Commentary: When Will the Fool’s Errand End? The U.S. Trustee’s Continued Pursuit of the Destruction of Third-Party Releases in Purdue Pharma*​​​

Like the cold sore that may disappear for a while but will always be back, the ongoing saga of legality of third party releases (TPRs) in bankruptcy cases continues to reappear in the legal landscape. On July 18, the Wall Street Journal reported that a group of victims of the misdeeds of Purdue Pharma and the Sackler family are objecting to any further review by the Supreme Court of the Second Circuit’s May 30, 2023, decision upholding the legality of TPRs in bankruptcy cases. This latest act in the Purdue Pharma drama illustrates the dilemma of giving power with no responsibility, such as here where the U.S. Trustee (UST) pursues legal appeals whose results could be directly contrary to the economic interests of those with skin in the game, and where and none of whom want the appeal. In the words of a group representing “more than 60,000 individuals” who were victims of the Purdue Pharma opioid scourge, “Against the dire public health consequences of delay, [the federal government] advances objections that go not so much to Purdue’s plan … but to abstract principles of bankruptcy law…. Those principles, whatever their importance, should not stand in the way of creditor distributions.” Hence, the UST in Purdue Pharma is akin to a minister without portfolio with no real world consequences for their actions. While the UST’s actions here may be an esoteric and academic exercise, for the victims who find the prospect of waiting “until the end of next year for a decision to be made, and even longer for funds to flow from the settlement,”  the delay can literally be a matter of life or death. To be blunt, the UST’s actions here are in all respects a fool’s errand in every sense of the word.​​​​​​ ​​​Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Op-Ed: Don’t Let Inflation Bury the Memory of a Government Triumph*​​​

The recession caused by the COVID-19 pandemic was the shortest on record, thanks to rapid, robust and bipartisan congressional action. It took just over two years to regain all of the jobs lost — hard to fathom given that more than 6 million people filed unemployment insurance claims in one week at the end of March 2020. Americans were made whole by their government, which staved off what otherwise would have been mass financial suffering, according to an op-ed in the New York Times. “This is the best, most successful response to an economic crisis that we have ever mounted, and it is not even close,” H. Luke Shaefer, a professor at the University of Michigan who is an expert on deep poverty, told a House committee in the fall of 2021. But by the time Dr. Shaefer testified, inflation had begun to rise, sucking all the air out of the room. As the economic conversation turned to inflation and its causes (and remained there), the debate shifted from what the government achieved to whether it went too far. Inflation hawks blamed the pandemic response for driving up consumer demand, which, in their telling, drove up prices, causing pain for many people as the cost of food, rent and other necessities rose. The fracas over inflation risks memory-holing the concrete proof that the federal government is fully capable of keeping Americans afloat when the economy sinks. “We showed that we could do it, this is what we should be doing from now on,” J.W. Mason, an economist at John Jay College of Criminal Justice, said. The open question now is whether we’ll ever do it again. In fact, the Federal Reserve is actively working to undo many of the government’s accomplishments, according to the op-ed. To fight inflation, the Fed has been raising interest rates in the hope they will make businesses pull back, spending less on wages and hiring fewer people (or even firing a bunch of them) and cooling demand. Even as inflation has fallen this year, the agency is widely expected to announce another rate increase next week and may very well keep raising rates later this year.​​​​​​ ​​​Read more.

*The views expressed in this op-ed are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Home Sales Fall as Would-Be Buyers Face High Rates, Low Supply​​​

Sales of previously owned homes fell in June as higher mortgage rates and a shortage of available properties frustrated buyers, the Wall Street Journal reported. Elevated mortgage rates are making home purchases less affordable, keeping many buyers out of the market and reducing demand. At the same time, the higher rates are discouraging homeowners from selling, limiting the supply of homes for sale. The drop in both demand and supply means that the number of home sales has declined, but prices haven’t fallen much. In many parts of the country, buyers who can afford to stay in the market are still facing bidding wars. Existing home sales, which make up most of the housing market, decreased 3.3% in June from the prior month to a seasonally adjusted annual rate of 4.16 million, the National Association of Realtors said Thursday. That was the slowest sales pace since January. June sales fell 18.9% from a year earlier. Though prices are down slightly from last year’s peaks, they are still high on a historical basis. The national median existing-home price fell 0.9% in June from a year earlier to $410,200, the second-highest level on record in data going back to 1999, NAR said. The Federal Reserve’s actions to curb inflation by raising interest rates have most directly affected many consumers through their effect on the housing market. The Fed kept rates unchanged in June, and Fed officials have indicated they could raise rates again at their meeting next week. Read more.

In related news, mortgage rates fell in the past week as U.S. economic data indicated inflation was slowing allowing bond yields to fall slightly, the Wall Street Journal reported. The 30-year fixed-rate mortgage averaged 6.78% as of July 20, according to data released by Freddie Mac FMCC, -2.04% on Thursday. The rate was down 18 basis points from the previous week — one basis point is equal to one hundredth of a percentage point. Last week the 30-year was at 6.96% — the highest level since November 2022. Last year, the 30-year was averaging at 5.54% The average rate on the 15-year mortgage fell to 6.06% from 6.3% last week. The 15-year was at 4.75% a year ago. Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging at 6.9% as of Thursday afternoon. “It is not likely we will see mortgage rates below 6% before the end of 2023,” Lisa Sturtevant, chief economist at Bright MLS, said in a statement. “But rates should come down from where they have been this summer, which is welcome news for home buyers,” she added. “The question is whether they will fall enough to entice sellers into the market who will have to give up the super low mortgage rate they secured during the pandemic.” ​​​Read more.

As Bank Lending Tightens, Small Businesses Turn to Customers to Raise Money​​​

As it gets harder for small businesses to land conventional loans, more of them are turning to a new source of funding: their customers, the Wall Street Journal reported. Using a relatively little-known financing tool, businesses are able to sell bonds to hundreds of customers and community members — with some investing as little as $10. These businesses are capitalizing on a regulatory change that lets them solicit investments from nonaccredited investors: those with relatively modest income or assets. As they have watched beloved local businesses struggle since the pandemic began, these investors see the bonds as a way to support those businesses while also generating a financial return. Consider San Francisco-based Palm City Wines, which launched during the early months of the pandemic and was unable to invite customers into its store. Customers formed lines around the block to buy wine and hoagies. “It certainly made me want to support them,” says Mateo Kashuk, a 32-year-old software engineer. So, when Palm City Wines set out to raise $250,000 by issuing a small-business bond in April, Kashuk pledged $200. Within five days, the Palm City Wines bond — which pays 9.5% interest on customers’ investment monthly over five years — was oversubscribed. The company increased the cap on the amount it could raise, ultimately raising more than $400,000. Dennis Cantwell, co-founder of Palm City Wines, says that the money raised will enable it to open a second store. Having taken a Small Business Administration-backed loan to open the first branch of Palm City Wines, Cantwell says that he had no more collateral to offer to a bank for a second loan. Instead, Cantwell was happy to raise capital from the customers with whom Palm City Wines had built a relationship since its launch. Read more.​​​​​​ ​​​​

How Did ABI Subchapter V Task Force Chairs Become Passionate About Small Business Bankruptcy Issues? Listen to ABI's Latest "Party in Interest" Podcast!​​​

ABI's latest "Party in Interest" podcast features a conversation between ABI Executive Director Amy Quackenboss and the co-chairs of ABI's Subchapter V Task Force, Bankruptcy Judge Michelle Harner (D. Md.; Baltimore) and Megan Murray of Underwood Murray (Tampa, Fla.). Learn more about how Judge Harner and Murray became passionate about small business matters, their overall impressions of how subchapter V helps small business debtors, and what the task force’s work will entail. Listen to the podcast by clicking here.

Commentary: The Solution to Biden’s Student Loan Problems Is Right Before His Eyes*​​​

The Biden administration is reviewing its options to secure student loan forgiveness after the Supreme Court blocked its last attempt. Before embarking on what will likely become yet another long court battle, it should turn to a program that already exists and, if tweaked, could legally accomplish just about everything one could want from a loan-forgiveness policy, according to a Washington Post commentary. We’re talking about income-driven repayment plans, which allow student loan borrowers to pay what they can afford. For the poorest Americans, that could be nothing at all. Such plans have been around for decades, but bureaucratic hassles create needless barriers to access them. If the administration really wants the public to see debt relief, it could automatically enroll every eligible borrower into the Saving on a Valuable Education (SAVE) program. The Biden administration developed SAVE, which begins to roll out this summer, to replace another repayment program for federal student loans known as Revised Pay as You Earn (REPAYE). Like some of the other plans, SAVE will calculate student loan payments based on a person’s income and family size but on more generous terms. A family of four with an income of up to $67,500 would owe nothing in most states. And after, typically, 20 years of making income-based payments, students would see their remaining debt canceled. Many of those debt cancellations materialized this past Friday, when the Biden administration said it would clear $39 billion of student loan debt for borrowers who have paid their dues through income-driven programs such as SAVE. While many of these cancellations should have come sooner, it nevertheless proves the power these programs could have if the administration gave them more attention, according to the commentary.​​​​​​ ​​​Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

U.S. Jobless Claims Fall Again as Labor Market Continues to Flash Strength​​​

Fewer Americans applied for unemployment benefits last week with the labor market continuing to cruise along despite higher interest rates intended to cool hiring, the Associated Press reported. U.S. applications for jobless claims fell by 9,000 to 228,000 for the week ending July 15, from 237,000 previous week, the Labor Department reported Thursday. The four-week moving average of claims, which evens out some of the weekly volatility, fell by 9,250 to 237,500. Jobless claim applications are viewed as reflective of the number of layoffs in a given week. For three weeks in late May and early June, jobless claims had appeared to reach a sustained, higher level, above 260,000. But the past four weeks, claims have retreated and the labor market remains historically healthy. Since more than 20 million jobs vanished when the COVID-19 pandemic hit in the spring of 2020, U.S. employers have added jobs at a blistering pace, more often than not beating forecasts. Despite the fastest interest rate hikes since 1989, the unemployment rate has hardly budged and remains historically low at 3.6%. Fed officials have said that the unemployment rate needs to rise well past 4% to bring inflation down, but a report last week showed that consumer prices fell to their lowest level since early 2021 — 3% in June compared with a year earlier — and much closer to the Fed’s target of 2%. ​​​Read more.​​​​​​

U.S. Leading Indicators Point to Recession Starting Soon​​​

An index designed to track turns in U.S. business cycles fell for the 15th straight month in June, dragged down by a weakening consumer outlook and increased unemployment claims, marking the longest streak of decreases since the lead-up to the 2007-2009 recession, Reuters reported. The Conference Board on Thursday said its Leading Economic Index, a measure that anticipates future economic activity, declined by 0.7% in June to 106.1 following a revised decrease of 0.6% in May. The decline was slightly greater than the median expectation among economists in a Reuters poll for a 0.6% decrease. “Taken together, June’s data suggests economic activity will continue to decelerate in the months ahead,” Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board, said in a statement. The Conference Board reiterated its forecast that the U.S. economy is likely to be in recession from the current third quarter to the first quarter of 2024. "Elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending are poised to dampen economic growth further," Zabinska-La Monica said. The Conference Board said the contraction in the LEI is accelerating, falling 4.2% over the last six months compared to 3.8% between June and December 2022.​​ ​​​Read more.

Nominations Being Accepted for ABI's International Matter of the Year Award!​​​

ABI’s International Committee accepting nominations for its Second Annual ABI International Matter of the Year Award. For criteria, eligibility and other information on the award, please click here.​​​​​​ ​​

All nominations must be received by August 31.

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