Tuesday, April 14, 2015

Bank robbers

General Electric (GE) used to run a large financial operation -- a bank: GE Capital. It's decided to get rid of it. As Paul Krugman explains, this is because US regulators decided that since GE Capital was acting like a large bank, it should be regulated like one. That hasn't stopped the howls of outrage about overzealous regulation. The Wall Street Journal adds more. GE Finance wasn't just a bank; it was a tax dodge factory --

In cutting loose its banking business, General Electric Co. isn’t just shedding a profitable lending operation. It’s also losing a rich source of tax breaks.... GE says its effective tax rate could rise to 20% or more in the future, roughly double last year’s rate of just over 10% ... What that means in practice, a person familiar with the matter said, is that GE Capital can borrow in the U.S., using the interest it pays to offset its industrial profits at home, and then make profits by investing the money out of Uncle Sam’s reach overseas.

Just what your friendly neighbourhood bank was meant for!

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