As we are quickly coming to understand, AIG Financial Products was siphoning billions from tax coffers the old-fashioned way ages before the collateral calls began flooding in. Essentially, the same unregulated swaps and options contracts in which AIG FP “specialized” a.k.a. “did not understand” lay at the heart of many of the sham “partnerships” corporations and wealthy people use to obscure their capital gains. These partnerships are often referred to as “Son of Boss,” we still do not know why, and the IRS has been shutting down them down for years, because it is usually abundantly clear that the rich people who bought said derivatives had no idea what the hell they were for beyond “generating artificial basis” or somesuch euphemism for “pretending they lost money to hide the fact that they actually raked it in.” That said, most of the people with enough money to know about tax shelters are/have pretty decent lawyers, so sometimes they think up a pretty good excuse for having invested in a baffling combination of esoteric “swaps” and such. Last month, for instance, a Los Angeles judge struck down a Son of Boss partnership that had spared a pair of local real estate developers an accumulated tax bill of $145 million by investing $2 million in some obscure AIG credit default swaps. But one of the developers, former Sacramento Kings owner and former IRS attorney James Thomas, had a pretty genius alibi.
In 2001 they sought out an abusive tax shelter that has become known as “Son of BOSS.” In the Son of BOSS scheme used by Thomas and Fox, they purchased an exotic form of a financial option that they claim would have protected them against a catastrophic decline in real estate values, which they feared in the immediate aftermath of the terrorist attacks of September 11.A catastrophic decline in real estate values you say? How very “black swan”!*
The judge wasn’t hearing it though.
And now former IRS attorney James Thomas’ real estate investment trust is flirting precariously with bankruptcy, thanks to a deals it had inked with Lehman Brothers. Lehman Brothers: the most catastrophic casualty of the catastrophic crash in real estate values, that followed the equally stratospheric rise in real estate values, that was fueled by the insatiable demand for evermore dubious mortgages to pool into evermore dubious securities. Securities whose chief claims to security unfortunately happened to be guaranteed by the evermore delusional likes of Joe Cassano’s AIG FP, which no one in the government ever bothered to monitor or regulate, because everyone in the government was getting too rich in real estate to risk letting the government impose its staid inefficient bureaucracy on the innovative products that got them out of paying for a government.