While everyone was debating the wisdom of giving $700B over to the US Treasury to divide amongst failing banks in late September, the Treasury Department silently changed the tax code and in doing so opened up an opportunity for banks to save billions when acquiring other banks. The Associated Press reports that, in some cases, banks will actually make money in the act of buying up their competitors. They point to Wells Fargo’s effort to acquire Wachovia, a deal that will cost roughly $15B but that, under the new tax code, will save Wells Fargo $20B. Danny Schechter believes that this is a prelude to the type of activities that can be expected from an empowered Treasury Department. He also points out that this is in line with the effect that the bailout bill itself is having, with the bailout money being used to acquire competitors instead of financing the flow of credit. Meanwhile, Danny says, the Democrats are claiming that the bailout process lacks transparency, after they promised during the bailout debate that they would ensure oversight while pushing the bill through Congress. Danny also indicates that all levels of government are stalling on what to do about the quickly sinking auto industry, a problem being made worse by the power vacuum in the White House as there are still two months before Obama takes over as president. At the end of the interview, Danny relays the rumors that Obama is looking to past administrations to fill his empty slot at the recently empowered Treasury Secretary position, with former Clinton Treasury Secretarie Lawrence Summers and former Federal Reserve Chairman under Reagan and Carter, Paul Volcker, being on the reported shortlist of candidates.
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Paulson’s $140B surprise
VOICEOVER: Last week, The Washington Post broke a story that back in late September, while the world was fixated on a $700 billion bailout debate, the US Treasury Department quietly changed part of the tax code and in doing so created a $140 billion tax break for the banks, a fact that supposedly went unnoticed by lawmakers when they agreed to support the bailout bill. Real News senior editor Paul Jay spoke to Danny Schechter, editor of mediachannel.org, to find out more about the tax break development.
PAUL JAY, SENIOR EDITOR, TRNN: Thanks for joining us, Danny.
DANNY SCHECHTER, MEDIA CRITIC AND FILMMAKER: Pleasure, Paul.
JAY: So let’s start a bit. What is this $140 billion tax break?
SCHECHTER: Well, this was a measure given to the banks to allow them some accounting rule changes as they merge with other or buy up other banks. So it’s really a sort of a present to the banking community, and it seems like the whole bailout has turned into a way to subsidize banks or so-called stabilize these banks—that’s what they’re saying—by promoting concentration in the banking sector. So far, this does not help any of the homeowners who need help, and it doesn’t stimulate the economy.
JAY: [inaudible] tax breaks that make mergers easier and more tax-advantageous to the banks, something that the banks and much of the Republican Party had been fighting for without success until they snuck this into this bill.
SCHECHTER: Well, that was one of the measures snuck in. Of course the Democrats insisted at the time that there would be transparency, that they would monitor everything closely. Now, a few weeks later, they’re saying there is no transparency, they really don’t know how the money is being spent, and they’re not very happy about it. In other words, the money has been given to banks with no conditions. There’s been no attempt to ensure that the banks even lend more money out. So this whole bailout could be turning into a farce, except people really don’t even know what’s going on for the most part. And, you know, this is part of the pity of it all. We thought it was $700 billion. They only said, “Well, it might be a little bit more, like a trillion.” We have no idea what the cap on it is.
JAY: Danny, are we to believe that nobody from the Democratic Party actually read this bill and couldn’t see this tax break was there?
SCHECHTER: Well, I think they read the bill, but, you know, I think this was an executive decision by the Treasury Department, which has a lot of power on its own, you know, that it’s not answerable to Congress, necessarily. So you have these different competing power centers. That’s what makes it hard for Bush or Obama to actually have a decisive program to rescue or revive the economy.
JAY: Certainly, whether it’s overlooked or not overlooked—and it’s hard to believe that there aren’t people within the Democratic Party that knew about this tax break. But, at any rate, the whole fundamental thrust of this bill, of $700 billion, so far has been to hand money to banking institutions that now we know are using it for executive compensation, are in fact using it to give money back to shareholders, and not all that much is actually turning into increased liquidity, especially for consumers. But Obama’s been part of this, and we haven’t heard him critique much of the bill. So what do you make of what to expect from Obama?
SCHECHTER: You know, I think Obama’s trying to, you know, keep things going for a honeymoon and a fresh start. I don’t think he wants to get sucked into the vortex of this debate right now, where he really doesn’t have the power to impose his program or try to push his program. And that’s why, for example, when he asked President Bush to bail out Detroit and Bush said he’d do it only if, you know, Obama would agree to support, you know, the free trade agreement with Colombia, you know, it was sort of check and checkmate once again. I think Obama is trying not to get sucked into this kind of political dance.
JAY: That trade-off that Bush offered I know was reported in the press. I guess no one’s exactly sure whether that conversation took place. But it seems a bizarre trade-off with a free trade agreement for Colombia against the destruction of the American auto industry.
SCHECHTER: Absolutely. You know, and that’s what I’m saying is that I don’t think even to this day a lot of politicians have a clear understanding of what’s actually happening here to American citizens, the people who are losing their homes, the people who are losing their jobs; and their priorities seem to be to conform with some sort of economic recovery program that’s not reaching the people who need it most.
JAY: There’s going to be a big fight about recovery for who, stimulus for who, on one side who pays for it, on the other side who gets it. And certainly one of the questions being raised on the auto industry is: if there is going to be some kind of bailout, is there going to be some kind of public ownership?What do you make of what to expect from Obama on that [inaudible]?
SCHECHTER: I think that’s extremely unlikely. And, in fact, the auto industry—General Motors just announced that it’s going to be ending its loan arm, the General Motors Acceptance Corporation, which is probably bankrupt. So it seems like the auto industry is going down fast unless somebody steps in right away, and it doesn’t seem as if the politicians have the shared consensus on what to do to actually act in a timely way. And this is what we’ve been seeing, you know, in Washington: a failure to act decisively.
JAY: Well, Obama seems, at least in terms of language, completely committed to some kind of bailout. But I think again the question’s going to be: what kind of structure is the bailout? If it’s another Wall Street kind of bailout that just hands money over—.
SCHECHTER: And also the expectations, you know, for Obama to act are very high, but Obama’s not in power yet, he’s not in office, and he cannot impose his economic agenda. So, you know, he’s trying right now to use what leverage he has to get the Bush administration to do certain things. That doesn’t seem to be working. The Congress seems to be still—you know, it’s sort of in a jam, you know, like a gridlock on the roads. And, you know, so I’m sure it’s very frustrating for him as well. Plus he has to decide who his Treasury secretary is going to be and what his plan is going to be, and I don’t know that they’ve decided that yet.
JAY: Well, one of the names being bounced around is Paul Volcker, and other people from the Clinton administration, certainly quite a few of the people that have received some of the critique for the situation being like this. Have we heard any kind of name as a possible Treasury secretary that’s fresh?
SCHECHTER: Well, Larry Summers is one name, and, of course, Summers is very controversial, not only when he had to—forced to step down at Harvard for his statements about the intelligence of women, but also earlier in his career when he was basically associated with a proposal to dump, you know, pollutants on developing countries. This was exposed years ago. He’s, you know, another neoliberal, if you will, in the economic sphere, you know, a disciple of Robert Rubin. And so I don’t think we’re seeing any kind of new thinkers here who have any really new ideas about the economy. That’s discouraging.
JAY: And even the markets seem to be responding, both to his election and to the current situation, by more or less continually going down. But we see that the extent of layoffs, and the extent of the industry pulling back, and the extent of continuing falling of the housing market on the whole is deepening very quickly. Obama’s going to hit an economy that’s even far worse in a few weeks than it is now.
SCHECHTER: You’re absolutely right. And this is why I think it’s very important for, you know, folks to realize that Obama does not have the power to impose his will. He doesn’t seem to have, you know, FDR’s approach yet, but then again, FDR didn’t have it when he first took office either. So I think, you know, this is going to be a work of improvisation to some degree, and I think the seriousness of the actual decline in the economy is going to force them to be bolder, perhaps, than he wants to be right now.
JAY: And there’s going to be a big battle, which is: Bolder for who? Stimulus for who? Who benefits? And right now the team he’s putting into place doesn’t suggest there’s going to be a change, fundamental change that we talked about in the campaign, but I guess we will reserve some of our judgments for after he takes office. Thanks for joining us, Danny.
SCHECHTER: My pleasure. Thank you.
JAY: And thank you for joining us on The Real News Network. Don’t forget the donate button. Sorry to nag you, but we don’t survive without you. Bye-bye.
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