the Wells Fargo deal actually was
>     likely to be more expensive for the government. Losses on
>     Wachovia's portfolio of bad loans would have been absorbed by the
>     FDIC, which is funded by the banking industry. Under the tax law
>     change, those losses instead will allow Wells Fargo to reduce its
>     taxable income.
>
>     "They said they're doing it without federal assistance, but in
>     reality they are doing it with federal assistance. It's just tax
>     assistance," said Robert Willens, an expert on tax accounting who
>     runs a firm of the same name.
>
>     The amount of lost tax revenue would depend on the future
>     profitability of Wells Fargo and the losses on Wachovia's loans,
>     but based on Wells Fargo's financial disclosures, *it could
>     shelter $74 billion in profits from taxation.*
>
>     The Treasury Department said the change in tax laws was not
>     intended to benefit any particular company and had been under
>     consideration for weeks. The change was announced with a handful
>     of other measures designed to buttress the banking industry after
>     the House of Representatives
>     <http://www.washingtonpost.com/ac2/related/topic/U.S.+House+of+Representatives?tid=informline>
>     initially rejected the Treasury's bailout plan.
>
>     Wachovia said it had no involvement in the change. Wells Fargo
>     declined to comment.
>
>     The Wells Fargo deal was greeted with joy by Wachovia
>     shareholders, many of whom thought Citigroup had taken advantage
>     of Wachovia's short-term financial problems to all but steal the
>     company. Wachovia's stock rose 57 percent to $6.13 in trading
>     yesterday. But that was still below the roughly $7 a share offered
>     by Wells Fargo, reflecting continued uncertainty about which
>     company will prevail.
>
>     Wachovia and Wells Fargo have signed a merger agreement and both
>     boards have given their approval, although shareholders and
>     regulators must still sign off. Of course, Wachovia's board also
>     has approved a sale to Citigroup.
>
>     The New York company said it is reviewing its options. Citigroup
>     and Wachovia signed an agreement to negotiate a final deal
>     exclusively. The agreement, provided to The Washington Post
>     <http://www.washingtonpost.com/ac2/related/topic/The+Washington+Post+Company?tid=informline>
>     by Citigroup, bars Wachovia from talking with other companies. And
>     legal experts said that it appears to be unusually strong, giving
>     Citigroup considerable legal leverage.
>
>     "Citigroup is now in a good bargaining position to go to Wachovia
>     and Wells Fargo and say, 'You know something, clearly you breached
>     this agreement,' " said Elizabeth Nowicki, a law professor at
>     Tulane University
>     <http://www.washingtonpost.com/ac2/related/topic/Tulane+University?tid=informline>
>     and an expert on mergers and acquisitions.
>
>     Nowicki said Citigroup could simply demand a large payment or it
>     could try to force Wachovia back to the negotiating table.
>     Citigroup also could choose to raise its bid, perhaps taking
>     advantage of the tax benefits now available to any bank that buys
>     Wachovia.
>
>     Those tax advantages are the key to understanding the unusual
>     events of the past week.
>
>     Wachovia was laid low by a series of bad deals in recent years,
>     culminating in 2006 with the $25 billion acquisition of Golden
>     West Financial
>     <http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=GDW&nav=el>,
>     a major California mortgage lender. As the housing market and the
>     economy weakened, Wachovia found itself holding hundreds of
>     billions of dollars in troubled loans. By last weekend, federal
>     regulators were increasingly concerned that the company might
>     collapse, forcing the FDIC to cover its depositors.
>
>     Federal regulators thought Wells Fargo was ready to buy the bank,
>     but the company walked away from the table Sunday afternoon,
>     saying it could not afford to absorb the losses on Wachovia's loan
>     portfolio.
>
>     That left Citigroup as the sole bidder. Government regulators
>     negotiated with the company through the night before announcing a
>     deal early Monday morning.
>
>     Citigroup agreed to buy Wachovia's banking business but not its
>     retail brokerage or asset management business. In exchange, the
>     FDIC promised to limit Citigroup's losses on a $312 billion
>     portfolio of Wachovia's most troubled loans. The government agreed
>     to absorb all losses beyond $42 billion in exchange for a $12
>     billion stake in Citigroup.
>
>     Wachovia and Citigroup immediately entered final talks on a merger
>     agreement. And Citigroup began providing Wachovia with cash to
>     stay in business.
>
>     Then, on Tuesday, Wachovia's troubled loan portfolio --
>     specifically its losses -- were transformed by the government from
>     straw into gold.
>
>     Companies are allowed to shelter profits from taxation based on
>     their past losses. When a profitable company buys a company with
>     losses, however, the government historically has limited the
>     profitable company's ability to shelter its income based on the
>     acquired company's losses. In the case of Wells Fargo, the company
>     could only have sheltered about $1 billion in income each year,
>     said Willens, the accounting expert.
>
>     The Tuesday change, however, specifically removes limits on the
>     income banks can shelter based on the losses of acquired
>     companies. In announcing its deal for Wachovia, Wells Fargo
>     estimates it would write down $74 billion in losses on Wachovia's
>     loan portfolio.
>
>     Losses can be used to shelter income for as long as 20 years. So
>     under the old law, Wells Fargo would have received a maximum
>     benefit of $20 billion in tax protection, and only up to $1
>     billion each year. Now, the company could shelter from taxation
>     its next $74 billion in profits.
>
>     The benefit is available to any bank. But right now, Wells Fargo
>     is the rare bank with profits that might be taxed -- Citigroup,
>     for example, is badly in the red -- because Wells Fargo has
>     pursued an unusually cautious strategy since a 1998 merger made
>     the bank one of the largest in the Western United States.
>
>     While Wells Fargo was one of the nation's largest mortgage
>     lenders, and one of the largest subprime lenders, the company
>     avoided the excesses of its rivals, dealing more cautiously with
>     its customers. Wells Fargo also has little presence on Wall Street
>     <http://www.washingtonpost.com/ac2/related/topic/Wall+Street?tid=informline>
>     and largely avoided investments in mortgage-related securities
>     that are damaging other banks.
>
>     Regulators were surprised by the Wells Fargo deal and initially
>     issued statements expressing concern. But people familiar with the
>     thinking of the regulators said they were reviewing the situation
>     primarily to determine whether the government had any legal
>     obligation to Citigroup, and that they were not inclined to
>     intervene unless they were required to do so.
>
>     For the FDIC in particular, the deal could come as a welcome
>     relief, ending its exposure to Citigroup's future losses. That is
>     particularly important because the FDIC initially estimated
>     Citigroup's losses were unlikely to exceed the $42 billion
>     threshold. Wells Fargo's higher estimate of losses are likely to
>     be imposed on Citigroup even if it prevailed, exposing the FDIC to
>     billions of dollars in losses.
>
>     At the same time, the deal could complicate the FDIC's ability to
>     deal with future bank failures by reducing the willingness of
>     banks to bid for failed institutions.
>
>     Citigroup propped up Wachovia for a week and now may be left
>     empty-handed.
>
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