[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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