Of Human Design, but not of Human Intent, Once Again

From The Tax Foundation

The Treasury action invalidating SILO depreciation deductions encouraged the banks to look for any opportunity to get out of the contracts. The situation is exacerbated by an IRS settlement offer to banks that lets them keep 20 percent of the disallowed deductions if they terminate the agreements with the agencies by the end of 2008.

That's where the fine print comes in. The escape route that the banks have needed since 2004 opened up when American Insurance Group (AIG), an insurer that had guaranteed many of the deals

It's a convoluted story. At the heart of it is a tax dodge that was created and then disallowed. The unintended consequence is that some large metropolitan transit systems that participated in the tax dodge suddenly need cash because their counterparties are willing and now able to demand that the deals be unwound.

My point in mentioning the story is that the consequences of tax and regulatory policy are beyond the ability of policymakers to forecast. I have started to refer to the knowledge/power discrepancy. For me, that discrepancy is the essence of the libertarian critique of government intervention.

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