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Obama Puts New Bank Bailout in Stimulus Bill

by TW Collins

by TW Collins

The Wall Street Journal calls it a bonanza:

As part of economic stimulus efforts, the incoming Obama administration is considering tax changes that could give stumbling financial companies increased tax rebates. Right now, companies can use losses to reduce taxes on any future earnings, as well as on profits going back two years. In theory, a company that lost $10 billion in 2008 would be able to claim back taxes paid on an equivalent amount of taxable income in 2006 and 2007.

The key Obama change is to extend the retroactive application to five years, theoretically increasing the amount of past taxes that qualify for rebate. The move could clearly benefit banks where losses in 2008 and 2009 are going to be so large that they overwhelm profits from the last two years.

This is basically saying that Uncle Same is going to bail out corporations that shoved profits forward, and caused economic meltdown. Companies like CIT Group which, became bank holding companies just to get TARP money, and then got $2.3 Billion, would be able to write off losses against taxes already paid. This is an already abused provision, CIT Group was flagged for misusing deferred tax assets under Sarbanes-Oxley.

This must make Jeffrey M Peek, the CEO happy. His company’s stock was at $36 when he took over, it trades at $4.90 today. He’s received $25 million in total compensation for this stellar performance. 

Strangely, this provision will not force executives who sold options on inflated stock values to give the money back, but will allow them to force Uncle Sam to give back tax money. Pretty neat trick to run fictional profits, cash out options, and then have Barack Obama bail out your company with a tax break.

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