Wall Street's Instruments

As reported in GlobeSt.com, the tax characterization of carried interest is not changed by the legis

Posted on Monday, December 20, 2010

“Job creation is what the economy needs and, as we have been saying for some time, the proposed carried interest tax hike was a job killer,” Real Estate Roundtable President and CEO Jeff DeBoer told GlobeSt.com. “We are pleased it has been set aside.”

Real Estate Roundtable President and CEO Jeff DeBoer
a. Looming questions about the tax code, the specter of considerable tax increases, and weak economic recovery have been compounding businesses’ reluctance to invest in new projects or expand their payrolls. Since jobs are key to driving business demand for commercial space — and lifting net operating income (NOI) and property values from their currently depressed levels — The Roundtable welcomes the tax package and is hopeful it will help spark more robust private-sector job creation.

“This breakthrough on taxes couldn’t be more welcome,” said DeBoer. “By offering some predictability on tax policy — albeit temporary — this new law will allow businesses to better calculate their future costs, giving many of them more confidence to proceed with hiring and expansion plans. By averting an across-the-board increase on all taxpayers — and even putting more money in their pockets with the payroll tax holiday — the legislation should also help prevent a new contraction in consumer spending,” he continued.

“Together with policies to help bring new equity into commercial real estate markets, an improved jobs picture will spur more transactions, stabilize commercial estate asset values more quickly, and allow our industry to resume its historically positive contributions to the national economy,” DeBoer concluded.
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Incoming House Financial Services Chairman Presses Regulators to Exempt Derivatives End-Users from Costly New Margin Requirements
Rep. Spencer Bachus (R-AL), who will take over the chairmanship of the House Financial Services Committee in January, wrote to top banking regulators yesterday urging them to exempt derivatives end-users from what he reportedly sees as overly burdensome and costly margin requirements under the new financial reform law (“Dodd-Frank”). Derivatives end-users are commercial entities (including real estate firms) that use low-cost, customized derivatives products to protect themselves from everyday business risks, such as interest rate spikes. This allows them to better manage development and operational costs as well as their balance sheets.

Rep. Spencer Bachus (R-AL)
In his Dec. 16 letter to Securities and Exchange Commission (SEC) Chairman Mary Shapiro, Commodities Futures Trading Commission (CFTC) Chairman Gary Gensler, Treasury Secretary Timothy Geithner and Federal Reserve Board Chairman Ben Bernanke, Bachus warned that the new higher margin requirements would force end-users to move “billions of dollars in capital onto the sidelines to comply” (BNA Daily Report for Executives, Dec. 17).

As part of the hundreds of regulations needed to implement the new financial reform law, the SEC and CFTC are planning to propose all derivatives-related regulations by Dec. 31, and hope to finalize them by mid-2011.

Although the Dodd-Frank statute includes strict capital and margin requirements for custom derivatives contracts, it gives regulators final say over which entities must meet the new requirements.

Separately, a group of Senate lawmakers has proposed amending Dodd-Frank to restore earlier language clarifying that business end users are exempt from the new margin requirements. The proposed amendment is sponsored by Senators Vitter, Crapo, Chambliss, Enzi, and Corker.

In a Dec. 3 letter of support for the proposed amendment, the Coalition for Derivatives End Users stated that the original authors of the law’s margin provisions had never intended for the new margin requirements to apply to business end users [Roundtable Weekly, Dec. 10] Among these original authors was outgoing House Financial Services Committee Chair Barney Frank (D-MA), who stated earlier this year, “The margin requirements are not on end-users.”

Unfortunately, the language clarifying this intention was ultimately lost during legislative proceedings on the massive financial regulatory reform package.

The Coalition for Derivatives End Users includes over 270 organizations representing a variety of industries, including The Real Estate Roundtable.

Real Estate Roundtable

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