The Silent Change to Section 382
In just a couple months, I must have read well more than 100 newspaper articles on the financial collapse and the federal response to it. But none is more remarkable than Amit Paley's story in last Monday's Washington Post. (Apologies for posting late; I just got around to reading it.) The story concerns an obscure change in the U.S. Tax Code that was forced through by the U.S. Treasury Department without any public review or Congressional involvement, a change that will grant an estimated $25 billion in tax savings to Wells Fargo and deprive the federal government of somewhere between $105 and $140 billion in revenue. Warning flags are everywhere: The change was announced with no fanfare within 24 hours after the House voted down the first bailout bill. Treasury acted without clear legal authority. And finally, the change has long been a pet cause of conservative economists. "I've been in tax law for 20 years, and I've never seen anything like this," says one lawyer quoted in the article.
I don't have the expertise to judge the merits of the change. Maybe this was needed lest the economy fall further into an abyss. Maybe the Wells Fargo-Wachovia merger would have never happened without the change, costing taxpayers far more. Maybe there is a rationale for all other banks from here to eternity (even after the crisis ends) to enjoy this tax break. But as Paley makes clear, no one in the Treasury has yet to make this case in public. (There was an off-the-record call with dumbfounded Congressional staff.) This is a grave concern. Our system only works when major decisions are being made in sunlight, with significant debate, and that has not happened. Paley quotes a tax attorney, who notes an ominous parallel.
"It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"
On Friday, Republican Sen. Charles Grassley, an Iowan who has established himself as one of the great legislative investigators of waste and corruption in our nation's history, called for an investigation of the change. (New York Democrat Charles Schumer is also concerned.) Grassley writes that he is particularly worried about possible conflicts of interest at the Treasury Department. "Treasury didn't involve Congress, so there were no checks and balances to vet the policy. The relationships of the players involved might give the appearance of conflicts of interest. I'm asking the inspector general to look at Treasury's move after the fact and make sure the agency was fair, unbiased and above board in its actions," he said in a press release. From his letter to the inspector general:
The facts and circumstances surrounding the issuance of the Notice, particularly as it relates to Wells Fargo's purchase of Wachovia Corporation, raise concerns about the independence of the decision makers. Since the Notice and the FDIC's intervention are part of the federal government's larger efforts to stabilize the economy, I ask that your office conduct this investigation since you have broader jurisdiction over Treasury than the Treasury Inspector General for Tax Administration. As part of your investigation, please obtain and review all documents and communication related to the issuance of Notice 2008-83, including all records of communication between Treasury officials, individuals at Wells Fargo, and/or Wachovia Corporation or their representatives.
Sounds to me like a good first step.
UPDATE: For more information on this, here is an earlier story about how the Section 382 change impacted the Wells Fargo-Wachovia merger, by Binyamin Applebaum of the Washington Post.
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1
MS:
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A great article after a run of fluff!
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Imagine, Earned Income Credit Program for corporations!
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Wow, I guess "welfare reform" only applies to the poor... -
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This is a change, MS, for the better. Reserving judgement and all that: but commenters with some background on this kind of subject and on Treasury's "independent" course of action from time to time may want to help us understand the implications.
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sevenoaks
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The point is that even the folks who would normally know this kinda stuff DON'T know this kinda stuff. When the story came out last week many tax "experts" said they had no idea what effect this would have. its kinda why there are a helluva lot more questions than answers at this point. Most notably is the question of if this was even legal and if not who should be getting prosecuted. But somehow with the weak sauce we have as Democratic Leadership in the Congress I doubt we will ever get to the bottom of it -
4
What I don't understand is that in the past, and in the face of Bush's veto pen, the Dems have been spineless.
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I read an article that they are going to force the issue of money for the auto industry despite that.
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Is it right to assume that the congressional Dems might get an infusion of much-needed calcium, especially since it appears that Obama's gonna crack the whip on some of this stuff?
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I think this is the wrong way, and very bad timing, for this kind of thing. A tax refund 30 times the size of the entire ECAP benefits paid yearly is not good tax policy when revenue is badly needed! -
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Make that 30 to 45 times the size of the entire ECAP outlay for a year...
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By the way Scherer I agree that this was a good write up (albeit a week late). But if you want to impress all of us and since the campaign is over now, how about you write about the legacy of John McCain's divisive campaign? Let me give you a primer from the AP. I have to tell you that my blood is BURNING right now. And I just hope that you and Joe Klein and others here at TIME don't try to cover his azz.
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http://news.yahoo.com/s/ap/20081115/ap_on_re_us/obama_racial -
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MS, thanks for posting this. I read about it last week and thought it smelled very fishy, but I don't have the expertise to comment intelligently on it. At least your post will cause me to re-read the Post article and I'm sure I will learn some things from some of the commenters here in the Swamp.
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8
Is it fair to mention that, Executive overreach and Congressional doormaty syndrome has pretty much been standard operating procedure for years now. One need only say the names Addington and Yoo to sumariize the problem in a small nimber of words. It would be truly ironic if the financial crisis is what finally brought to public and Media attantion just in time for the incoming D administration to be subject to the scrutiny that been glaringly absent to date.
Funny that.....
PS. I don't intend this in any way as a criticism of MS. I'm grateful to see this post.
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9
This is reporting we can believe in...
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10
Wow. If Paulson authorized this it completes my souring on him. The more I've seen of how he's been using the bailout money the less I've been impressed, and this just pretty much finishes it off.
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It's like the guys doing this have never, ever, never heard of enlightened self-interest. If you're holding mortgage-backed securities you should be a huge champion of refinancing the loans because then you'll get SOME income off it instead of the NONE you'll get if you don't let the debtor refinance and he defaults by going to foreclosure.
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Sunk costs are real and sometimes you have to accept losses on them. That's business 101. Why are Wall Street and the government in denial about it? -
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Just when you think your disgust meter has jackpot, somehow the Bush/Cheney goons find another way to get just a bit more juice. Seriously, I can't take anymore. Wake me up when it's January 20.
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sg:
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I don't think Joe Klein will. A couple years ago he started an evolution in thinking over race and has pretty much aligned himself along more realistic lines of thinking.
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This is really almost an unavoidable consequence of Obama's being elected. After all, the GOP has nurtured these myths and coddled these people, giving them ligitimacey far beyond what would otherwise been their end. It kinda reminds me about why Dogg the bounty hunter (a "joe the plumber" conspecific. wow...) complained about his son's Black girlfreind forcing him to give up a "way of life".
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Now, a whole lot of like-minded individuals will have to give up their "way of life". This, indeed, is the end of what Southern Strategists used to refer to as being "fascist" for surpressing a "diversity of opinions"...
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It's too bad that Obama will have to be the target while the Secret Service and domestic terrorist intelligence sorts this out.
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In the end though, there will be a lot of uprooting of organizations that thrived while under the umbrella of GOP Southern Strategy which served to protect their ability to broadcast their "isms"... -
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Hi Sean!
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You like our third world government? Hey... -
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By the way since we are talking about the financial crisi I wanted to post this again because I just love how Elijah Cummings basically called Kashkari a chump.
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I wonder if Cummings knew about the corporate ECAP his superiors set up.
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A chump over $503,000,000 is a small time pimp. He's pimpin' to the tune of approximagely $120,000,000,000. Now that is like (chump * 240)! -
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53_3
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NOBODY knew. It wasnt subject to any kind of checks and balances. Thats the coldest thing about the whole set up. I heard some people referring to it making it seem as if it came out of the bailout package but it was totally separate and just something Bush and Paulson drew up in the sand. But I would bet that Cummings will all up in their azzes if they ever investigate it. I enjoy watching Cummings grill mofos during oversight hearings -
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From sgwhiteinfla's link:
change in whatever form does not come easy, and a black president is "the most profound change in the field of race this country has experienced since the Civil War," said William Ferris, senior associate director of the Center for the Study of the American South at the University of North Carolina. "It's shaking the foundations on which the country has existed for centuries."
No matter how well intentioned, I think the above quote is horribly unhelpful. Obama's election is NOT shaking the foundations. Racial discord and resentment may a big problem but it in no way represents the foundations on which the country has existed. To elevate it's importance that way is to do a severe disservice to those of us combatting the problem. It doesn't take but a small minority of people to create the long list of vile acts as documented in the AP story, but the proper way to deal with it is to push it off even further to the fringes, not to portay it as some grandiose struggle.
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I didn't really think Cummings knew, but if he did, his head would have exploded, I think.
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Deftly stepping around ethnic jokes in poor taste but doesn't Kashkari have a homonym in "Cash Carry"?
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Back at the ranch, however, it does seem that Kashkari went back and just resolutely ignored Cummings' entreaty to conduct "business as usual".
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I think for Kashkari to try to claim ignorance over that bit of Bushdudgery such an excuse might just be a wee bit weak, don't you think? -
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...to not conduct "business as usual".
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Paul Dirks:
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"Racial discord and resentment may a big problem but it in no way represents the foundations on which the country has existed."
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Without trying to be too pedantic about it, the Constitution had a dodge that was later removed.
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It considered the male ancestors of Black Americans as '3/5 of a man'. That was how the dichotomy was maintained in the US before 1865. I don't remember exactly when that phrase was removed, but it, and other items pertaining to race were indeed written by our founding fathers... -
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53_3
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That was from yesterday when Cummings called him a chump -
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I'm willing to credit the fourteenth amendment as part of the foundations on which the country has existed.
I think something important might of happened just prior to its passage.
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So this particular bit of "non-news" has been floating around, undetected since last month:
"The change was announced with no fanfare within 24 hours after the House voted down the first bailout bill."
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This is bizarre. Cummings must be getting ready to hit the roof, if not something higher.
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Kashkari must have known this! -
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Paul Dirks:
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True. I'm not trying to be too relentless about it. A lot of people don't realize just who deep this particular problem runs, and my azzumption that you didn't may be out of line.
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Apologies. -
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53_3
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Check out this CLASSIC Elijah Cummings on Blackwater
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First he grills the guy who was supposed to be investigating the shootings here
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http://www.youtube.com/watch?v=DbPnZzBFL_U
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Then the guy has to come clean here.
http://www.youtube.com/watch?v=n2Tu6ORubGg
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Like I said I LOVE Elijah Cummings! lol
- michaelscherer Gibbs says Desiree Rogers will not testify tomorrow before House on WH gatecrashers. - 36 minutes ago
- michaelscherer Always a bad sign when you (NBC) have to preface every news report (Salahi) with big disclaimers that the parent company is not a factor. - 4 hours ago
- michaelscherer Ah.... Richard Wolffe. - 17 hours ago
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