Tag Archive: Bank Bailout

Mar 13 2012

More Bailouts for the “Too Big To Fail”

Besides the $700 billion from TARP and $17.7 trillion from the Federal Reserve the “Too Big To Fail” financial entities are still getting bailouts with tax payer dollars via tax breaks on losses. 90% of the insurance giant, American International Group Inc.’s (AIG), fourth quarter profits from 2011 were “because of an inappropriate tax break the government-owned insurance company continues to receive, according to four former members of the watchdog panel that oversaw the financial crisis bailouts“:

The break allows AIG to count its past net operating losses against future taxes. That amounts to a “stealth bailout” of a company that received about $125 billion in taxpayer money, said the former appointees to the Congressional Oversight Panel for the $700 billion Troubled Asset Relief Program.

“It’s been more than three years since AIG lost its reckless bet on mortgage-backed securities, yet today AIG continues to get special tax breaks that last quarter accounted for 90% of its profits,” the panel’s former chairwoman, Elizabeth Warren, told reporters Monday on a conference call. “We think it’s time for Congress to end the special tax break.”

Warren, who is running as a Democrat for the U.S. Senate in Massachusetts, was joined by former panel members Damon Silvers, Mark McWatters and Kenneth Troske in saying the tax break gives the illusion of significant profitability at the company.

The profits benefit AIG’s private stockholders and allow the company to pay higher executive compensation, the TARP panel members said.

“By doing it this way….billions of dollars leak out to the benefits of private parties, who really should not be benefiting from public policy in this way,” Silvers said.

The special tax exemption that AIG and other struggling companies received allows it to deduct its past losses against future tax bills thus showing a net profit. It allowed for AIG to hand out generous executive compensation and benefit private shareholders.

Just last week, Matt Stoller at naked capitalism reported that almost half the banks that had paid back TARP did so with funds from other government programs:

The Government Accountability Office continues its subtle war on the talking point used by Treasury that “TARP made money”. Here’s the GAO, with a report out today.

   As of January 31, 2012, 341 institutions had exited CPP, almost half by repaying CPP with funds from other federal programs. Institutions continue to exit CPP, but the number of institutions missing scheduled dividend or interest payments has increased.

Much of the government-supplied TARP funding (to small banks) was replaced by the Small Business Lending Fund passed in 2010, which Republicans called “TARP 2.0″.  The larger banks, however, where much of the bank-based credit creation in the economy takes place, didn’t use this program.  Instead, they got an implicit subsidy of between $6B (pdf) and $300B a year from the widespread belief that the government will not let their bondholders lose money…

You can take a stand with Ms. Warren and sign her petition:

Call on AIG to play by the rules