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By Warren Wheat
You trust the federal government a little bit, and look at what you get.
A couple of months ago most of us, or at least many of us, got behind members of Congress, President Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke when they said that to prevent a total economic meltdown it was essential to provide $700 billion of the tax money we send to Washington to bail out the nation's largest financial institutions.
We should have known what to expect when it took another $150 billion to grease the way through the pork-barrel-minded Congress for the bail out bill. Never mind that a lot of the institutions' financial problems were the direct result of fraud, poor management and misleading business practices.
Then we learned that some of the money intended to help financial institutions resume lending money actually was going to be used to pay dividends to shareholders of the institutions we had to bail out, pay the salaries of executives the government had to rescue, and some would be used to buy up other failing banks.
Now we are told that the help the federal government provided to insurance giant American International Group wasn't enough. The government on Monday came up with a $150 billion rescue package, a record bailout of a private company.
Several states want financial help from Washington. And now the auto industry wants its turn at a bailout.
You might have missed it but an Associated Press story revealed that because of a new tax policy quietly issued by the Treasury Department while Congress was debating the emergency bailout, some of the nation's largest banks will enjoy a windfall tax break on top of their share of the $700 billion bailout. There were no public hearings, no consultation with Congress.
As a result, banks that acquire struggling banks will be eligible for a tax write off from the losses of the banks they take over. Currently, merged banks can write off only a limited amount of the losses, but thanks to the new sleuth tax break the acquiring banks can realize huge reductions in their tax liabilities. The change could cost the Treasury - us - as much as $140 billion.
In fact, according to tax experts quoted by the AP, the tax breaks could exceed the cost of acquiring some of the banks. Wells Fargo Co., for instance, which paid $14.8 billion in a stock deal to buy Wachovia Corp. could reap a $20 billion tax savings.
It keeps getting worse.
According to Bloomberg News the Federal Reserve has loaned $1.5 trillion to banks in excess of the $700 billion congressional-approved loans. And - get this - the fed refuses to say what banks got the money and what the government received in return as collateral.
We should be thankful that Bloomberg challenged the Federal Reserve's recalcitrance and sued in U.S. court based on the Freedom of Information Act to force the fed to tell the American people what businesses are benefiting from our largess, how they qualified for the money, how risky the loans are and what we are going to get in return.
So much for the transparency promised by all those involved in the massive bailout of the nation's largest mismanaged, greedy, financial institutions. The greatest damage, though, is the continued erosion of public trust in government. Congress is going to be even more skeptical now of any renewed demands for federal tax dollars to rescue failing businesses, and less likely to help.
Warren Wheat has been editor of The News-Enterprise since January 2002.