Citibank has confirmed its plans to pay back the bailout funds directly provided to it. See NY Times. Of course, the fact that banks are paying back direct bailout funds does not mean that there is no further bank bailout going on. The government now stands as guarantor, an assurance that has provided a significant cost-of-funds advantage to big banks. One has to wonder whehter there will ever be a complete reckoning regarding the total amount of the assistance that big banks and insurers have received. It is something that is terribly important, if we want to make wise decisions on financial system reforms. One suspects that whatever bill passes the Congress will have a number of poor provisions, given the influence of bank lobbyists and the vulnerability of Congress to that influence. Without public pressure expressing the rightious rage at bank's profiting from the bailout without corresponding assistant to Main Street and bankers' profiting personally while middle America hemorhages jobs, we'll continue without the significant changes that are needed.
Not surprisingly, the banks that exit the US bailout program are going to continue to benefit from the "special" rules written to override the regular rules preventing loss trafficking. Last week, Treasury made clear that government sales of stakes in banks won't be taken into account in determining whether there has been a sufficient ownership change to invoke the rules under section 382 et seq that limit loss use to a formula intended to keep losses used at pre-ownership change use rate.
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