JP Morgan Paid $1.9 Billion For WaMu And Now Claims A $1.4 Billion Tax Refund

JP Morgan Paid $1.9 Billion For Washington Mutual And Now It Wants A $1.4 Billion Tax Refund

John Carney | Mar. 24, 2010, 10:10 AM | 3,302 |



JPMorgan Chase is negotiating with the FDIC for a tax refund related to its acquisition of Washington Mutual that could amount to $1.4 billion, The Wall Street Journal is reporting this morning.

A little noticed change in tax law was incorporated into the extension of jobless benefits last year. Under the new rules companies can use losses to apply for tax refunds against earnings from the past 5 years--up from just 2 years before the change.


It isn't just JP Morgan that is benefiting from the tax changes. The WSJ reports:


Many other companies have benefited from the 2009 tax-refund law already. According to an analysis of securities filings by The Wall Street Journal, more than 250 companies have so far said they expect to get about $12 billion in federal tax refunds under the law.
That remains a partial list. The Joint Committee on Taxation, a congressional committee, estimated the provision would cost $33 billion in its first year.


The law specifically excluded companies that took TARP from applying for the refund. So how does JP Morgan qualify? It argues that since Washington Mutual never got TARP funds, its past taxes should qualify.
That's a plausible argument. But the deeper problem here is that our tax code shouldn't be used like this. This rewards the worst managed companies with a subsidy while punishing those that didn't see losses in the crisis. It's got bailout written all over it.

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A little noticed change in tax law was incorporated into the extension of jobless benefits last year. Under the new rules companies can use losses to apply for tax refunds against earnings from the past 5 years--up from just 2 years before the change.

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The Joint Committee on Taxation, a congressional committee, estimated the provision would cost $33 billion in its first year.

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HR3548. The bill spent over 10 times as much on business tax credits as it did on extending jobless benefits. Of course the jobless benefits were the only part Obama and Congress wanted to talk about.

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HR3548. The bill spent over 10 times as much on business tax credits as it did on extending jobless benefits.

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Thanks for the chapter and verse, CG. :tu

Funny how they're always 'little noticed changes'... somebody did notice...

They're little noticed because few are even paying attention, but you're absolutely right that somebody was.

Now, this sort of thing just makes me see red. As if the folks who are really responsible for the financial disaster didn't do well enough already...

Anybody else read the new book by Michael Lewis, The Big Short?

It really is a layman's description of how the bond fiasco that brought down the world's economies occurred, and how most of the principals in the companies that went under had no clue what was happening in their own firms.

But they all make out like bandits, and government just keep helping...both parties...just keep helping them.

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Originally Posted by The Devil's Dictionary

POLICE, n. An armed force for protection and participation.

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Originally Posted by EVAY

Anybody else read the new book by Michael Lewis, The Big Short?

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No, but I want to.

Nutshell?

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Originally Posted by Winehole23

Nutshell?

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Well, a nutshell is not easy for this book, but generally, the book describes how a very, very few folks figured out very early on how much the big banks and mortgage companies had created one mechanism after another to generate more and more FEES from the offerings of mortgages to anyone and everyone on the planet, and how the selling of the mortgages to another firm after the fact made the banks and mortgage companies care less and less and less about whether or not the loans were ever paid back.

Once they didn't care whether or not they got paid back, they were motivated to gin up more and more and more mortgages because they were making their money off the fees, not off the interest.

Then, the firms that bought the mortgages from the issuers wanted to sell the mortgages again, so they created 'groups' of them and created a mortgage bond market from the groupings. Then they sold the bonds.

Then, the bonds were grouped with worsening risk morrtgages, into the 'derivatives' market. Then the derivatives were 'insured' by creating 'credit default swaps'. Then the credit default swaps were traded among themselves, and sold to investors as hedges. But there was nothing to be hedged because the underlying assets were so far removed from the insurance that NO ONE, including the traders, the mortgagees, the rating agencies, the executives, etc., understood the risk associated with it.

The book describes how one guy, with asperger's syndrome, actually read through all the prospectuses of hundred of these offerings, and finally understood what no one else could, i.e., it was a massive ponzi scheme. So he shorted it.

Only about three other human beings shorted them, and of course those guys eventually made a gazillion dollars, but it took much longer than any of them expected it to, and they all almost lost their shirts.

Whenever these guys tried to tell Wall Street, or Rating Agencies, what they saw happening they were laughed out of the rooms.

The important thing about Lewis' book is its description of how noone on Wall Street ever understood the risks associated with what they were doing until all they could do was cover it up by creating more and more venues for hiding it.

So, I think that we have to let the politicians of both parties off the hook for the creation of the fiasco, but I think it really stresses the importance of getting some regulations in place now, but I see no stomach for that in either party.

Sadly, no. The Dodd bill hands regulation to the Fed, and minimizes consumer advocacy.

Outlook could be grim for the US taxpayer.

and thanks for the neat little nutshell.

I would assume the opacity of risk is an ongoing phenomenon, or was never adequately resolved.

The casino never closed, after all.

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Originally Posted by Winehole23

and thanks for the neat little nutshell.

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My biggest worry about the nutshell is that Boutons will end up starting a riot.

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Originally Posted by Winehole23

I would only assume the opacity of risk is an ongoing phenomenon, or was never definitively resolved.

The casino never closed.

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No, it definitely has not.

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Originally Posted by EVAY

My biggest worry about the nutshell is that Boutons will end up starting a riot.

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Whenever he stops posting here, you'll know to double-check your locks and doors. :lol

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Originally Posted by Winehole23

I would assume the opacity of risk is an ongoing phenomenon, or was never adequately resolved.

The casino never closed, after all.

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Nope. Meanwhile the government has spent the last two years simultaneously assuming the risk for the financial institutions on one side and offering tax incentives & mortgage help to get people buying homes again on the other. They're just trying to get the party cranked up again.

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Originally Posted by coyotes_geek

Nope. Meanwhile the government has spent the last two years simultaneously assuming the risk for the financial institutions on one side and offering tax incentives & mortgage help to get people buying homes again on the other. They're just trying to get the party cranked up again.

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I honestly don't think we can assume that the gov't. is trying to get the same thing going again, CG. I think that gov't. is just trying to keep the economy afloat. What is clear to me is that noone in government on either side of the political aisle is sufficiently versed in the arcania of the financial instruments to prohibit it from happening again.

We are, unfortuately, in the position that as long as there is ANY market for housing in the U.S., as long as Wall Street allows itself to trade in investments that THEY don't understand, (much less a bunch of congressional lawyers), our financial underpinning is at risk.

The only people who can fix this are the financial analysts themselves, starting with Moody's and Standard and Poor's, who should say to their clients "If you cannot make this understandable to our analysts we will refuse to rate your bond offering".

However, since Moody's and Standard and Poor's are dependent on their clients to pay their fees, and since Moody's and Standard and Poor's pay their analysts FAR less than other positions on Wall Street get for analysis, I don't hold out much hope.

A lesson we can all learn from this is to be afraid, be very afraid, of a mortgage bond offering of derivatives or credit swaps. That is the only lesson over which we have control.

And the democrats want to reward their banker friends even more with the housing plan. They want to help:

1) People who are upside-down on their loans

2) Unemployed pay for their loans.

Both sound nice, but in the end, the risk taker rewarded are the banks.

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Originally Posted by Winehole23

They're little noticed because few are even paying attention, but you're absolutely right that somebody was.

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Seriously WH? I remember you had quite the fit last time I brought that very subject up.

What, please? I disremember.

Refresh?

I dunno man, that thread where I went on my rant about apathy and you were all I'd rather drink wine and do my wife. Not that I blame you, I myself love sex and wine. I'm just saying.

That sounds just like me.

I'd give out similar advice right now, I suppose.

Drink wine.

Do your wife.

Well I don't have a wife but I did a fair amount of drinking tonight so I'm halfway to becoming Winehole.

I don't recommend it.

However, suit yourself.

:toast

bump!