Bill paying middle class to bail out corporations and sub-prime mortgage idiots

[Grimmlok]

NEW YORK (Fortune) -- Guess who's helping Bank of America pay for its $4.1 billion purchase of Countrywide Financial? Answer: The taxpayers of the United States.

That's because Bank of America (BAC, Fortune 500), which is solidly profitable, will be able to use some of Countrywide's losses to offset its own taxable income. The tax break could total about half a billion dollars over the first five years, according to an estimate by tax guru Robert Willens, who left Lehman Brothers Friday after a 20-year run and will be in business as Robert Willens LLC starting next week. The losses could be worth considerably more to Bank of America starting in the sixth year, depending on how big Countrywide's losses are when Bank of America formally acquires it.

At this point, of course, no one knows how much in losses Countrywide has run up since the junk mortgage market began souring and defaults accelerated. Countrywide (CFC, Fortune 500) itself probably doesn't know. But it seems almost certain to ultimately be in the billions.

In tax circles, Bank of America is famous for its 1988 purchase of the failed FirstRepublic Bank of Dallas, which was being auctioned off by federal regulators. Bank of America, then known as NCNB Corp., the parent of North Carolina National Bank, discovered a way to structure the deal to save $1 billion of taxes, using a convoluted strategy that none of the other bidders knew about. That allowed NCNB to outbid its rivals for the bank, and still come out way ahead.

The Countrywide tax break isn't in that league, but it would still be worth a lot of money. Willens estimates that Bank of America will be able to deduct $270 million of Countrywide's losses annually for the first five years it owns the firm.

That's based on a $6 billion purchase price - $4 billion to Countrywide's common stockholders, plus the $2 billion of preferred stock that Countrywide sold to Bank of America in August. Willens says that you multiply that $6 billion by 4.49 percent - the so-called "long-term tax-exempt rate" - to calculate how much of Countrywide's losses Bank of America can deduct annually for five years after the purchase.

A $270 million annual deduction would save Bank of America something more than $100 million a year in federal and state income taxes. The long-term tax-exempt rate, which is based on Treasury rates and other things so complicated that they make my teeth hurt. The rate changes each year, Willens says, but not by much. When I asked how it's calculated, Willens, a master of tax arcana, threw up his hands. (Metaphorically, of course.) "It's like the formula for Coca-Cola," he said, "no one outside the circle knows it" and it's so complicated that, "no one else wants to find out."

So over the first five years, Bank of America can use a total of $1.35 billion of Countrywide's losses to shelter its income. (That's five years of $270 million annual losses.) If Countrywide's embedded losses when Bank of America buys it exceed $1.35 billion, Willens says, the bank will be able to deduct the rest of the losses, without limit, starting in the sixth year.

Isn't life fun?

Taxpayers to help foot BofA's $4.1 billion Countrywide bill - Jan. 11, 2008

So if you have a mortgage, paid your bills on time and did it the honest way, you get fucked over while the millions who lived above their means and the corporations that helped them with bad loans get a BAILOUT.

Thank George Bush for that one, not to mention the Democrats who are enabling it.

[Griffo]

A bit like here in Aussie....All the major banks have just upped there rates......REASON!!....the US subprime...go figure.

[JamieElizabeth]

This country sucks in that way. We've evolved with little or no meaning.

I'm sick of corporate everything!!!!!!!!!!!!!

[darksithbunny]

Not really surprised at all. WE get stuck for the all the fucking bills.
When we file for taxes every year, we should get free fucking shirts
that says "Thank Me. I am tax payer. For if it wasn't for me, this place would be a pile of shit."

[Just Kill Me]

Originally Posted by Griffo

A bit like here in Aussie....All the major banks have just upped there rates......REASON!!....the US subprime...go figure.

That's because the major banks were buying up these sub prime loans en masse in attempt to make money like purchasing stock.

[Mr. Authority]

Originally Posted by JamieElizabeth

This country sucks in that way. We've evolved with little or no meaning.

I'm sick of corporate everything!!!!!!!!!!!!!

Me too; if an economic depression hits (and it will if things are the way they are) then hopefully the corporations will suffer by the hands of all the people they have messed with. Preferably with torches and guns. hehehe

[JamieElizabeth]

^^Oh, dear. That's a fucking scary thought, though!!

[Dixie Normos]

Read Michael Moore's "Dude Where's My Country" or was it "Stupid White Men" anyway, in ONE of them it talks about the biggest welfare mammas of the US, car manufacturers, banks, and other million dollar industries. Yup, the biggest abusers of government finance are, you guessed it, the people who need it the least.

[pacific breeze]

Same as it ever was re the middle class paying for rich welfare bums.

[Grimmlok]

Oh no lets bail out the big 3 US automakers who refuse to stay with the times, have a fuel efficiency standard from 35 fucking years ago, and throw ridiculous amounts of money in the form of lobbyists at washington to keep it that way

No wonder the japanese are killing in the car area. They change quickly.

[witchcurlgirl]

thats why the rich get richer, and the middle class just gets fucked in the ass

[celeb_2006]

Sickening, any ounce of sympathy I might have had for the sub prime victims, sorry.

[pacific breeze]

The taxpayers also bailed out the savings and loan fiasco, and I believe some of the Bush clan was front and centre in that as well. No shit EVER sticks to these rich assholes. They just make more laws to bail one another out.

[A*O]

Originally Posted by Griffo

A bit like here in Aussie....All the major banks have just upped there rates......REASON!!....the US subprime...go figure.

Hang on, I thought our shiny brand new Labour government said that this kind of shit wouldn't happen. And people believed it! They've only been in office for a couple of months and the wheel has already fallen off. This is going to be a very bumpy ride.

[pacific breeze]

^^Howard's government told a lot of fibs, too. Don't they all? If they were perfect, they likely wouldn't have been voted out, lol.

The same thing is likely to happen here, and we have a useless conservative government that can't get far enough up Bush's asshole, kind of like Howard was.