Allison Kilkenny: Unreported

On Wall Street, Bonuses, Not Profits, Were Real

Posted in corporations, Economy by allisonkilkenny on December 18, 2008

New York Times

“As a result of the extraordinary growth at Merrill during my tenure as C.E.O., the board saw fit to increase my compensation each year.”  — E. Stanley O’Neal, the former chief executive of Merrill Lynch, March 2008 

For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business.   Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.But Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.

Unlike the earnings, however, the bonuses have not been reversed.

As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle. Scrutiny over pay is intensifying as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers’ money. While bonuses are expected to be half of what they were a year ago, some bankers could still collect millions of dollars.

Critics say bonuses never should have been so big in the first place, because they were based on ephemeral earnings. These people contend that Wall Street’s pay structure, in which bonuses are based on short-term profits, encouraged employees to act like gamblers at a casino — and let them collect their winnings while the roulette wheel was still spinning.

“Compensation was flawed top to bottom,” said Lucian A. Bebchuk, a professor at Harvard Law School and an expert on compensation. “The whole organization was responding to distorted incentives.”

Even Wall Streeters concede they were dazzled by the money. To earn bigger bonuses, many traders ignored or played down the risks they took until their bonuses were paid. Their bosses often turned a blind eye because it was in their interest as well.

“That’s a call that senior management or risk management should question, but of course their pay was tied to it too,” said Brian Lin, a former mortgage trader at Merrill Lynch.

The highest-ranking executives at four firms have agreed under pressure to go without their bonuses, including John A. Thain, who initially wanted a bonus this year since he joined Merrill Lynch as chief executive after its ill-fated mortgage bets were made. And four former executives at one hard-hit bank, UBS of Switzerland, recently volunteered to return some of the bonuses they were paid before the financial crisis. But few think others on Wall Street will follow that lead.

For now, most banks are looking forward rather than backward. Morgan Stanley and UBS are attaching new strings to bonuses, allowing them to pull back part of workers’ payouts if they turn out to have been based on illusory profits. Those policies, had they been in place in recent years, might have clawed back hundreds of millions of dollars of compensation paid out in 2006 to employees at all levels, including senior executives who are still at those banks.

A Bonus Bonanza

For Wall Street, much of this decade represented a new Gilded Age. Salaries were merely play money — a pittance compared to bonuses. Bonus season became an annual celebration of the riches to be had in the markets. That was especially so in the New York area, where nearly $1 out of every $4 that companies paid employees last year went to someone in the financial industry. Bankers celebrated with five-figure dinners, vied to outspend each other at charity auctions and spent their newfound fortunes on new homes, cars and art.

The bonanza redefined success for an entire generation. Graduates of top universities sought their fortunes in banking, rather than in careers like medicine, engineering or teaching. Wall Street worked its rookies hard, but it held out the promise of rich rewards. In college dorms, tales of 30-year-olds pulling down $5 million a year were legion.

While top executives received the biggest bonuses, what is striking is how many employees throughout the ranks took home large paychecks. On Wall Street, the first goal was to make “a buck” — a million dollars. More than 100 people in Merrill’s bond unit alone broke the million-dollar mark in 2006.Goldman Sachs paid more than $20 million apiece to more than 50 people that year, according to a person familiar with the matter. Goldman declined to comment.

Pay was tied to profit, and profit to the easy, borrowed money that could be invested in markets like mortgage securities. As the financial industry’s role in the economy grew, workers’ pay ballooned, leaping sixfold since 1975, nearly twice as much as the increase in pay for the average American worker.

“The financial services industry was in a bubble,” said Mark Zandi, chief economist at Moody’sEconomy.com. “The industry got a bigger share of the economic pie.”

A Money Machine

Dow Kim stepped into this milieu in the mid-1980s, fresh from the Wharton School at the University of Pennsylvania. Born in Seoul and raised there and in Singapore, Mr. Kim moved to the United States at 16 to attend Phillips Academy in Andover, Mass. A quiet workaholic in an industry of workaholics, he seemed to rise through the ranks by sheer will. After a stint trading bonds in Tokyo, he moved to New York to oversee Merrill’s fixed-income business in 2001. Two years later, he became co-president.

”]Dow Kim received $35 million in 2006 from Merrill Lynch. [Bloomberg News]Even as tremors began to reverberate through the housing market and his own company, Mr. Kim exuded optimism.

After several of his key deputies left the firm in the summer of 2006, he appointed a former colleague from Asia, Osman Semerci, as his deputy, and beneath Mr. Semerci he installed Dale M. Lattanzio and Douglas J. Mallach. Mr. Lattanzio promptly purchased a $5 million home, as well as oceanfront property in Mantoloking, a wealthy enclave in New Jersey, according to county records.

Merrill and the executives in this article declined to comment or say whether they would return past bonuses. Mr. Mallach did not return telephone calls.

Mr. Semerci, Mr. Lattanzio and Mr. Mallach joined Mr. Kim as Merrill entered a new phase in its mortgage buildup. That September, the bank spent $1.3 billion to buy the First Franklin Financial Corporation, a mortgage lender in California, in part so it could bundle its mortgages into lucrative bonds.

Yet Mr. Kim was growing restless. That same month, he told E. Stanley O’Neal, Merrill’s chief executive, that he was considering starting his own hedge fund. His traders were stunned. But Mr. O’Neal persuaded Mr. Kim to stay, assuring him that the future was bright for Merrill’s mortgage business, and, by extension, for Mr. Kim.

Mr. Kim stepped to the lectern on the bond trading floor and told his anxious traders that he was not going anywhere, and that business was looking up, according to four former employees who were there. The traders erupted in applause.

“No one wanted to stop this thing,” said former mortgage analyst at Merrill. “It was a machine, and we all knew it was going to be a very, very good year.”

Merrill Lynch celebrated its success even before the year was over. In November, the company hosted a three-day golf tournament at Pebble Beach, Calif.

Mr. Kim, an avid golfer, played alongside William H. Gross, a founder of Pimco, the big bond house; and Ralph R. Cioffi, who oversaw two Bear Stearns hedge funds whose subsequent collapse in 2007 would send shock waves through the financial world.

“There didn’t seem to be an end in sight,” said a person who attended the tournament.

Back in New York, Mr. Kim’s team was eagerly bundling risky home mortgages into bonds. One of the last deals they put together that year was called “Costa Bella,” or beautiful coast — a name that recalls Pebble Beach. The $500 million bundle of loans, a type of investment known as a collateralized debt obligation, was managed by Mr. Gross’s Pimco.

Merrill Lynch collected about $5 million in fees for concocting Costa Bella, which included mortgages originated by First Franklin.

But Costa Bella, like so many other C.D.O.’s, was filled with loans that borrowers could not repay. Initially part of it was rated AAA, but Costa Bella is now deeply troubled. The losses on the investment far exceed the money Merrill collected for putting the deal together.

So Much for So Few

By the time Costa Bella ran into trouble, the Merrill bankers who had devised it had collected their bonuses for 2006. Mr. Kim’s fixed-income unit generated more than half of Merrill’s revenue that year, according to people with direct knowledge of the matter. As a reward, Mr. O’Neal and Mr. Kim paid nearly a third of Merrill’s $5 billion to $6 billion bonus pool to the 2,000 professionals in the division.

Mr. O’Neal himself was paid $46 million, according to Equilar, an executive compensation research firm and data provider in California. Mr. Kim received $35 million. About 57 percent of their pay was in stock, which would lose much of its value over the next two years, but even the cash portions of their bonus were generous: $18.5 million for Mr. O’Neal, and $14.5 million for Mr. Kim, according to Equilar.

Mr. Kim and his deputies were given wide discretion about how to dole out their pot of money. Mr. Semerci was among the highest earners in 2006, at more than $20 million. Below him, Mr. Mallach and Mr. Lattanzio each earned more than $10 million. They were among just over 100 people who accounted for some $500 million of the pool, according to people with direct knowledge of the matter.

After that blowout, Merrill pushed even deeper into the mortgage business, despite growing signs that the housing bubble was starting to burst. That decision proved disastrous. As the problems in the subprime mortgage market exploded into a full-blown crisis, the value of Merrill’s investments plummeted. The firm has since written down its investments by more than $54 billion, selling some of them for pennies on the dollar.

Mr. Lin, the former Merrill trader, arrived late to the party. He was one of the last people hired onto Merrill’s mortgage desk, in the summer of 2007. Even then, Merrill guaranteed Mr. Lin a bonus if he joined the firm. Mr. Lin would not disclose his bonus, but such payouts were often in the seven figures.

Mr. Lin said he quickly noticed that traders across Wall Street were reluctant to admit what now seems so obvious: Their mortgage investments were worth far less than they had thought.

“It’s always human nature,” said Mr. Lin, who lost his job at Merrill last summer and now works at RRMS Advisors, a consulting firm that advises investors in troubled mortgage investments. “You want to pull for the market to do well because you’re vested.”

But critics question why Wall Street embraced the risky deals even as the housing and mortgage markets began to weaken.

“What happened to their investments was of no interest to them, because they would already be paid,” said Paul Hodgson, senior research associate at the Corporate Library, a shareholder activist group. Some Wall Street executives argue that paying a larger portion of bonuses in the form of stock, rather than in cash, might keep employees from making short-sighted decision. But Mr. Hodgson contended that would not go far enough, in part because the cash rewards alone were so high. Mr. Kim, for example, was paid a total of $116.6 million in cash and stock from 2001 to 2007. Of that, $55 million was in cash, according to Equilar.

Leaving the Scene

As the damage at Merrill became clear in 2007, Mr. Kim, his deputies and finally Mr. O’Neal left the firm. Mr. Kim opened a hedge fund, but it quickly closed. Mr. Semerci and Mr. Lattanzio landed at a hedge fund in London.

All three departed without collecting bonuses in 2007. Mr. O’Neal, however, got even richer by leaving Merrill Lynch. He was awarded an exit package worth $161 million.

Clawing back the 2006 bonuses at Merrill would not come close to making up for the company’s losses, which exceed all the profits that the firm earned over the previous 20 years. This fall, the once-proud firm was sold to Bank of America, ending its 94-year history as an independent firm.

Mr. Bebchuk of Harvard Law School said investment banks like Merrill were brought to their knees because their employees chased after the rich rewards that executives promised them.

“They were trying to get as much of this or that paper, they were doing it with excitement and vigor, and that was because they knew they would be making huge amounts of money by the end of the year,” he said.

 

Balls of Steel: Merrill Lynch CEO Asks For $10 Million Bonus

Posted in corporations by allisonkilkenny on December 8, 2008

TheStreet.com

"I'd like more money, please."

"I'd like more money, please."

Merrill Lynch CEO John Thain suggested to directors that he get a 2008 bonus of as much as $10 million, but the securities firm’s compensation committee is resisting his request, the Wall Street Journal reports, citing people familiar with the situation.

The committee and full board are scheduled to meet Monday to hear Thain’s formal bonus recommendations for himself and other senior executives of the New York company. The compensation committee is leaning toward denying the executives bonuses for this year, the Journal reports.

Shareholders of Merrill Lynch on Friday approved the securities firm’s acquisition by Bank of America to create the nation’s largest financial services company.

Thain argues he was instrumental in averting what could have been a larger crisis at the firm by contacting Bank of America about a tie-up, the same day Lehman Brothers filed for bankruptcy, the newspaper reports.

Members of Merrill’s compensation committee agree with Thain that the takeover was in shareholders’ best interest, but are weighing the fact that other Wall Street firms, such as Goldman Sachs, aren’t giving out bonuses to top executives, the Journal reports.

Once the merger of Bank of America and Merrill is completed, Thain will be in charge of the combined company’s global banking, securities and wealth management businesses. He won’t join the board of Bank of America.

Huffington Post

Reuters points out that several other Wall Street firms –including Goldman Sachs, which did better than Merrill this year– will not be giving out bonuses to top executives this year. Though Thain’s company was sold to Bank of America this year, Thain argued that it could have been worse.

Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.
Members of Merrill’s compensation committee agree with Thain that the takeover is in shareholders’ best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.

 
Thane will stay with the company following the merger, Bank of America has said. Thane, for his part, has predicted that “thousands” of other Merrill jobs will be lost in the wake of the merger.

India, Katrina, and the Bailout: How Poor People Everywhere Are Being Neglected

Posted in poverty by allisonkilkenny on December 3, 2008

The slums of Delhi

The slums of Delhi

Written beside the American creed of hating terrorists and loving the Irish and Italians should be the footnote and we ignore poor people. Poor people always get the shit end of every deal usually because they can’t get the attention of politicians or pundits, and because of this the poor people in New Orleans and India have a lot in common.

India has more than 100,000 millionaires, and is creating new ones at a rate rivalled only be Russia. Meanwhile, nearly half of Mumbai’s 14-18 million residents live in slums. In the United States, poor people suffer under a specialized caste system that masquerades as a functioning democracy. In the good ole’ US of A, the top 10 percent, roughly those earning more than $100,000, reached a level of income share not seen since before the Depression.

Yet, in the 2008 election, neither major candidate uttered the word “poor” in the thousands of hours clocked speaking into cameras. But the sickness of ignoring the poor goes beyond John McCain and Barack Obama. The United States government and the corporate media systematically ignore the suffering of the poor, too.

Whether observing FEMA’s shameful handling of post-Katrina New Orleans or the situation in India, it’s pretty clear that governments and corporate media only care about disasters if they involve rich, affluent people. If poor people are drowning, the government takes weeks to throw them rafts. If their slums wallow in poverty and violence for years, the cameras only arrive when terrorists bomb a luxury hotel in Mumbai.
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Putting the Bailout in Perspective

Posted in Uncategorized by allisonkilkenny on November 25, 2008
no-strings-bailout-1From ritholtz.com, via Earl Katz.
MCM
http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/

Whenever I discussed the current bailout situation with people, I find they have a hard time comprehending the actual numbers involved. That became a problem while doing the research for the Bailout Nation book. I needed some way to put this into proper historical perspective.

If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars. People have a hard time conceptualizing very large numbers, so let’s give this some context. The current Credit Crisis bailout is now the largest outlay In American history.

Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:

* Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion

Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
* NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion
TOTAL: $3.92 trillion

Kucinich Hands Kashkari His Own Ass

Posted in politics by allisonkilkenny on November 15, 2008

neel_kashkari_1007Background on Kashkari, the most irronically named man in Washington and the evilest-looking Treasury employee since, well…Henry Paulson:

Time

The government’s $700 billion bailout plan is in the hands of this man. Neel Kashkari, a relatively green assistant secretary in the Treasury department, will be responsible for the government’s purchasing of billions of dollars of bad assets from banks and other financial agencies. His career has been a short one.

Personal Life

• Kashkari grew up in Stow, Ohio, an Akron suburb. As a high school student, he was a fan of heavy metal bands like AC/DC, whose lyrics dot his high school yearbook. He is 35 years old.

• He comes from a family of scientists. Father Chaman has a doctorate in engineering, and won a Presidential award for his work in getting water to African villages. Kashkari’s mother, Sheila, is a retired pathologist, and his sister Meera, specializes in infectious diseases.

• Accordingly, Kashkari also studied science, getting his masters in engineering from the University of Illinois, Urbana-Champaign

• He and his wife Minal live in Silver Spring, Maryland, with their dog Winslow.

Career

• Neel’s first job was as an aerospace engineer at TRW, where he worked on technology for NASA projects such as the Webb Space Telescope, which is due to replace the Hubble.

• He decided to change careers and go to Wharton Business School at the University of Pennsylvania. After getting his MBA, Kashkari joined Goldman Sachs in San Francisco, specializing in IT security.

• He followed former Goldman Sachs CEO Henry Paulson to the Treasury Department, where he was hired as a senior adviser in 2006. In short order, he was assigned to work on the department’s response to the housing crisis, during which time he grew close to Paulson.

Notable Quotes

“Neel Kashkari is not going to be in Washington much longer if there’s a change in administrations. And that’ll cause some kind of turbulence.”—Madeline Brand, of National Public Radio, on the fact that Kashkari might have to leave after only a few months on the job, Oct. 6, 2008

“When he does anything, if you ask him to make an electric car or ask him to plan an outing to Niagara Falls, he is so meticulous.”—Chaman Kashkari, father, USA Today, October 6, 2008

“I’m a free-market Republican.”Kashkari, at an American Enterprise Institute conference, Sept. 19, 2008

 

Oh really? And yet he couldn’t wait for big daddy government to swoop in and stuff his pockets with taxpayer cash when the free market failed. In a rare display of testicles, Congress absolutely tore into Kashkari, but Dennis Kucinich positively MVPed it. Now, if only they would back-up the tough talk with some serious oversight.

Click here for video
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A Quiet Windfall For U.S. Banks

Posted in Economy by allisonkilkenny on November 10, 2008

With Attention on Bailout Debate, Treasury Made Change to Tax Policyno-strings-bailout-1

By Amit R. Paley
Washington Post Staff Writer
Monday, November 10, 2008; A01

 

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

“Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”

The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.

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.

Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. “This is part of our overall effort to provide relief,” he said.

The Treasury itself did not estimate how much the tax change would cost, DeSouza said.

A Tax Law ‘Shock’

The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury’s work seemed focused almost exclusively on the bailout.

“It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops,” said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”

More than a dozen tax lawyers interviewed for this story — including several representing banks that stand to reap billions from the change — said the Treasury had no authority to issue the notice.

Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.

Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.

But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.

“This has never been a good economic policy,” said Kenneth W. Gideon, an assistant Treasury secretary for tax policy under President George H.W. Bush and now a partner at Skadden, Arps, Slate, Meagher & Flom, a law firm that represents banks.

The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company’s losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.

During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 — issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll — criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury’s office of tax policy earlier this year.

Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury.

“It’s really been the third rail of tax policy to touch 382,” said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.

‘The Wells Fargo Ruling’

As turmoil swept financial markets, banking officials stepped up their efforts to change the law.

Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country’s largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.

DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. “We received absolutely no requests from any bank or financial institution to do this,” he said.

Although the department’s action was prompted by spreading troubles in the financial markets, Carroll said, it was consistent with what the Treasury had deemed in the December report to be good tax policy.

The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

The Jones Day law firm said the tax change, which some analysts soon dubbed “the Wells Fargo Ruling,” could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.

The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change.

Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.

Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said. A spokesman for PNC said Willens’s estimate was too high but declined to provide an alternate one; Santander declined to comment.

Attorneys representing banks celebrated the notice. The week after it was issued, former Treasury officials now in private practice met with Solomon, the department’s top tax policy official. They asked him to relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.

Congress Looks for Answers

No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.

DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.

Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.

In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.

But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.

“We’re all nervous about saying that this was illegal because of our fears about the marketplace,” said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. “To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”

Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. “Congress wants to help,” Grassley said. “We also have a responsibility to make sure power isn’t abused and that the sensibilities of Main Street aren’t left in the dust as Treasury works to inject remedies into the financial system.”

Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.

Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.

But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.

“None of us wants to be blamed for ruining these mergers and creating a new Great Depression,” one said.

Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.

“It’s just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system,” said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. “We’re left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?”

Yes We Can ________

Posted in Barack Obama by allisonkilkenny on November 9, 2008

319193018v1_350x350_frontIt’s a new day and a new slogan for Obama supporters. Overnight, the infamous “Yes We Can” transformed into “Yes We Did.” Voters proclaimed it from their Facebook statuses, their Twitter updates, and I even saw the affirmation branded across the chest of a baby’s jumper.

A strange thing happens when you ask an Obama supporter what the subject of their slogan entails. What did they do? Most reply that the “Did” means collectively supporting and electing the first African-American president. Anyone with a beating heart knows this is indeed a momentous occasion, and it’s very moving to see relatives of MLK celebrating the evolution in American society.

But by that definition of the “Did,” the journey is over. Yes We Did Elect A Black President. For some, the slogan means Yes We Did Elect Someone Better Than Bush. True, but by that definition, John McCain would have been better than George Bush, and I like to give Obama supports more credit than assuming they would vote for the lesser of two evils.

Other Obama supporters claim a massive overhaul of the executive agenda is their “Did.” And early signs are encouraging with the Obama camp claiming they’re ready to reverse the Bush administration’s stacks of ill-conceived executive orders. However, there is no collective citizen mandate rumbling from the people to help guide Obama’s fledgling White House.

If the people aren’t asking anything of Obama, then he owes them nothing in return. That’s like you right now being pissed at me for not having mailed you twenty dollars. You didn’t ask me for money, so why should I have sent you anything? (I’m not giving you money.)

Yes We Did What? Elect Barack Obama on good faith alone? It appears Obamanites think their journey is over, and that good people are at the helm, and all will be well.

But Obama is indebted to Wall Street for about $9.5 million. That amount of cash transforms into favors once your guy gets elected. Obama will be hesitant to strongly regulate the billions of bailout dollars if the people he’s dealing out the cash to are his donation buddies. On day one, Wall Street will thrust a litany of demands before president Obama, but the American people will not be represented in the Oval Office. Yes We Did Leave Our President with the Wolves.

Others claim the “Did” is a movement toward universal health care. It’s totally illogical to assume Obama will defy his insurance company friends and his past rhetoric, and suddenly adopt single-payer health care. Thousands of physicians have already gone on record to say that Obama’s idea for a hybrid of private health insurance plans and government subsidies will not work, and in fact has already failed in Oregon, Minnesota, Washington and several other states, including Massachusetts, whose second go-round at incremental reform is already failing.

It’s not enough to know in the warmest places of your little hearts that Obama really is a good man, and he wants to end Americans’ suffering. The American people have to swiftly demand single-payer health care, or the insurance companies will greet Obama at the White House and quickly neuter any plans for universal health care coverage.

Yes We Did Elect a Good Man. President-elect Obama does seem like a decent guy, and a good family man, but the government system doesn’t care if he’s a good man. It’s impossible for Obama to keep his fingers on the pulse of the nation when he’s living in a severed limb like Washington. It will take an engaged citizenry living in the real, breathing world to help him fight every step of the way.

Now is the time to outline a plan for the Big Four, four ultra-important demands that need to be addressed within the first 100 days. I would suggest something like: universal health care, strong regulation of the bailout cash, ending the occupations of Iraq and Afghanistan (enough of this Afghanistan is the “good war” silliness,) and serious movements toward building a green economy and ending our dependency on foreign oil.

Google the issue nearest and dearest to your heart, find a local group that shares your agenda, and get together. Your strength is in numbers. If you’re not really the go-out-and-change-the-world type, just add your name as a contribution, or open your wallet to an already established Progressive group like November5.org.

It’s not enough to simply watch over president Obama, either. As director Eugene Jarecki explains, the three branches of government are like the stand-off in a Quentin Tarantino film with each body aiming a gun at someone else. It’s not enough to change one part. We have to change them all. Obamanites must also monitor the behavior of their Congressional representatives and put pressure on them to implement the Big Four.

If all of this sounds like a lot of work, it’s because it is. But that’s the point. Democracy is a constant battle to suppress the evil motives of corrupt politicians. Or, in the words of our beloved Dubya: “If this were a dictatorship, it would be a heck of a lot easier, just so long as I’m the dictator.”

He will be missed.

Add your voice to the Yes We Are forces. Yes We Are Living Wage Warriors. Yes We Are Congress Watchdogs. Stay alert, engaged, and don’t be afraid to offer Obama some tough love. He can take it. He’s already asking for help with his Change.gov website, so get working.

This is an exciting time. Unlike the bullheaded asshole playing Snood in the White House for the past eight years, Barack Obama is an intelligent, reasonable, open politician that we have the chance of influencing if we are at the negotiation table alongside Big Business. But we have to demand our seat the table. No one is going to come hand it to us.

So I would suggest the Yes We Did camp change their slogan to Yes We Will Be, or Yes We Are, but they can’t quit yet.

Drunken Politics Sneaks Into Ralph Nader’s Press Conference

Posted in politics by allisonkilkenny on October 24, 2008

Special thanks to John Knefel, our heroic camera man/professional joke-maker.

Join us today with Ralph Nader @ 3pm EST!

Join us today with Ralph Nader @ 3pm EST!

Join us today @ 3pm EST as we interview presidential candidate Ralph Nader

http://www.youtube.com/watch?v=lvINLCLyK0M

Ralph Nader/Matt Gonzalez Wall Street Bailout Rally

Posted in Uncategorized by allisonkilkenny on October 18, 2008

Boston Tea Party 2008

Posted in Barack Obama by allisonkilkenny on October 16, 2008

For years, colonialists have been angered by the policy of taxation without representation. The famous protester, John Hancock, arranges a boycott of the large company British East India

Terrorists

Terrorists

Company. Hancock begins to smuggle tea into the country illegally without paying taxes. Britain responds by allowing the East Tea Company to sell directly to the colonies thereby undercutting the profits of smugglers.

The East Tea Company is aided by lobbyists and powerful members of Parliament. The smugglers, including Samuel Adams and John Hancock, call for East Tea Company colonial employees to abandon their jobs.

Meanwhile, in an underground cellar in a Bostonian pub, the Sons of Liberty, the secret organization of American Patriots, are detained by British guards. Unbeknown to SoL members, they had been infiltrated by British spies, who have been reporting the group’s activities to His Majesty for the past five months. The Sons of Liberty are now a “terrorist organization,” and the members are arrested. The group is never able to meet Adams and Hancock at the harbor in order to dump the tea.

Undeterred, Adams and Hancock decide to dump the tea themselves. The Revolutionaries don war paint and feathers and sneak toward the ship. They are immediately stopped by Captain Roach and the royal governor of Massachusetts, Thomas Hutchinson.

Hutchinson: Where’s your permit?

Adams: Our what?

Hutchinson: Your permit. You need a permit to protest here.

Hancock: Well, we didn’t have time to apply for one. Drastic times call for drastic measures, you know.

Adams: Anyway, there’s really no permit available for what we want to do…

Hutchinson: Which is what?

Adams
: Dump the East Tea Company’s tea.

Roach: Good heavens! That’s positively Revolutionary!

Adams: That’s sort of the idea, yeah…

Hutchinson: You don’t really intend to break the law, do you?

Adams: Indeed.

Roach: Jesus H. Christ! The absolute Gall!

Hutchinson: No go. Sorry.

Hancock: Oh, C’mon!

Hutchinson
: Nope. No.

Hancock: C’moooooon!

Hutchinson: Tell you what: You can throw one tea bag into the harbor, but only one of you can go onto the ship. And you can’t make any noise. And take off those silly costumes. And the other one of you has to wait in a little pen I will construct out of wood and some mud. And did I mention you mustn’t raise your voice, or I will fine you a week’s wages?

(Enter stage left): A man appears from the shadows, scribbling furiously on parchment.

Man: Thomas Paine: citizen journalist! Are you repressing their right to freedom of expression?!

Hutchinson: (Tasers Paine)

Roach: That freedom doesn’t exist yet, punk. (Kicks Paine in the kidney)

Paine: (Cries in pain)

Adams: Holy crap!

Hutchinson: So what were you boys saying?

Adams and Hancock: Nothing! Nothing….

Adams and Hancock back away, hands held up in surrender before they turn and run away.

END SCENE

Americans take for granted their rights to taxation with representation, to protest, and to maintain certain human dignities. Oftentimes, they forget that the founding fathers were radicals, who broke the law, and faced the possibility of execution as they thumbed their noses at King George.

The $700 billion dollar bailout of Wall Street is exactly the kind of taxation without representation that the founding fathers fought to reject over 200 years ago. Taxpayers, who had no control over predatory lending and shady deregulation, are now responsible for paying the bill while CEOs jump out of windows with their golden parachutes strapped safely to their backs.

At today’s Wall Street protest, Ralph Nader and Matt Gonzales, the Independent party presidential and vice-presidential nominees, called for the immediate termination of this taxpayer bailout. Just as the founding fathers rejected the tyrannical reign of King George, so Nader/Gonzales reject the tyrannical reign of George W. Bush and his corporate cronies.

In none of the presidential debates have either Barack Obama or John McCain called the bailout exactly what it is — the bailout of Capitalism and the unfair continuation of socialized debt with privatized profit.

Reaction to the worsening state of the economy has been tame for obvious reasons. The protest of America’s forefathers would be impossible today as illustrated in the fantasy Boston Tea Party above. Protesters would be immediately arrested and incarcerated if they took to Wall Street and lit Federal Hall ablaze. That kind of behavior would be called radical, Anarchist, and obscene.

So it’s too much to ask for a revolution, but at the least, politicians should speak frankly about the hold corporations and crooked Capitalism have on the country. The media has performed a blackout on third party candidates during this sham of an election, which is entirely financed by corporations like AT&T and Wachovia.

Americans can’t expect to have a frank and honest discussion about Constitutional violations (like wiretapping) and taxpayer bailouts of banks when the sponsors of their debates are the very entities under scrutiny: the phone companies and the banks. This is like asking McDonald’s to finance health education programs. Sponsoring debates about their own failings would work against the interests of these corporations, which is why there has been zero talk about wiretapping phones and the faltering of Free Trade policies.

For the sake of the American spirit, citizens must summon the same outrage felt that day on 1773. Citizens must reject the bailout, the neutered election process, and they must open the debates to third party candidates in order to reinvigorate the environment of passionate discussion missing in this 2008 election. Nearly half of the American people think Ralph Nader should be allowed in the presidential debates. They long to see the candidates challenged on issues like universal health care and the Iraq and Afghanistan wars, instead of the normal, bland repeating of tired stump speeches. Now is the time to reinvigorate the American political process, and the first step is letting third party candidates into the debates.