Bailout Watch 282: Bailout D.O.A. in Senate. For Now.
The New York Times is reporting that the auto bailout bill passed by the House “appears dead in the Senate” today. Opposition from Republican senators is well summarized in an op-ed by Senator Bob Corker in today’s Detroit News. But another reason the bill might fail has emerged only recently, as the Times also reports that the House version of the bill was packed with pork shortly before passage. A provision in the bill asks the government to help municipal transit agencies by guaranteeing the economics of a complex tax shelter known as SILO (Sale In, Lease Out), despite years of efforts by the Treasury Department and the Internal Revenue Service to shut it down and collect billions of dollars of unpaid taxes, interest and penalties. SILO involves buying and then leasing back depreciation rights and assets at the transit agencies, in yet another poorly-understood derivatives scheme. According to the Times “Many of the deals are faltering because of the credit crisis and have put the agencies at risk of having to make large payments to banks and insurers. Last month, the agencies asked the government to back their role in the deals. The I.R.S., which banned the shelter in 2004, offered a so-called amnesty in August to more than 45 corporations that engaged in more than 1,000 Silo deals involving municipal property.” The House bailout bill also includes a cost-of-living pay increase for Federal district judges, reports the Wall Street Journal. In lieu of (what might be an all-too obvious) editorial commentary, let me simply say that if and when this bill fails, the world will not end. The American economy is incredibly resilient, and real opportunities will arise from the creative destruction of a GM reorganization. It won’t be easy, but it couldn’t be more necessary. Good afternoon, and good luck.
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