Merrill's Long Tax Holiday

So there is a bit of a silver lining for Wall Street in the subprime catastrophe after all.

Merrill Lynch has charged $29 billion in subprime losses to Merrill Lynch International, its London-based subsidiary, allowing it to avoid British corporate taxes for as long as 60 years, the Financial Times reports.

The Merrill subsidiary had been paying tax at a rate of 30 28 percent.

Sixty years! Britain could be a warm, wine-sipping republic by 2068. Financial companies will be born and die during that lifetime.

But given the scale of the subprime losses, it is not very surprising.

"It's one of the tax-planning ideas caused by uneven distribution of profit and loss at a multinational,'' said Jane Hui, a Hong Kong-based tax partner at Ernst & Young told Bloomberg News.``When a company expects that its losses cannot be recovered in the foreseeable future, it'll think of a way to utilize the tax law in a more efficient way.''

More important, the silver lining of a tax break only underscore how dark the subprime collapse and resulting credit crisis will be for banks and for governments.

Financial companies have racked more than a half trillion dollars of losses. That will drag them down for years to come. And governments that depend on banks for tax revenue will be in deep trouble.

Mayor Michael Bloomberg of New York warned on Monday that Wall Street firms may not be paying city taxes for years.

"I think it will be a number of years before they start paying taxes again," the mayor told a news conference, according to Reuters. "Look at those losses. They can carry them forward for a number of years."

And as Barry Ritholtz of Big Picture notes, it's not just New York:

"Other money center regions in the U.S. are running into similar problems: California, Connecticut, Virginia, Illinois, and Massachusetts are also likely to have related tax shortfalls. There will be other cities and states beyond these."

Indeed, forget about rallies in financial stocks. The credit storm will be with us for some time to come.