Smart, Inc.

As the federal government takes some time and enacts debate on what's been called historical financial rescue this past week, the American citizens got to enjoy politics at the core of the debate. When will partisan presidential politics stop trumping the business of the nation? Many true statesmen (& women) that would be able to contribute to the general welfare of helping direct national policy are seemingly missing in the US Congress.

Naturally, the spending and tax programs that were inserted into the legislation the first round -- dare I call it "Bailout One"? The Chicago Tribute reported "Arrows, rum, wool and NASCAR" as some of the things that were inserted as amendments & riders to the bill that should have been the focus of an up or down vote.

Ah, but then the aftermath -- the vote goes through the market goes down at just about the minute it was announced. I had C-Span in one browser with the vote pending & then matched the response in a minute chart (watching the ProShares Ultra Dow ticker: DDM & updating every 60 seconds) in my trading account with Interactive Brokers. The market quickly responds to actions and laws created on the federal level (the DDM went down as the Dow Jones Index dropped after the vote). Market traders and investors recognize that corporations are going to respond to the laws that are on the books -- either present or futures.

Which (finally) gets me to the title of the post -- corporations are smart. They are going to do what's in their best interest to make their revenues and deliver to 'The Street' what is expected. Maybe this is something for the two aspiring US Presidential candidates to read and remember: Corporations will respond to tax law imposed on them and they will act accordingly to their best interest. Tax rates will determine where hiring is done. Regulation will determine the countries where workers are hired, licenses are paid, employees are trained, business travel will be conducted -- the list goes on.

Today's Washington Post reports this -- "After Change in Tax Law, Wells Fargo Swoops In" resides above the fold on the front page. How big is the change? Citigroup had put a $2.2 billion bid together to win Wachovia that originally had been agreed by both parties. The FDIC (Federal Deposit Insurance Corp) had promised to limit Citigroup's losses in the deal since Wachovia has some troubled loans in their holdings. Seemed like maybe a good deal for both Citigroup & Wachovia...

But Wells Fargo comes in and offers $15.4 billion. Nice premium to the original, and to boot, the Wells Fargo chairman Richard Kovacevich said, "This agreement won't require even a penny from the FDIC." Great -- no cost or government involvement? What could be better!? Reading down the article, it seems Wells Fargo has suggested they might be able to shelter $74 billion in profits from taxation. The former law would have limited the benefit to around $20 billion (cap of $1 billion/year over a 20 year period). New law? $74 billion.

Again, corporations are smart. They give guys with good business sense, experience, attorneys, and accountants money to know and understand this and lay a framework for the corporate financial activities of the company -- raising money in the capital markets, mergers & acquisitions, and especially tax laws. Favorable or unfavorable changes in the tax laws are going to be acted on appropriately.

Those in politics need to recognize and remember that their actions will be responded in the best interest of those in the businesses that are affected. It might mean to off-shore employees, or add a call-center in India and not Ohio. It also might mean to bid an extra $13.2 billion to gain a $74 billion tax write-off.