Monday, November 10, 2008

Backdoor Bailout

In 1986 Congress enacted a law that cut back on tax shelters by not letting companies so easily write off the losses of a subsidiary business or newly acquired business against the profits of the main business.

But Treasury just wrote a five sentence statement repealing Section 382 of the tax code.
The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

The rewrite was probably not legal. But to undo this would have big ramifications for many recent mergers, not just Wells Fargo.

Overall this little statement has cost taxpayers about 140 billion. Just one more bit of subtle looting of the US of A by the outgoing regime. Read the full story here.

I had sent an email to the CEO of Wells Fargo at the time registering my displeasure as a customer with the bank's acquisition of Wachovia which was full of very bad debt. I got a message back saying that they felt it was a good business decision.

They knew about the "Wells Fargo Ruling" as soon as it took effect and took advantage of it.

The total amount of the "Bailout" in one form or another is now about 2 trillion.

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