On what we could learn from the Chinese regarding bailouts

Today was yet another great day for bailouts. Firstly, there was yet another bailout of the beleaguered insurance giant AIG, then there was news that the Treasury Department on the sly decided to give American banks a tax windfall of $140 billion and thirdly, there was news of a half a trillion dollar Chinese bailout. OK, now why am I mixing the Chinese bailout with similar measures taking place here? Well, it is indeed interesting to see how these monies are being put to use. To get a quick idea on the differences between the plans hatched by the Treasury as opposed to the Chinese in bailing out, it is instructive to see the details. Or, maybe it is even time to learn from the Chinese.

On what the Chinese would do with their bailout:

At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion over the next two years — roughly 7 percent of its gross domestic product each year — to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.

On the sly tax windfall to US banks:

Late September, the Treasury Department issued a five-sentence notice that attracted almost no public attention. Administration officials had just given American banks a windfall of as much as $140 billion. The change to Section 382 of the tax code came after a two-decade effort by the Republican administration to eliminate or overhaul the law. Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.

On bailing out AIG again and yet again:

The government created an $85 billion emergency credit line in September to keep A.I.G. from toppling and added $38 billion more in early October when it became clear that the original amount was not enough. As part of the new revision announced today, the Federal Reserve said it would reduce that credit line to $60 billion. When the reorganized deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G., the most the government has ever directed to a single private enterprise.

So just to get this clear:

• China spends its bailout money on actual projects like infrastructure additions that benefit its citizens and in turn keep the economy humming and productive.
• In the United States, the Treasury decides to award tax write-offs to banks that shelter their profits from taxation by acquiring shell companies whose real value indicates losses on their books, but then manage to offset imaginary losses with actual capital gains to avoid any payment of taxes.