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How U.S. Corporations Print Their Own Money: The REIT Scam - Jeff Nielson

How U.S. Corporations Print Their Own Money: The REIT Scam - Jeff Nielson
By Jeff Nielson 5 years ago 2655 Views No comments

June 20, 2014

Wouldn’t it be nice to be a (large) corporation and not have to pay any income taxes? Wouldn’t it be nice to be a (large) corporation and be able to print your own money? Wouldn’t it be really, really nice to be a large corporation and be able to do both those things? Welcome to the world of the U.S. “REIT”.

As is generally the case; the best way to introduce readers to one of the newer of U.S. Ponzi-schemes is via definition of terms. For readers not familiar with such market/taxation ‘vehicles’, a REIT is an acronym short for “real estate investment trust”.

These corporate vehicles are not new innovations, and are already found in a number of Western nations, including Canada. However, what makes U.S. REIT’s so “special” is that the U.S. government has improved them, and as with anything in the U.S. corporate world which is “improved”; this means turning it into a scam.

Sophisticated Canadian readers will already be familiar with taxation scams in the form of “corporate trusts”, having been burned badly once themselves by the Harper government. The Canadian version of this scam was in the form of “income trusts”.

Although quite different from U.S. REIT’s, Canadian “income trusts” shared one important property: they were a totally unsustainable taxation policy, which exempted from taxation the “income” (i.e. profits) which these large Canadian corporations paid out, through the dividends to their trust unit-holders. One attitude shared by virtually all large corporations is that the only appropriate level of taxation for these gigantic paper entities is zero.

One-by-one; Canadian corporations began first marching and then stampeding towards this gigantic tax-shelter. Ironically; the scam was originally created by the Liberal government which preceded the current Conservative regime. But the Liberals (apparently) didn't fully understand their own monstrosity.

When they did figure out that these income trusts would destroy Canada’s tax-base (and thus bankrupt the government), they announced an about-face, that they would phase-out these income trusts – just as the next Canadian election approached. But Stephen Harper, and his Conservatives, proclaimed a different taxation policy.

Harper promised to “never touch” Canadian income trusts, not merely reiterating that promise at every campaign appearance, but noting it as one of the primary policy distinctions between his party and the Liberals. There are only two possibilities here.

Either Harper, the self-proclaimed “economist” (and his entire team of economic advisors) couldn’t perform the simple arithmetic required to understand this tax-bubble, or Harper and his Conservatives were deliberately setting-up Canadians for a massive fall. Canadians voted “Conservative”, and funneled their investment dollars into income trusts as fast as they could.

Shortly after getting elected; Harper abruptly announced that he was ending Canadian income trusts, and popped that tax-bubble. Canadian investors (and the Canadian economy) were pummeled with $billions in losses.

It was the first of Harper’s many broken promises. It was the first of his many, enormous national betrayals. It was the first of many gigantic, economic blunders by this “economist”. And it brings us to U.S. REIT’s.

From the perspective of U.S. corporations; U.S. REIT’s are far-superior to Canadian income trusts. Those income trusts provided a direct tax-exemption to the shareholders of corporations, and thus were only an indirect tax-shelter for the corporations themselves. U.S. REIT’s reverse this.

They provide their tax-emption directly to these (large) corporations, reducing their corporate taxes to zero, meanwhile the unit-holders are fully-taxed on both dividend payments and any/all capital gains. But then the U.S. government (at the direction of these large corporations) made REIT’s even better (for corporations). It allowed these large corporations (via REIT’s) to effectively print their own money.

The website Truth-Out nicely summarized this part of the REIT scam:

Ever since January 2009, REIT’s have been able to manipulate money markets by paying uncollateralized (read: fake) money to investors. In October 2008, the trade group that represents REIT’s – the National Association of Real Estate Investment Trusts – petitioned the IRS for a favor: allow REIT’s to pay their dividends in stock instead of cash. [emphasis mine]

Having seen this Ponzi-scheme summarized; we can now clearly see how the scam will play-out, until (like all Ponzi-schemes) it implodes spectacularly. As with most good scams; at the beginning everyone is happy.

The large corporations themselves get to hoard all of their profits, rather than pay the usual pittance typically remitted by large corporations. They get to print-up their own shares like (funny) money, and then watch their share prices increase rather than decrease (despite this serial dilution) due to the market-manipulation of the One Bank.

The (deluded) unit-holders are happy. They get a fat income-stream of this fake money, meanwhile (because these crooked corporations can hoard their un-taxed profits) the share price of the trust-units is elevated to a grossly (and temporarily) inflated level.

The U.S. government is happy. Not only does it get a pat on the head (i.e. more “campaign contributions”) for pleasing its Corporate masters, but it gets the Chumps who hold units in these Ponzi-scheme entities to pay taxes on fake money. The dividends received by the unit-holders aren't real, but the taxes they remit to the government certainly are.

As with all Ponzi-schemes; it’s not a question of “if” but only when and how the REIT-bubble will pop in the U.S. When that happens; many of the Chumps will be financially devastated, most of the corporations will simply move on to the next scam.

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