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Massachusetts Liberal

Observations on politics, the media and life in Massachusetts and beyond from the left side of the road.

Monday, November 10, 2008

The September Surprise

I know I'm confused about the size of that financial bailout package. I've heard the number as $700 billion or $750 billion. And that's without throwing in the "sweeteners" like the tax break for the makers of arrow heads.

Nor, apparently, does it include a $140 billion tax breaks for banks, quietly snuck into the mix when no one was paying attention.

Where is the line for my tax break?

I wish I could say this will be the worst example of the types of mischief the Bush administration will create as it limps out the door. My ultimate fear of course is the imperial president will decided the country really needs him and the Constitution provides unchecked authority for a wartime president.

But this stunt comes awfully close. Treasury Secretary Henry Paulson was apparently so concerned that banks would balk at taking the billions being thrown at their feet to undo the mess they got themselves into that he felt it necessary to toss in another goodie for the survivors.
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.
The deed was apparently done like most Bush administration bombshells: a five-sentence statement issued without any debate, least of all in Congress, to unilaterally overturn a long-standing law.

Did they have the legal right to do this? Who cares? It's the Bush administration.

We're counting the days to the end of our long national nightmare.

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Anonymous Anonymous said...

Going on about tax breaks for "arrow head" makers sounds like McCain on earmarks. Besides, it is arrow shaft makers, not arrow head. Gerald from Or.

November 10, 2008 6:30 PM  
Blogger Chris Rich said...

The oddest thing about the sloppy bailout is that it is unlikely to work anyway.

The systemic fraud mess created by Collateral Debt Obligation derivatives and other 'creative finance' instruments will delever with far more force than can be contained by the panic attack called 'the bailout'.

There may be trillions in losses from all this paper. And beyond the bonds made of faulty mortgages, there are other ones waiting to go sour for nearly any kind of debt you can imagine, credit cards, auto loans and college loans, for example.

The nation indebted itself up to its eyeballs to buy stupid expensive toys and unaffordable homes now losing value daily.

What's interesting, is that the huge money center banks know this and the real October Surprise was the decision by JP Morgan Chase to halt all foreclosure activity for 90 days and begin the painful ordeal of renegotiating all the loans so the borrowers have a shot at actually paying them.

Banks are herd animals so when one of the big ones makes this kind of watershed decision, the others are forced to follow.

And the money element wasn't even the worst aspect of the bailout. Paulson tried to do away with some fundamental bedrock rules of finance.

The most infuriating and controversial example was elimination of the 'mark to market' requirement for all this toxic paper.

Paulson was going to let them continue to pretend the stuff actually has value instead of making them 'fess' up and declare what the crap is really worth.

So this recent move by JP Morgan Chase may be seen as an abject confession of failure.

Look for the financials to shrink to about a 10th of their peak size over the next few years, Lehman is dead, Merril is toast and Goldman Sachs, which spawned Paulson is badly wounded... thank god.

The financials here in Boston are on the ropes as well with Fidelity leading the way down. It is such a beautiful thing.

November 10, 2008 7:08 PM  

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