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Non-Tech : Amresco [AMMB] -- Ignore unavailable to you. Want to Upgrade?

To: TraderGreg who wrote (125)	6/16/1999 10:58:00 AM
From: prudentinvestor	Read Replies (1) \| Respond to of 218

Actually, I think what devastated the real estate financial lending community back in the late 1980s and early 1990s (and which bankrupted my company) was not caused by Michael Milken, but was a consequence of the Tax Reform Act of 1986. As you might recall, there was a time when if you made a real estate investment, you could deduct a lot of stuff. In fact, many real estate tax shelters were sold on this idea. People who invested in such limited partnerships could deduct 100% of their contributions, and all of the losses in subsequent years. The flip side was that when you sold the project, you had to adjust your basis downward and pay taxes on the capital gain "recapture". The Tax Reform Act of 1986 did away with many of these deductions, on a phase-out basis. After the law was passed, instead of deducting 100% of allowable losses, you were only allowed to deduct 65% of such losses the first year, 40% the second year, 20% the third year, 10% the fourth year, and nothing thereafter. In the first year, the 35% reduction in allowable losses did not hurt too badly, but thereafter, it did. Many real estate investors, who had invested in office buildings, etc., no longer had the cash flow to cover their carrying costs and expenses (because the tax deductions which had once made such investments "economically viable" were no longer allowable). Basically Congress had changed the rules of the game in "mid stream", which was the most stupid thing I've seen Congress ever do! The intent was to increase tax revenue (to offset the tax cuts they gave many of us) by reducing real estate tax shelter losses. The consequence was several-hundred billion USD of foreclosures, with the financial lending institutions left "holding the bag" with hundreds of billions of dollars of unwanted real estate, and with the ultimate cost to the taxpayers several times greater than the amount of tax revenue gained by changing the tax laws w.r.t. real estate investments. Just another case where Congress did not "think it through". Many such financial institutions failed and were taken over, for pennies on the dollar, by banks, all arranged by the RTC. Today, the situation is different. It is an interest-rate and interest-rate-spread issue, not a change of the "rules of the game" in "mid stream". But...please go easy on poor Mikey! <g> I've seen him several times on TV, and he is doing good work for cancer research.