President Obama has presented a budget that will yield a $1.75 trillion deficit --12% of GDP. But he promises to slice that deficit in half by the end of his current term. The budget has many items in it, but I found two to be particularly interesting -- the decision to more than double the original TARP and the move to repeal a loophole that enables hedge fund and private equity managers to slice their tax bills in half.
The budget could add as much as $750 billion for bank bailouts. The TARP had allocated $700 billion to that bailout task last year. $350 billion of that has been spent and if the latest $750 billion is added to the yet-to-be-spent second half of the TARP, that leaves $1.1 trillion of taxpayer money going out the door. But for what purpose? We know $16 billion went to bonuses and there have been the multi-million parties as well. But as far as getting more lending out to individuals and companies, the zombie banks that got the money have kept their purse strings tight.
Meanwhile, the budget does do something good. It makes private equity and hedge fund managers pay income tax on their income instead of treating that income as if it was a capital gain -- subjecting it to the lower 15% tax rate. I argued this point on CNBC back in July 2007 with the Wall Street Journal's Alan Murray (and he ended up agreeing with me). Unfortunately, closing this loophole would have done much more good when hedge funds and private equity firms were actually making money.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.
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Reader Comments (Page 1 of 1)
2-26-2009 @ 1:42PM
BHarrison said...
STOP the INSANITY . . . make the banks work it all out through Bankruptcy "reorganization"; otherwise, let them be sold off to the highest bidder and let the REGULATED Free Market Economy and basic capitalism prevail.
As long as the government keeps proping up the banks financially, the banks will NOT make the hard decisions or take the tough steps necessary to stablize the banks on their own . . . they are ALL riding on the BILLIONS of dollars in "bail out" monies to "game' the recovery system.
These institutions ahve been propped up long enough! Now is the time for some "tough love" to make them earn their continued existence and their jobs . . . THAT is the only thing that is going to make them truly reform what they are doing. If they won't be economically viable in making discriminating loans, then let them go bankrupt. Meanwhile they should be held personally responsible and liable for whatever they do . . . that is what they (esp. the CESs) get paid all of those millions of dollars to do.
If they can't handle the jobs then they need to resign or to be fired. These people have screwed up the lives of HUNDREDS of MILLIONS of people . . . why are we having ANY pAtience with them?
It is well past the time that the CEOs should have been investigated and indicted for having orchestrated or overseen the orchestration of the pyramid and Ponzi schemes, the "derivatives" FRAUDS, andother FRAUDS. Why haven't these unethical, CRIMINAL CEOs been indicted????
It is past time to quit messing around with these guys . . . the French people would have sent ALL of them to the guillotines . . . we still have them running the corporation that they mismanaged into financial failures, and have allowed them to keep the HUNDREDS of MILLIONS of dollars in ill gotten salaries, bonues, and other compensations while they fraudulently mismanaged and ruined the corporations.
Where is the "JUSTICE" in any of this for the American people??? Meanwhile, Madoff is living comfortably in his plush condominium; and Standford hasn't been arrested yet . . . there certainly IS a DOUBLE STANDARD for this upper tier of management/ultrawealthy people who should be stripped of their ill gotten wealth and "beheaded".
Yet the American people apathetically sit back and complain; but don't demand that their Congressmen take definitive actions.
As the French philosopher said: "People have the government that they deserve . . . " because if they tolerate it, then they deserve it . . ..