GOP vs Obama vs Oil Company Tax Subsidies: Bribes & Showdowns!!

Looks Like A Tough Political Showdown Between Pres. Obama & GOP Leaders Over Tax Breaks & Subsidies Is Headed Our Way.

You See The GOP Wants To Keep Throwing Money At Big Oil Companies In The Form Of Tax Subsidies In Exchange For BIG Campaign Checks From Oil Company Lobbyists.

President Obama On The Other Hand Wants To Cut Off Those Unfair Tax Subsidies & Tax Breaks.

In Fact GOP Lawmakers On Capitol Hill May Even Attempt To Use The Debt Ceiling As A Bribe Against Stopping Those Unfair Tax Subsidies To Big Oil Companies.

Excuse Me But Aren't Bribes What The GOP Accused Democrats Of Back In 2009 & 2010???

This Brutal Showdown Among Both Democrat & GOP Leaders Reveals One Of The Reasons Why Key GOP Lawmakers Are Trying To Kick Pres. Obama Out Of The Oval Office.

Can You Say: "The GOP Is More Likely Than Not As It Relates To Being Responsible For American Gas Price Gouging??"

That's Right!

It Appears As If The Republican Party Is Contributing To America's Current High Gasoline Prices, Yet NONE Of Them Want To Stop Giving Big Oil Companies Huge Tax Subsidies & Tax Breaks!

Just Another Logical Reason To VOTE OBAMA IN 2012!!






Big Oil's $4 billion tax break in doubt

President Obama repeated his call Tuesday for an end to $4 billion in oil industry tax breaks as gas prices approach $4 a gallon and after a top lawmaker indicated a possible shift in Republican policy.

In a letter to congressional leaders, the president said the oil industry is profitable enough without the tax incentives and that the money should be spent on alternative energy sources and conservation.

"CEOs of the major oil companies have made it clear that high oil prices provide more than enough profit motive to invest in domestic production without special tax breaks," said Obama. "As we work together to reduce our deficits, we simply can't afford these wasteful subsidies."

This week those profits are going to be front and center. BP (BP) is expected to report earnings on Wednesday. Exxon (XOM, Fortune 500) is slated to announce its results on Thursday. Some analysts expect the company's profits to jump 50% from last year. Chevron (CVX, Fortune 500) is scheduled to make its earnings announcement on Friday.

The oil industry and many of its supporters in Congress have long argued that the tax breaks encourage domestic oil production and provide jobs for millions of Americans. Republicans in particular have resisted efforts to eliminate these tax breaks, something many Democrats have been trying to do since at least 2008.

But on Monday night, Speaker of the House John Boehner indicated he might be open to taking some of those breaks off the table.

Drill baby drill won't lower gas prices
"I don't think the big oil companies need to have the oil depletion allowances, but for small, independent oil and gas producers, if they didn't have this, there'd be even less exploration in America than there is today," Boehner said on ABC's World News Tonight. "It's certainly something we need to be looking at."

Depletion allowances let oil companies treat the oil in the ground as capital equipment, and they can write off a certain percentage for each barrel that comes out.

On Tuesday the speaker appeared to backtrack from those comments, with an aid telling CNN that "what the President has suggested so far would simply raise taxes and increase the price at the pump."

Nonetheless, Obama took the chance to pounce, saying in his letter that he was "heartened that Speaker Boehner yesterday expressed openness to eliminating these tax subsidies."

This all comes as the price of gasoline surges above $4 a gallon in many states, making it increasingly difficult politically to defend Big Oil.

As gas prices approach their record highs set in 2008 they are threatening to derail the nation's nascent economic recovery.

The tax breaks in question
The Obama administration is targeting nine tax breaks, according to a paper from the left-leaning Center for American Progress. Four account for the lion's share of the money:

Domestic manufacturing tax deduction: This is the largest single tax break, and would save over $1.7 billion a year if eliminated.

The tax deduction, passed in 2004, is designed to keep factories in the United States. Companies that manufacture here can deduct 9% of their income from operations that are attributed to domestic production.

But some question if that incentive is really appropriate for oil companies. "What are they going to do, move the oil field to the North Sea," said one staffer at the Center for American Progress said in an interview earlier this year.

No, but higher costs in the United States may make them move the drill rigs to the North Sea or some other place.

Eliminating the tax breaks "would actually discourage new energy projects and new hiring in one of the nation's most dependable job-creating industries," the American Petroleum Institute said in a statement at the time, noting the industry currently supports over 9 million jobs.

The percentage depletion allowance: This lets oil companies deduct about 15% of the money generated from a well from its taxes. Eliminating it would save about $1 billion a year.

The deduction essentially lets oil companies treat oil in the ground as capital equipment. For any industry, the value of that equipment can be written down each year.

But critics say oil in the ground is not capital equipment, but a national resource that the oil companies are simply using for their own profit.

The foreign tax credit: This provision gives companies a credit for any taxes they pay to other countries. Altering this tax credit would save about $850 million a year.

Foreign governments can collect money from oil companies through royalties -- fees for depleting their national resources -- and income taxes.

A royalty would be deducted as a cost of doing business, and would likely shave about 30% off a company's tax bill. Categorized as income tax, it is 100% deductible.

Foreign governments long ago grew wise to the U.S. tax code. To reduce costs for everyone involved and attract business, they agreed to call some royalties income taxes, allowing oil companies to take the 100% deduction on a bigger slice of their bill.

Intangible drilling costs: This lets the industry write off about $780 million a year for things like wages, fuel, repairs and hauling costs.

All industries get to write off the costs of doing business, but they must take it over the life of an investment. The oil industry gets to take the drilling credit in the first year.


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Sources: CNN, Whitehouse.gov, Youtube, Google Maps

Tea Party Movement Planning National "Strike" Against Corporate America On Jan. 20

Tea Party Movement Plans "Strike" for Jan. 20


As the one-year anniversary of President Obama's inauguration nears, the Tea Party movement is planning a "strike" against corporations they call responsible for "funding socialism" and "backing the leftist agenda" of the new president.

Liberal politicians benefit from "large donors, labor union thugs, Hollywood elites and major media propagating our destruction," contends strike organizer Allen Hardage at the Tea Party Patriots web site.

In the wake of the economic downfall and the financial and auto bailouts of the past year, the tea party movement sprang up to represent conservative voters who felt disenfranchised. The election of a Democratic president intent on promoting new government spending on things like health care has spurred on the movement, prompting protests against big government and its ties to big business.

Hardage writes that on Jan. 20 "the TEA Party movement moves into the next phase, TEA 2.0, of taking our country back... We will demonstrate our power and reach to those companies who employ individuals backing the leftist agenda in every major city, every congressional district and every small rural town in America to spread one unified message. That message is simple: Stop funding socialism."

Hardage told Talking Points Memo that he will not release the companies which the strike will target until Jan. 20. but that it will focus on businesses "that are the largest supporters of the most liberal members of Congress as well as those that support extreme liberal media outlets."

The strike has gained some interest online, where more than 4,000 people have shown their support for the event on Facebook and other sites. If the strike proves ineffective, according to Hardage, the tea partiers will hold a march on Feb. 27, as well as a national boycott "of all of the companies that do not stop donating to people like Harry Reid, Nancy Pelosi, Chris Dodd et al."

Republicans have tried to capture the energy of the tea partiers. GOP Rep. Michele Bachmann said in a radio interview on Dec. 29 that if the Republican party wants to succeed in the 2010 midterm elections, it needs to "embrace the tea party movement with full arms."

But Suzy Khimm of Newsweek points out that the movement "has yet to pay off for the Republican Party in terms of small-scale donations─the kind of grassroots support that proved critical to bringing Obama and congressional Democrats to power last year."

Up-and-coming conservative politicians like Marco Rubio in Florida, however, could try to bring tea partiers into the Republican fold as he battles Gov. Charlie Crist in a GOP Senate primary this year. If the tea partiers succeed in electing politicians like Rubio, New York Times columnist David Brooks writes, "their movement is likely to outgrow its crude beginnings and become a major force in American politics."


Sources: CBS News, Tea Party Patriots, Newsweek

City, County Officials Review Corrupt Corporate Welfare Tax Breaks

Cities, Counties Take Back Corporate Tax Breaks


Cash-strapped communities have a message for corporations that promised jobs in return for tax breaks: A deal's a deal.

As the economy sputters along, municipalities struggling to fix roads, fund schools and pay bills increasingly are rescinding tax abatements to companies that don't hire enough workers, that lay them off or that close up shop. At the same time, they're sharpening new incentive deals, leaving no doubt what is expected of companies and what will happen if they don't deliver.

''We will roll out the red carpet as much as we can (but) they are going to honor the contract,'' said Brendon Gallagher, an alderman in DeKalb, Ill., where Target Corp. got abatements from the city, county, school district and other taxing bodies after promising at least 500 jobs at a local distribution center.

So when the company came up 66 workers short in 2009, Target got word its next tax bill would be jumping almost $600,000 -- more than half of which goes to the local school district, where teachers and programs have been cut as coffers dried up.

The newfound boldness comes from communities and states that have long bent over backward to lure companies and jobs by offering abatements and other incentives -- to the tune of an estimated $60 billion a year in the United States, according to the Washington-based economic development watchdog group Good Jobs First.

The willingness to write -- and enforce -- the ''clawback'' provisions comes even as companies across the country struggle and against a broader backdrop of governments getting tough on business practices.

What's more, the poor economy has communities thinking about how the tax breaks they dole out will play with residents who have grown increasingly angry at the thought of anything that hints of corporate welfare.

''The public is a lot more aware of tax abatements and there's a climate of skepticism about what can be perceived as corporate handouts,'' said Geoff McKimm, a member of the Monroe County Council in Indiana.

With that in mind, county officials drew up an agreement with Printpack, a packaging company, that includes a provision requiring the company to refund either $197,000 or that year's abatement, whichever is more, if the number of employees at a new factory falls below 140.

Another provision requires Printpack to refund the entire abatement if it employs fewer than 75 people -- a guarantee meant to prevent companies from leaving a ''skeleton crew'' at a location to avoid paying up.

''With so many businesses going to Mexico, communities are desperately trying to hold onto jobs,'' said Amy Gerstman, the county's auditor. ''This was a carefully put-together abatement.''

And businesses increasingly are being forced to hold up their end of the bargain.

In Texas, where companies can get money from the Texas Enterprise Fund if they promise to create a specific number of jobs, the number of clawbacks rose to nine in 2008, compared to a total of seven for the previous three years combined, the governor's office said.

In Illinois, the number of companies from which the state sought to ''recapture'' incentive money has steadily climbed, from six in 2005 to a total of 37 by 2008.

Meanwhile, more communities are contemplating similar action.

In St. Louis County, officials have told Pfizer Inc. that if it cuts 600 jobs, as planned, they'll rethink the $7 million in tax breaks they promised to give the drugmaker for the next 10 years.

And in Detroit, while the state was approving expanded tax credits in exchange for General Motors Co.'s promise not to move its headquarters, the city council was talking about cracking down on tax breaks for GM and other major employers.

''We know that there are more clawbacks getting triggered because more deals are falling short,'' said Greg LeRoy, executive director of Good Jobs First, who has written extensively on clawbacks.

It's unclear exactly how much is being recovered because nobody collects comprehensive statistics on clawbacks, LeRoy and others say. States that do keep statistics track only their own deals, not those initiated by local governments. Communities also may revoke the entire abatement or only a portion of it, while others sometimes simply rule out future abatements, LeRoy said.

Finally, some communities crack down on companies quietly, out of concern that they could scare off other potential employers, LeRoy said. He said that fear persists even though there is no evidence that having or enforcing clawbacks poisons the business climate.

''We were told that we were going to ruin Topeka's ability to attract businesses; we'd give Topeka a black eye,'' said James Crowl, assistant county counselor in Shawnee County, where last year officials approved a settlement that calls for Target to pay $200,000 a year for 10 years after failing to create as many jobs as it had agreed to.

So what happened?

''Last year we opened a Home Depot distribution center right next door,'' said County Counselor Rich Eckert.

In DeKalb, some officials were concerned about sending a bad message to other businesses considering locating there, said Gallagher, the alderman. But he didn't buy it.

''We are 65 miles from Chicago (and) if someone wants to locate 120 miles from Chicago, I can't stop them,'' he said.

Besides, he said, $600,000 means less to Target than to a struggling community, where he said the city alone is facing a $2 million revenue shortfall.

Target was disappointed, but understood the decision, spokeswoman Jill Hornbacher said.

''We are very committed to DeKalb and that distribution center and proud to be there,'' she said.

And don't expect communities to back down soon, officials said.

''There is much more (language) tied to jobs now because of economy,'' said Lee Garrity, city manager in Winston-Salem, N.C., which along with the surrounding county is sharing more than $26 million that computer giant Dell Inc. paid after announcing it will close its assembly plant next year.

Garrity said officials are thinking about provisions that are even more specific.

''We are discussing whether we need to require the jobs of the company go to people who live in the city,'' he said.







2 More Companies Pass Up Promised NC Incentives


A pair of specialty outsourcing companies won't collect job-creation grants from North Carolina taxpayers as the recession hits health care and financial services differently.

The state's Economic Investment Committee, which awards and oversees the major incentives program used to lure expanding companies, on Tuesday canceled a 2005 deal with Hewitt Associates Inc. The Lincolnshire, Ill.-based company had planned to bring 900 new jobs to Charlotte. Those human resources administration and information technology positions didn't happen as the global financial crisis hit the banking city hard.

But two years of recession hasn't slowed the expansion of Durham-based Quintiles Transnational Corp.

The global pharmaceutical testing firm decided to postpone collecting a Job Development Investment Grant payment of $299,000 in a gesture to help out the cash-strapped state budget, an offer the committee accepted Tuesday.

The company will defer collecting the money until the middle of next year, about when the state's budget for the current year closes out.

"Quintiles has been very fortunate that we have performed well and even in this downturn we have seen expansion in our business," spokesman Phil Bridges said. "We recognize that the current economy has put the state of North Carolina in a tough financial position. Quintiles made the offer to defer payment on the (grant) as a way of saying thank you, not only for investing in us but believing in us and our future growth in North Carolina."

Quintiles could receive up to $21.4 million over 12 years under a grant awarded in 2006 to create and sustain 1,000 new jobs. The grants come from taxes the company's employees pay the state.

Since 2006, the contract drug research company has spent $51 million to build a new headquarters and hired nearly 400 workers at salaries averaging nearly $81,000 a year.

Quintiles runs clinical drug trials for pharmaceutical companies, handles documentation necessary for regulatory approval, and recruits and hires drug company sales representatives.

Hewitt met its target to create at least 158 new jobs by the end of 2006 and was due to collect $181,000, a figure the state Commerce Department couldn't and Hewitt wouldn't confirm Tuesday.

But the global provider of human resources support and consulting services wasn't able to hire at least 630 additional employees by the end of 2008 or hit its target of 900 jobs by the end of this year.

Hewitt could have collected up to $8 million if it created the jobs and kept them for 10 years.

The company is the 14th to quit the JDIG program out of 100 approved for job-creation sweeteners since the program started in 2003.

Boat builder Chris-Craft Corp., computer builders Dell Inc. and Lenovo, and memory-chip maker Qimonda North American decided in recent years to cut staff rather than expand as their sales soured, ending their claims on promised incentives. After opening a $600 million data center near Lenoir, Internet giant Google last year turned down the grant it was promised in 2006.

Hewitt restructured its human resources business process outsourcing business in 2006, then was set back as some clients suffered when the financial crisis hit, Hewitt spokeswoman Amy Wulfestieg said. The company employs about 450 in Charlotte, she said.




Dell Shuts NC Plant Despite $300 Million in Tax Incentives


Despite winning more than $300 million in incentives and tax breaks from North Carolina and local governments four years ago, Dell Inc. has decided to shutter an assembly plant because of changing economic circumstances.

This fall Dell announced it would close the plant and lay off more than 900 employees. Company officials say they expect the shutdown to be completed in January.

In 2004 the North Carolina General Assembly was called into a special one-day session by then-Governor Mike Easley (D) to offer Dell $240 million of economic incentives to build a manufacturing facility. Coupled with what Forsyth County and the city of Winston-Salem added, the deal came to more than $300 million in tax breaks and benefits.


Rushed Package

During the special one-day session in 2004, Governor Easley’s senior advisor, Dan Gerlach, argued legislators needed to act quickly to prevent other states from getting the facility. The lawmakers did, and the state put together a complex assortment of incentives, grants, and tax breaks.

With layoffs already ongoing and Dell’s prospects worsening in July of this year, Department of Commerce officials continued supporting the deal. Secretary Keith Crisco told reporters, “We need three to four years to judge it in total. [Dell is] the kind of company we need to be all over [recruiting] in this state.”

With Dell’s plant closure, some critics are pushing for more broad-based approaches to corporate recruitment. Representative Marilyn Avila (R-Wake) thinks targeted tax incentives miss the point.


Simple Solution

“We should develop a statewide economic development plan, which is simply lowering corporate taxes,” she said.

Avila has long argued the state’s tax structure and regulations hinder job creation. She believes the use of incentives should be stopped.

Governor Bev Perdue (D), however, still equates such incentives with job creation.

“When 49 other states are using incentives, if you want to compete [you have to as well,” Perdue said in an interview with WRAL-TV in Raleigh.

Speaker of the House Joe Hackney (D-Orange) pointed out Dell did not use all the available money.

"While the bottom line is still being calculated, either we didn't lose money or we had a net gain in revenues for the state," he said.

Lawsuits Likely

Hackney’s comments illustrate another dimension of the state’s incentive policies. The complexity and myriad performance measures mean disputes between Dell and the state over money owed or needed to be repaid will likely end up in court at taxpayer expense.

Dell spokesman David Frink said recently in the Winston-Salem Journal, “Our belief and our understanding is that we met the performance thresholds required for those incentives during those years, and no, we are not obliged to repay those.”

North Carolina officials hold the opposite view. State Revenue Secretary Ken Lay says the state can require Dell to pay back the money because it no longer meets criteria used to receive it. He calls such a move a “look back.”

Half the Promised Jobs

Public officials promised taxpayers this deal would not lose money for the state. In spite of the much-publicized promise of more than 2000 jobs, the Dell facility never produced more than 1,100 jobs and still received millions of dollars from the state.

If it can be proven the state lost any money, public officials might well have serious problems on their hands from voters and legal challenges from groups like the NC Institute of Constitutional Law, which has challenged many of the state’s targeted tax incentives.

Former North Carolina Supreme Court Justice Robert Orr runs the NC Institute of Constitutional Law. In a letter to the Charlotte News-Observer newspaper, he wrote: “It's very tempting to think that economic development can happen by granting a few companies exceptions to a state's otherwise unattractive tax code. But it doesn't work that way. States should be welcome mats to all business, not just those the politicians have picked as a winner.”



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Sources: NY Times, McClatchy Newspapers, News & Observer, Heartland.org, John Locke Foundation, Dell, GMAC, Hewitt, Wikipedia, Youtube, Google Maps

Lobbyists Ejected From Federal Advisory Panels...Stopping Public Corruption

Loopholes in Lobbying. Weighing in on whether excessive Lobbyists will bring abuse to the system, with Dan Mitchell, Cato Institute and Christian Weller, Center for American Progress.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Lobbyists influencing Health Reform. A Morning Meeting panel talks about a New York Times’ report which suggests lobbyists provided talking points to lawmakers during the House health care debate.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Lobbyists pushed off Federal Advisory Panels



Hundreds, if not thousands, of lobbyists are likely to be ejected from federal advisory panels as part of a little-noticed initiative by the Obama administration to curb K Street's influence in Washington, according to White House officials and lobbying experts.

The new policy -- issued with little fanfare this fall by the White House ethics counsel -- may turn out to be the most far-reaching lobbying rule change so far from President Obama, who also has sought to restrict the ability of lobbyists to get jobs in his administration and to negotiate over stimulus contracts.

The initiative is aimed at a system of advisory committees so vast that federal officials don't have exact numbers for its size; the most recent estimates tally nearly 1,000 panels with total membership exceeding 60,000 people.

Under the policy, which is being phased in over the coming months, none of the more than 13,000 lobbyists in Washington would be able to hold seats on the committees, which advise agencies on trade rules, troop levels, environmental regulations, consumer protections and thousands of other government policies.

"Some folks have developed a comfortable Beltway perch sitting on these boards while at the same time working as lobbyists to influence the government," said White House ethics counsel Norm Eisen, who disclosed the policy in a September blog posting on the White House Web site. "That is just the kind of special interest access that the president objects to."

But lobbyists and many of the businesses they represent say K Street is being unfairly demonized by a White House intent on scoring political points with scandal-weary voters. They warn that the latest policy will severely handicap federal regulators, who rely heavily on advisory boards for technical advice and to serve as liaisons between government and industry.

"It's taken me years to learn what the General Agreement on Tariffs and Trade is," said Robert Vastine, a lobbyist for the Coalition of Service Industries who also serves as chairman of a trade advisory board. "It's a whole different and specialized world. It is not easily obtained knowledge, and they are crippling themselves terribly by ruling out all registered lobbyists."

Bureaucratic Labyrinth

Vastine is deeply familiar with the system because he helped create it as a top Senate Republican staffer during the early 1970s, when Congress approved the Federal Advisory Committee Act. The result, as Vastine puts it, is a "bureaucratic labyrinth" that has expanded to include virtually every aspect of the sprawling federal government, from the 179-member National Petroleum Council, which closely advises the Department of Energy, to the influential Defense Policy Board, which wielded enormous clout in the decision to go to war in Iraq.

According to the most recent estimates from the General Services Administration, 52 government agencies use 915 advisory committees organized under the law, with a total membership of more than 60,000. Other estimates put the figure at about 1,000 panels. Federal officials say they do not know how many panel members are lobbyists.

Most committee members receive no pay for their participation. They often are urged to take part by companies, trade groups or advocacy organizations that hope to sway government decisions to their advantage. While their operations vary, the panels tend to hold open meetings and issue reports and recommendations, and they often wield significant influence with policymakers because of their expertise in arcane subjects, from nuclear plant safety to wild burro management.

Administration lawyers determined that they couldn't ban lobbyists from advisory committees directly because most of the panels are overseen by individual agencies rather than the White House; so Eisen encouraged -- rather than ordered -- the prohibition. Nonetheless, administration officials said, most Cabinet secretaries have implemented the recommendation, usually by barring renewals or new appointments for lobbyists.

Lobbyists up in Arms

The reaction from the lobbying community has been swift and overwhelmingly negative. Some of the loudest criticism has come from the Industry Trade Advisory Committees (ITACs), a collection of more than a dozen panels that provide policy advice and technical assistance to the Commerce Department and the U.S. Trade Representative. The ITACs, whose roughly 400 members include at least 130 lobbyists, officials say, have taken the lead in attacking the White House policy as misguided and harmful to U.S. business interests; a letter to Obama from committee chairs last month included executives from Boeing, IBM, Harley-Davidson and International Paper.

"This action will severely undermine the utility of the advisory committee process," the letter read. ". . . The characteristics that make many Advisors valuable to the Administration [are] the same characteristics that are being used to artificially disqualify them from participation in the Committee system."

The panel on automotive equipment and capital goods, for example, stands to lose at least seven of its two dozen members, including lobbyists for the National Association of Manufacturers and the auto supplier Delphi, when the committee is reconstituted early next year. Critics note that the removals come as domestic automakers struggle to survive and the Obama administration attempts to jump-start trade talks with South Korea and other nations.

"At least for a year and maybe longer, I think we will completely neuter the voice of American business in these negotiations," said panel Chairman Brian T. Petty, senior vice president for government affairs at the International Association of Drilling Contractors. "You are clearing out some of the most competent people."

One lobbyist, William C. Lane, has served on that panel for 20 years while working as the chief Washington representative for Caterpillar, the equipment manufacturer.

"We tend to focus on issues of competitiveness and opening up markets, which is good for everybody," Lane said of the advisory committee. "It's good for communities; it's good for our suppliers."

New Voices

Administration officials remain sanguine, saying the criticism is overblown and arguing that top corporate officers are free to sit on advisory panels as long as they aren't lobbyists. Eisen, in a response letter to the ITAC leaders last month, wrote that "arguments that only lobbyists can bring requisite experience to provide wise counsel . . . are unconvincing on their face."

"If the result of this new approach is that business owners join the conversation in D.C. about issues affecting them, that's fine," Eisen said in an interview. "It's healthy to move away from the professional advocates for the special interests and let some new voices be heard."

And though lobbyists are unhappy, some good-government advocates say the policy is sound.

"You may lose a lot of expertise, but these people are also paid to have a point of view; they have an agenda," said Mary Boyle, a vice president at Common Cause. "We support what the administration is doing to get deep-seated special interests out of the business of running our government, so this seems like a step in the right direction."


Sources: MSNBC, Huffington Post

G.E. Bank Benefits From Corporate Loopholes, Obama Admin. Vows To Close Such Loopholes

Washington Post----

General Electric, the world's largest industrial company, has quietly become the biggest beneficiary of one of the government's key rescue programs for banks.

At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government.

The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.

As a result, GE has joined major banks collectively saving billions of dollars by raising money for their operations at lower interest rates. Public records show that GE Capital, the company's massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liquidity Guarantee Program, or TLGP. The government's actions have been "powerful and helpful" to the company, GE chief executive Jeffrey Immelt acknowledged in December.

GE's finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government's historic intervention in the financial crisis.

The Obama administration now wants to close such loopholes as it works to overhaul the financial system. The plan would reaffirm and strengthen the wall between banking and commerce, forcing companies like GE to essentially choose one or the other.

"We'd like to regulate companies according to what they do, rather than what they call themselves or how they charter themselves," said Andrew Williams, a Treasury spokesman.

GE's ability to live in the best of both worlds -- capitalizing on the federal safety net while avoiding more rigorous regulation -- existed well before last year's crisis, because of its unusual corporate structure.

Banking companies are regulated by the Federal Reserve and not allowed to engage in commerce, but federal law has allowed a small number of commercial companies to engage in banking under the lighter hand of the Office of Thrift Supervision. GE falls in the latter group because of its ownership of a Utah savings and loan.

Unlike other major lenders participating in the debt guarantee program, including Bank of America, Citigroup and J.P. Morgan Chase, GE has never been subject to the Fed's stress tests or its rules for limiting risk. Also unlike firms that have received bailout money in the Troubled Assets Relief Program, or TARP, GE is not subject to restrictions such as limits on executive compensation.

The debt guarantee program that GE joined is administered by the Federal Deposit Insurance Corp., which was reluctant to take on the new mission, according to current and former officials who were not authorized to speak publicly. The FDIC also initially resisted expanding the pool of eligible companies, fearing it would add more risk to the program, the officials said.

Despite those misgivings, there have been no defaults in the loan guarantee program. It has helped buoy confidence in the credit markets and enabled vital financial firms to raise cash even during the darkest days of the economic crisis. In addition, the program has raised more than $8 billion in fees.

"The TGLP program has been a moneymaker for us," FDIC chairman Sheila C. Bair has said. "So I think there have been some benefits to the government and the FDIC."

For its part, GE said that it properly applied for and qualified for the program. "We were accepted on the merits of our application," company spokesman Russell Wilkerson said.

The Cash Cow:

The current good fortune of General Electric, ranked by Forbes as the world's largest company, has roots in the Great Depression, when it created a consumer finance arm so that cash-starved families could buy its appliances.

What grew from those beginnings is now a powerful engine of profit, accounting for nearly half of its parent's net earnings in the past five years. GE may be better known for light bulbs and home appliances, but GE Capital is one of the world's largest and most diverse financial operations, lending money for commercial real estate, aircraft leasing and credit cards for stores such as Wal-Mart. If GE Capital were classified as a banking company, it would be the nation's seventh largest.

Unlike the banking giants, GE Capital is part of an industrial company. That allows GE to offer attractive financing to those who buy its products.

At the height of last fall's financial crisis, GE's cash cow became a potential liability. As credit markets froze, analysts feared that GE Capital was vulnerable to losing access to cheap funding -- largely commercial paper, or short-term corporate IOUs sold to large investors.

Company officials projected confidence. "While GE Capital is not immune from the current environment," Immelt said in October, "we continued to outperform our financial-services peers." Behind the scenes, they urgently sought a helping hand for GE Capital. One key hope was a rescue plan taking shape at the FDIC.

The program emerged during a hectic weekend last October as regulators scrambled to announce a series of rescue efforts before the markets opened.

They found a legal basis for the program in a 1991 law: If a faltering bank posed "systemic risk," then the FDIC, the Fed, the Treasury secretary and the president could agree to give the FDIC more authority to rescue a failing institution. The financial regulators applied the statute broadly, so it would cover the more than 8,000 banks in the FDIC system.

The FDIC hurried to approve the program Oct. 13.

"This was crisis management on steroids," said a person familiar with the process. "A lot was made up on the fly."

The author of the systemic-risk provision, Richard Carnell, now a law professor at Fordham University, says it was intended to apply to a single institution, and that in their rush to find legal footing for unprecedented new programs, regulators "turned the statute on its head."

The FDIC launched the program Tuesday, Oct. 14, the same day Treasury officials announced large capital infusions into nine of the country's banking giants under TARP. That day, the FDIC also expanded its deposit guarantees to a broader range of accounts.

The 'Cliff' Ahead, Obama Administration Vows to close Loophole:

Two weeks ago, the Obama Administration said it would seek to eliminate the Office of Thrift Supervision and force companies like GE to focus on commerce or banking, but not both. That could require the industrial giant to spin off GE Capital.

Last week, Immelt said GE had no intention of doing that. "GE is and will remain committed to GE Capital, and we like our strategy," he said in a memo to staff.

In its proposal to overhaul financial regulation, the Treasury Department pointed out that some firms operating under the existing rules, including collapsed companies such as American International Group, "generally were able to evade effective consolidated supervision and the long-standing policy of separating banking from commerce."

GE's Wilkerson said the company generally supports regulatory reform but thinks that it should be permitted to retain its structure. "Bank reform has historically included grandfathering provisions upon which investors have relied," he said, "and there is no reason this settled principle should not be followed here." He said the company "didn't have any choice" but to have OTS as its regulator.

The company also objects to the Treasury's proposal to force firms to separate banking and commerce because that issue "had nothing to do with the financial crisis," Wilkerson said.

Wilkerson said GE has remained profitable and avoided some of the exotic financial products that contributed to losses at other institutions. He also said that GE performed an internal stress test this year and found that its capital position was "quite strong by comparison to the banks."

The FDIC has been working to wean financial institutions off the program. The TLGP originally was slated to end in June, but at the Treasury's request the FDIC agreed to extend it until Oct. 31. Some participants have stopped using the program, but GE Capital continues to do so for the overwhelming majority of its debt.

Much of the $340 billion in debt will come due in 2012, the year the FDIC guarantees expire. At that point, known in banking circles as the "cliff," the agency will have to make good if companies such as GE are unable to honor their obligations. FDIC officials say they are comfortable that the agency has collected more than enough money to cover potential losses.

Sources: Washington Post, CBS News, Whitehouse.gov, Flickr