Without going back for details, let me recall that earlier this year Goldman Sachs and a client that I believe was a Portuguese bank got in a little bit of trouble for a deal they did. The Portuguese bank needed to improve its capital ratio, and one way of doing that would have been to sell some assets it owned; for various reasons, it didn't want to technically do that, but it did something economically equivalent. Its regulator, to its surprise and dismay, told it that this economically-equivalent-to-sale was not regulatorily-equivalent-to-sale, but there was a third economically-equivalent-to-sale arrangement that had even more closely related precedent to being regulatorily-equivalent-to-sale, so Goldman Sachs helped the bank convert its interim arrangement into the new one. The criticism to which the banks were then subject was that this conversion from the interim structure to the new structure was done for no economic purpose; it was solely an attempt to affect regulatory treatment.
Thursday, November 13, 2014 :::
Now, of course, that was true; it was more or less an attempt to help the regulators get the right answer, since they were previously making a distinction where there was no distinction to be made. One certainly gets the impression that going from the full, true ownership of the assets to the final state without the intermediate states wouldn't have raised any eyebrows. Further — wait, isn't the point of regulations that they're supposed to be complied with? There's no question here that the bank was, the whole way through the process, attempting to comply with the spirit of the regulation; the criticism seemed to be that, having satisfied the intent but not, according to the regulator, the letter, they then proceeded to satisfy the letter as well without any substantive change — but, again, that's because the substance had already been there. So this is just nuts.
Now, Jonathan Gruber, who has been an unwitting and bountiful source of delight for opponents of Obamacare this year, was recently found to have commented that some of the structure of the Obamacare legislation was not what he would have preferred, but was done for political reasons. He used words like "stupid" that are hard to cast as normatively neutral, but I kind of feel like, had he avoided that, he could have made points very similar to the points he made in a way that would have been more sympathetic, for reasons similar to the preceding bank story. If he had said, "You and I and John Roberts consider this to be equivalent to a tax, but there are people to whom it seems to be importantly different, so we had to cast it as a penalty," or "You and I consider the 'community rating' as equivalent to taxing young people and giving the money as a subsidy to old people, but there are people who get much more upset about one set-up than the other, so we used the set-up that they preferred rather than the one that seemed equivalent to us but more objectionable to them," there's some level on which that looks like common sense political horse-trading; if B gets you most of what you really want, and B is far preferable to other people than A is, you go with B over A, even if — especially if — they seem equivalent to you.
::: posted by dWj at 12:16 PM