Treasury chief defends bank loss change

Yesterday, before I headed out to spend most of the day at meetings, I turned on the television to see how much money my investments were losing. Yeah, I always like to start my days on a happy note!

If you've paid attention to market movement, you know I cringed when the cable station cut away for a press conference by U.S. Treasury Secretary Henry Paulson.

Lately, every time Dubya or anyone from his Administration takes to the airwaves to make an official statement on the financial crisis, stocks tank. They did again yesterday.

OK, maybe it's coincidental, but I would like to give a temporary Bush Administration broadcast blackout a try.

I'm not saying Dubya and his crew shouldn't keep us up to date. We definitely need more transparency, particularly on the government's plans to fix our economy. And we specifically need more data on how they have spent almost half and plan to spend the rest of the $700 billion bailout money authorized a couple of months ago.

But I'd be happy to read about those efforts in the next day's paper or hear a financial reporter give me the highlights on a TV newscast, rather than giving Dubya, Paulson et al more air time.

A (tiny) bit more on bank bailout tax breaks: And speaking of transparency, in his meeting with the media yesterday, Paulson was asked about his office's decision to change tax rules so that banks can now take tax advantage of losses they inherit when they buy other troubled financial institutions, most recently blogged about here.

The exchange happened at 34 minutes, 37 seconds into Paulson's 48-minute combined formal statement and press Q&A session. In just over a minute,
the Treasury Secretary dispensed with the matter thusly:

"First of all, this was done through an administrative process. It was quite legal. And let me explain to you in layman's terms what we are dealing with. I'm not going to go through all the technicalities, but the way the system worked, you're an institution and you have a loss that isn't realized and then after a merger or acquisition, that loss couldn't be used to offset taxes if it was realized later and in the situation we're dealing with and the marketplace where values were very difficult to determine, this became very impractical and unworkable and it was an impediment to activity that was very worthwhile activity so we made the change."

Whew! I know I needed a deep breath after that last long sentence from Paulson!

You can click here to watch C-SPAN coverage (via realPlayer) of Paulson's statement and the follow-up press conference. If you prefer a different media player, go to the Paulson story link on C-SPAN's archive of economic stories.   

Congressional questions continue: I'm not sure that Paulson's answer to the reporter will satisfy Joint Economic Committee Chair Charles E. Schumer (D-N.Y.), who on Oct. 30 sent a letter to the Secretary and IRS Commissioner Douglas Shulman expressing concern that Treasury may overstepped its authority.

"I am concerned that this change in the law may lead to takeovers motivated solely by the opportunity to take advantage of tax savings," Schumer wrote.

According to Tax Analysts, a Treasury spokesperson said the department held a meeting "several weeks ago" with bipartisan tax-writing staff from both the House and Senate to explain the notice. The spokesperson added that Treasury is working on a response to Schumer's letter. 

I hope when that piece of mail finally arrives, the Senator will share it with the rest of us who are paying for this tax break.