A Quiet Windfall For U.S. Banks

– The truth is, I don’t really know what this means in the big picture.   It sounds like some stuff was put through that would have never been allowed if this wasn’t a time of crisis.   Reminds me a bit of the time I was perusing the back pages of my news paper and found that a new ‘no knock’ law had quietly been passed in Washington D.C.    It makes you sit up and pay attention.

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With Attention on Bailout Debate, Treasury Made Change to Tax Policy

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 “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”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

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. “This is part of our overall effort to provide relief,” he said.

The Treasury itself did not estimate how much the tax change would cost, DeSouza said.

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3 Responses to “A Quiet Windfall For U.S. Banks”

  1. Elizabeth says:

    If you haven’t read the book, The Creature from Jekyll Island, it may help put some perspective behind what is unfolding, provide some intriguing food for thought.

  2. Dennis says:

    I’ve just spent 30 minutes reading about this book. Interesting, indeed. It’s not the first time I’ve heard revelations about the Federal Reserve.

    G. Edward Griffin, author of the book, is the subject of a Wikipedia article (http://en.wikipedia.org/wiki/G._Edward_Griffin). I found reading that a bit worrisome. Everything Griffin says about the fed may be true but some of his other ideas about cancer and Noah’s Ark make him seem a bit wonky.

    Do you know of anyone with impeccable credentials that tells a similar story about how the fed came to be?

  3. Elizabeth says:

    Ah yes, haa ha. Perhaps, I should have included a short warning about the author. I remember cringing at times while reading through the book my first time. I am not certain I would have finished the book back then, had not the person who recommended it to me comment twice that I should read it. He is one of the smartest men I’ve met in my life so I felt compelled to give it a fair shot, albeit through discerning eyes.

    Yup – I am aware of the author’s reputation but it is a reputation due to his other book themes (books which I have not read and really know nothing about except what’s been written critically of the author; however, I agree, Giffin’s other ideas do sound a bit wonky to me as well. ), and not, I believe, from Jekyll Island. Yes, the book does sound the conspiracy theorist alarms off, but if you read it for the facts it offers, it can provide a lens, against other lenses, through which to consider when analyzing the actions that take place. It’s not an easy read; it is challenging to work through it and make your own determinations. While I was reading this book, I was reading a few other books that danced around the topic but not to Griffin’s depth. Looking back, I suppose, had it been published back then, it may have been a smoother read had I read Web of Debt by Ellen Brown, as a prelude, at least the first 4 sections of the book.