Today, the President-elect is meeting at the White House with the current President. No President in U.S. history has left his successor with two long wars with no end and an economic depression. That is until the current one. But George W. Bush has more trouble in store for his successor. And he's piling on the problems in his usual secretive manner -- hoping nobody will notice.
How so? First, the Treasury Department this morning announced that it would increase the size of the bailout of American International Group (NYSE: AIG) from $143.7 billion to $150 billion and it would do so from funds in the $810 billion bank bailout bill. Second, he snuck a $140 billion bank tax break into that same bailout bill that would encourage bank mergers by allowing profitable banks to pay less tax by using the losses from unprofitable ones they buy to offset their taxable income.
Each of these moves is complex but the bottom line is that more of your money is going to bail out the mistakes of a handful of executives without any input from taxpayer representatives. The new AIG bailout swaps a program that gave it $143.7 billion of taxpayer money -- the original $85 billion loan for warrants to buy 79.9% stake; plus $37.8 billion more to cover losses from AIG's money-losing securities lending unit; plus another $20.9 billion worth of Commercial Paper -- for a new deal.
The new AIG deal uses $40 billion from the $810 billion bank bailout to buy preferred shares of AIG; reduces an $85 billion loan from the previous package with a new $60 billion one; and replaces a separate $37.8 billion loan to AIG the with a $52 billion aid package to buy collateralized debt obligations and residential mortgage backed securities. Supposedly , this new capital structure is "more durable." Meanwhile, AIG is rewarding its taxpayer/owners with a whopping $24.47 billion loss, or $9.05 a share, compared with a year-earlier profit of $3.09 billion, or $1.19 a share.
But wait -- there's more. Treasury slipped a $140 billion bank tax break into the $810 billion bailout bill. This tax break allows banks to shield the profits they make from their own business by subtracting the losses from unprofitable banks they acquire before calculating their taxable income. This new tax break was passed into law in a process which congressional staffers consider illegal. George K. Yin, a tax expert, said, "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
The current president has tried hard to turn his government into a monarchy which issues orders without question from Congress. The mess he's left his successor is proof of why our forefathers revolted against the British monarchy. And while I would like to believe otherwise, it will take at least one term for the new president to clean up the mess his predecessor left him.