Tuesday, November 3, 2009

Goldman’s Plan for Fannie’s Credits May Trip Up (FNM; GS)

UPDATE: "Buffett Joins Goldman in Bid for Fannie Mae Tax Credits (BRK.A; FNM)"
Original post:
From DealBook:

It could be yet another opportunity for Goldman Sachs to come out a winner from the financial crisis that it helped create, but the Treasury Department appears poised to squash it.

Treasury officials confirmed on Monday that Goldman Sachs, which reported record quarterly profits last month, has proposed buying or at least borrowing tens of millions of dollars worth of unused tax credits from Fannie Mae, the mortgage finance company that is now owned by the government, The New York Times’s Edmund L. Andrews and Graham Bowley reported.

Fannie Mae cannot benefit from the tax credits, which are tied to investments in low-income housing, because it has lost so much money that it may not owe federal taxes for years to come.

The proposal, first reported by The Wall Street Journal, has been pitched by the Wall Street firm as a win-win idea. Fannie Mae would get cash, which it might be able to pump into more low-income housing investment, while Goldman Sachs and perhaps a syndicate of investors would be able to reduce their taxes.

Investors and financial institutions already trade low-income housing tax credits, so the concept itself is not new. The deal would also be a variant of those in which profit-making companies buy businesses with big tax-loss credits they can use to offset their own tax bills.

But the political appearances could hardly be worse. Lawmakers in both parties have fumed time and again that Wall Street firms — Goldman Sachs in particular — seemed to be profiting from the mortgage bubble and bust they played a central role in financing.

On top of that, Treasury officials said the proposal would be of dubious benefit to taxpayers: the government, as Fannie Mae’s owner, would be collecting money with one hand while it was giving back at least as much with the other hand to Goldman Sachs and its investors....MORE