Senate Offers Tax Breaks to Subprime Lenders

We all believe in the free market and responsibility, right? Provide a good product or service, you do well in the market. Screw up, make bad business decisions, you get what's coming to you.

But really screw up and cause a recession, and what happens?

Subprime lenders, homebuilders and banks stand to benefit from a $14.4 billion tax break passed yesterday by a Senate committee as part of an economic stimulus package.

A provision in the bill adopted by the Finance Committee would allow businesses to use operating losses they have in 2007 and 2008 to claim a refund of taxes paid in any of the previous five years. Without the legislation, companies would have to wait years to apply those losses against future profits.

Banks, which have posted $145 billion in writedowns and credit losses tied to the falling value of mortgage securities since the subprime crisis began, stand to be among the provision's biggest beneficiaries, said Robert Willens, president of Robert Willens LLC, a firm that advises Wall Street firms on tax and accounting issues.

"There is an irony in it,'' Willens said. "Clearly, it's helping to bail out those that made improvident decisions,'' lending money to people with questionable ability to repay it [emphasis mine; Ryan J. Donmoyer, "Subprime Lenders Get Tax Breaks in U.S. Senate Stimulus Plan," Bloomberg via Yahoo, 2008.01.31].

So is the Senate trying to stimulate the economy or just give some handouts to its rich banker friends who helped get us into this mess in the first place? Try explaining that one to the kids and grandkids we are borrowing this money from.