Goldman Plan to Buy Tax Credits from Fannie Mae Poses Dilemma for Government

""Goldman Sachs'"":http://www.goldmansachs.com latest clever idea to make money poses a dilemma for the government as the Wall Street firm negotiates to acquire tax credits from ""Fannie Mae"":http://www.fanniemae.com.[IMAGE]

Tax credits are only worth something if you have tax to pay, and that presumes a profit â€" something Fannie Mae hasn't had in a while but which Goldman has in embarrassing abundance.

So, reports the _Wall Street Journal_, Goldman wants to buy up to $1 billion in tax credits from Fannie, providing some much-needed cash to the government-sponsored mortgage lender while helping Goldman with its tax bill.

The problem for the U.S. Treasury, which manages the government's investment in Fannie, is that it can help the mortgage lender by approving the deal, but only at the risk of fanning the populist flames of resentment against Wall Street in general and Goldman Sachs in particular, the _Journal_ said.
[COLUMN_BREAK] It is unclear how much of a discount Goldman is offering to pay, the newspaper said. Goldman may be lining up other investors for the deal as well, it said.

The tax credits are an incentive to spur investments in low-income housing. The credits, awarded for financing qualified housing developments, tend to be drawn out over periods such as 10 years, and so are attractive to companies that know they will be profitable during that span.

“There is decreased market demand for [such] investments because there are fewer tax benefits derived from these investments by traditional investors, as these investors are currently projecting much lower levels of future profits than in previous years,” Fannie Mae said in an August filing with the SEC, as quoted by the _Journal_.

Fannie Mae would be able to unload credits that are weighing on its balance sheet and forcing it to take losses, the newspaper said. A sale to Goldman would bring earnings into Fannie Mae that might offset the money it has to borrow from the government. It could also help free up Fannie Mae’s balance sheet so it could finance more housing loans.