Tomorrow Wachovia holders meet to vote on the proposed Wells Fargo merger and PNC Financial Services holders vote on the takeover bid for National City. 'Vote', in this blogger's opinion, seems to be a rather maladroit appellation ; 'thanking the Good Lord Almighty', 'Jumping for Joy' or 'High-Five me dude' a more accurate description.
Undoubtedly there will be loud applause for the 'free-market' solutions to these troubled companies' plight - from the discriminating observer ... not so much.
Both of these transactions are yet another example of the Treasury exercising power it should not (and most probably does not) have. Although tomorrow's press releases will probably not reference it, both deals are being promulgated due to Treasury's notice 2008-83 that suspended the rule in Section 382 of the Internal Revenue Code of 1986 that disallows the use of a net unrealized built-in loss for financial institutions.
The translation goes like this : Wachovia and National City are insolvent due to their own foolish (and well compensated) decisions including 'top-of-the-market' purchases of insolvent companies. They are now being rewarded by the taxpayers' monetizing their losses through allowing taxable income of Wells Fargo and PNC to be transformed into tax free income.
The Treasury had no legal authority to allow this.
“We strongly believe that you have already overstepped your authority in issuing the original guidance and urge you not to compound this mistake by further widening this illegal loophole,” - Representative Lloyd Doggett
Washington Post: (11/10/2008) '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. 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 "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks." '
A third bank recently lined up at the trough for this taxpayer bailout of bad speculative bets:
New York Times (12/4/2008)'Capital One announced it was paying $520 million in cash and stock to acquire Chevy Chase Bank, which operates in the Washington area. Capital One gains much-needed deposits in the deal, not to mention the potential to qualify for the $450 million in TARP funding granted to Chevy Chase by the government. That’s more than the $445 million in cash it is using in the deal.'
I suppose there is only so much time in the day to be outraged. After all, if this redistribution doesn't generate ire, you can always reflect on the fact that the Fed will now collateralize bad bets including credit cards, student loans, commerical real estate, CDOs, CLOs, rolex watches et al... and if that still doesn't roil you don't forget that they can then go out and issue debentures backed by the full faith and credit of well... you ... or more accurately your children.
On behalf of my fellow 'gifting' taxpayers:
Merry Christmas Banksters!