Via James Pethokoukis, comes a statement from Elizabeth Warren and three other former members of the TARP Congressional Oversight Panel with some harsh words for the special treatment given to GM:
“When the government bailed out GM, it should not have allowed the failed auto giant to duck taxes for years to come. That kind of bonus wasn’t necessary to protect the economy. It also gives GM a leg up against its competitors at a time when everyone should have to play by the same rules – especially when it comes to paying taxes”
Actually Warren didn’t quite say this. Despite the fact that AIG, GM, and Citigroup all benefitted from a special Treasury rule that allowed them to, as Warren puts it, “duck taxes”, Warren only called attention to the money given to AIG. Here is the phrasing actually used:
“When the government bailed out AIG, it should not have allowed the failed insurance giant to duck taxes for years to come. That kind of bonus wasn’t necessary to protect the economy. It also gives AIG a leg up against its competitors at a time when everyone should have to play by the same rules – especially when it comes to paying taxes.’’
The basic issue is this. When a company has a net operating loss (NOL) in one year, they can carry these losses forward into later profitable years to lower their tax bill. Normally, when a company goes bankrupt and ownership stake is changed by more than 50%, the NOLs disappear. According to a paper by Mark Ramseyer and Eric B. Rasmusen, GM had $45 billion in losses, with a book value of $18 billion, that the Treasury’s special exemption allowed them to keep. According to Warren the exemption has provided AIG with $17.7 an extra billion in profits. It’s unclear why you would complain about AIG receiving this tax bailout and not complain about GM doing the same.
Am I missing something here? It’s quite possible. I’m not a tax lawyer or an accountant. But from where I’m sitting, James Pethokoukis is correct that it is strange to complain about AIG and not GM. The only reason I can see why Warren would do this is that she is a politician running for Senate and she doesn’t want to alienate liberal voters and unions who support the GM bailout, including the part that lets them “duck taxes”.
It’s worth noting that, hypocrisy aside, Warren is right these secret bailouts are a bad idea. People tend to ignore these costs when considering bailouts, indeed many pundits seem completely unaware of them, which bailouts them seem cheaper then they really are. I don’t think we’ll ever be free of the problem of bailouts, and letting politicians hide billions of dollars in costs makes it more likely that the bailouts we get will be even bigger.
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Friday ~ March 16th, 2012 at 9:26 am
Nick
Isn’t it possible that Warren simply feels that the bailout of GM, and the resultant tax break, is more justified than the GM one? It would be poor tactics, then, to bring it up when discussing AIG. She doesn’t need to be pandering to voters to believe that there are substantive differences between the two companies.
Friday ~ March 16th, 2012 at 9:26 am
Nick
Sorry, *more justified than the AIG one
Friday ~ March 16th, 2012 at 9:49 am
No Country For Constitutional Men
The next time someone tells you that nobody could see the implosion coming, read them this quote from Atlas Shrugged. It’s us looking at our society in a mirror. We are there!
“When you see that trading is done, not by consent, but by compulsion- When you see that in order to produce, you need to obtain permission from men who produce nothing- when you see that money is flowing to those who deal, not in goods, but in favors- when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you- when you see corruption being rewarded and honesty becoming a self-sacrifice- you may know that your society is doomed.”
Friday ~ March 16th, 2012 at 11:14 am
rjsigmund
“It’s unclear why you would complain about AIG receiving this tax bailout and not complain about GM doing the same.
Am I missing something here?”
she’s a politican
Friday ~ March 16th, 2012 at 11:25 am
Lord
It depends on how much you assume she knows of these other uses of it.
Friday ~ March 16th, 2012 at 11:59 am
BSEconomist
I’m sorry, I appreciate what you’re trying to say, but it just isn’t true that the aig bailout was in any way equivalent to the gm one. GM forms the core of a major industrial cluster so that when it dies the agglomeration benefits it makes possible die with it. That means an entire ecosystem of business will die. Whatever you think about industrial policy in general–I’m not much of a fan myself–these benefits are real, a politician may be wrong to support them, but that doesn’t make them a hypocrit.
AIG on the other hand does not generate agglomeration benefits. It does generate a network externality but that’s moot the same thing. A govt supported wind down of AIG’s operations would have been menough to deal with the network effect without requiring continuing assistance, I am less anti-bailout than most, but Warren has been on the anti-ban bailout the entire time (she was critical of TARP even as she oversaw the funds). I see no inconsistency.
Of course, that public support would be behind her position surely must make the position easier. But then again I’m almost certain that an anti-GM position would be politically profitable precise bcs she is unlikely too worried about her left flank, but eager to reach to the center at least to some extent.
So think about what your saying before you call someone a hypocrit. Warren is one of the foremost experts in the country on this issue.
Friday ~ March 16th, 2012 at 12:31 pm
More on the GM and AIG bailouts « Modeled Behavior
[...] commenters are pushing back on my previous post by suggesting that the GM bailout was desirable and the AIG bailout wasn’t. I don’t [...]
Friday ~ March 16th, 2012 at 1:49 pm
jason11
When the majority shareholder in a corporation is the taxpayer doing the math on bailout costs is always a bit tricky.
Adam thinks this move masks the cost of the bailout but Im not sure the mask really covers up very much. This loss of tax revenue is certainly a cost, but the gain to shareholders counteracts much of that loss.
Additionally Adam doesnt carry this far enough. Tax receipts for workers and companies that would have gone under if not for the bailouts would further reduce the cost of bailouts. Avoided unemployment and medicaid reduce costs.
So yeah, maybe this adds a tiny bit of a murk to a very murky situation..but overall…meh. Accurate math on this transaction is very complicated. Nobody likes complicated.
Friday ~ March 16th, 2012 at 3:32 pm
BSEconomist
This is a good point as well. Estimating the cost of the bailouts, whether AIG or GM is really hard. Might even be negative when all is said and done but then, there’s still moral hazard to worry about.
Friday ~ March 16th, 2012 at 9:25 pm
Timbhoy
Re No Country for Constitutional Men, I will not comment on Any Rand as a moralist, but as an economic/social prognosticator, she seems pretty far off the mark. “Atlas Shrugged” was published 55 years ago. In the meantime, despite that “mirror” behavior, the economy has gone forward by leaps and bounds (absent the recent relapse and one or two others in the normal course of the business cycle), and socially, while it depends on values, I suppose, I would think there would be a consensus that we live in a more tolerant and broadly more open society than the conformist Fifties. Scarcely a society that is doomed.
Saturday ~ March 17th, 2012 at 10:54 pm
Jeff
Let’s grant, for the sake of argument, that there is some political posturing and hypocrisy here. There is another politician running for office right now, going around saying that it is immoral to run deficits during economic bad times. (Actually, there’s more than one, but I’m thinking of one who clearly knows that this is not true.) This is a larger and more important issue in that both the probability of damage and the magnitude of that damage would be larger. In addition, this individual is running for a more important office. Now, perhaps, you can’t figure out who I’m referring to, but I doubt that.
I find it interesting (hypocritical even) that you choose to focus on Warren, and ignore that.
Sunday ~ March 18th, 2012 at 10:16 pm
jam
So what’s the theory on why she didn’t complain about Citigroup?
Don’t know much about her opinions, but a quick google of her and GM reveals various articles which might provide clues.
‘she said, noting there is “no good reason” that dealers that make auto loans should not have to comply with the same regulations as community banks making the same auto loans… “I’m shocked that car dealers are willing to say publicly that they want to have the legal right to hide tricks and traps [in their loans].”’
http://washingtonindependent.com/90476/warren-praises-strong-finreg-bill-slams-auto-dealer-carve-out
Or how about her book ‘Unique Treatment of GMAC Under the TARP’, where she wonders why GMAC was able to get bailout money without the types of conditions placed on GM, who’s equity holders got wiped out.
Monday ~ March 19th, 2012 at 10:00 am
No Country For Constitutional Men
Timbhoy, what part of the quote doesn’t apply today? Simple question!
Friday ~ March 30th, 2012 at 1:20 pm
AIG’s past losses cost taxpayers now and into the future – The Washington Post « Ye Olde Soapbox
[...] Elizabeth Warren on Bailouts (modeledbehavior.com) [...]