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bailout math..., 2008-10-25 09:03:48 | Main | US cross border raid into Syria..., 2008-10-26 12:19:26 just getting started: "consolidation" is another way of describing what happens when half an industry burns to the ground, so shock that Paulson is looking to engineer a massive consolidation of the banking industry is misplaced. You've got to wonder about his methods, on the other hand, which amount to throwing capital at the largest banks, regardless of solvency. The NYT's Joe Nocera: In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, "the government wants not only to stabilize the industry, but also to reshape it." Now they tell us. Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: "It couldn't be clearer if they had taken out an ad." The tax giveaway is explained some here: Congress, through [the Emergency Economic Stabilization Act of 2008], permitted "applicable" financial institutions to invest in Fannie and Freddie preferred stock to help the mortgage lenders raise much needed capital. The law relies on the U.S. tax code's definition of a financial institution, which includes any bank, mutual savings bank, domestic building and loan association, cooperative bank, small business investment company, and business development corporation. Further, the law requires that the Fannie and Freddie preferred stock had to be in the hands of the participating bank on or after January 1, 2008 and before September 7, 2008. But holding the Fannie and Freddie shares in the current bear market could prove dangerous to banks that are suffering through liquidity problems of their own. So as an incentive, EESA allowed qualified banks to sidestep U.S. tax code provisions and GAAP in exchange for pumping capital into Fannie and Freddie, says a new report by Robert Willens LLC. On the tax side, EESA permits any gain or loss from the sale or exchange of the preferred shares to be treated as ordinary loss or ordinary income. If I follow, the incentive is to merger with banks holding these 2008 vintage shares of the GSEs, which become big tax write offs for firms with a tax liability left to look forward to anytime in the next two decades. That's interesting. It would be nice to have some idea how big a tax break this might amount to, but let's assume it's significant. Do Democrats, who for all we know put that into the bill on as sudden and strange a whim as they did everything else that made it through the magical sausage factory, really think the banking sector is going to stay on life support like this for 20 years? Or is this just how they plan on spreading the wealth around? And then Joe complains that he's "starting to feel as if we’ve been sold a bill of goods". Golly. :: posted by buermann @ 2008-10-25 23:32:14 CST | link Comments: The smell of panic coming off the Dems is intense. They have to rescue the bankers and they have to do it in a way that the bankers can like, or be coaxed into liking. Then they have to make a fig leaf to cover it all. Ironically, this could happen to a more miserable, more loathsome gang of cretins. It already has. Now the Dems get to drink from the dookie as their clean up act. posted by Zomg @ 2008-10-26 22:37:21 | link go ahead, express that vague notion Name: Email: Homepage: Comment your turing test: