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July 24, 2009
Fed Pushes New Curbs on
Lending Practices
The Federal Reserve yesterday unveiled a proposal to
curb abusive lending practices by reining in compensation for mortgage
brokers and by helping borrowers better understand the terms of loans
available to them, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The toughest part of the Fed's plan deals with
compensation for mortgage brokers, who act as middlemen between
borrowers and lenders. These brokers can be rewarded with extra fees for
placing borrowers in higher-rate loans. The proposal attempts to end
this practice by barring lenders from offering extra compensation based
on the terms of the loan, including the rate. The Fed has also proposed
having lenders disclose the annual percentage rate of a loan in a way
that reflects the fees and other settlement costs paid by the borrower.
Lenders would also have to show how that rate compares to the average
rate offered to borrowers with good credit.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/23/AR2009072303261_pf.html'>Read
more.
Unemployment Checks for
Millions Delayed as States Struggle
Decisions involving more than a million unemployment
applicants have been slowed, and hundreds of thousands of needy people
have waited months for checks, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. With benefit funds at dangerous lows even
before the recession began, states are taking on billions in debt,
increasing the pressure to raise taxes or cut aid, just as either would
inflict maximum pain. Sixteen states, with exhausted funds, are now
paying benefits with borrowed cash, and their number could double by the
year’s end. While the strained program still makes more than 80
percent of initial payments within three weeks — slightly below
the standard set under federal law — cases that require individual
review are especially prone to delay. Thirty-eight states are failing to
make those decisions within the federal deadline.
href='http://www.nytimes.com/2009/07/24/us/24unemploy.html?_r=1&hp=&pagewanted=print'>Read
more.
Fitch Ratings reported that the pace of downgrades on
municipal ratings rocketed in the second quarter as governments deal
with increased budget constraints, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Its public-finance group issued 52 downgrades
on $103.4 billion of debt while upgrading 24 with $6.1 billion of debt.
The bulk of the downgrades dealt with California, where state
legislative leaders have agreed on sharp budget cuts to close a $26
billion deficit. On June 25, Fitch downgraded $79 billion of
state-related bonds. They were cut again 11 days later. Another 43
governments were on watch for downgrade as of June 30, compared with
four for upgrade. Despite the concerns about government fiscal health,
most notably in California, Fitch noted 89 percent of the ratings
outlooks outstanding are stable.
href='http://online.wsj.com/article/SB124837749992276691.html'>Read
more. (subscription required.)
Senators Criticize Proposed
Role of Federal Reserve as Regulator
The Obama administration's proposal to place the
Federal Reserve as the top regulator to ensure against systemic risk hit
stiff resistance yesterday at a Senate Banking Committee hearing amid
opposition from most Republicans, skepticism from a key Democrat and an
alternative proposal from two Obama administration appointees,
size='3'>CongressDaily reported yesterday. The
proposal to make the central bank the top regulator over the financial
system already faced long odds because of congressional anger over the
Fed's role in $2 trillion in emergency lending during the banking
crisis. Many lawmakers contend there was little accountability and
oversight in place. Banking ranking member Richard Shelby (R-Ala.) said
today the Fed would be a 'regulatory Leviathan' under the proposal,
while Banking Chairman Christopher Dodd (D-Conn.) said there had been an
'abysmal failure' at the central bank during the banking crisis. Another
setback for the Fed’s proposed role came yesterday in the form
testimony by FDIC Chairwoman Sheila Bair and SEC Chairwoman Mary
Schapiro, both of whom made a pitch for a council of regulators to play
the role.
href='http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=dabb299b-02c3-4e4b-a116-0767b04768ff'>Click
here to read the prepared testimony from yesterday’s
hearing.
In related news, the House Financial Services
continues its examination of financial regulatory proposals today with
the second part of its hearing titled 'Systemic
Risk: Are Some Institutions Too Big to Fail, and If So, What Should We
Do About It?'
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrfc_072409.shtml'>Click
here for more information.
Autos
Judge Lifts Stay in
Chrysler Case for Talks in Two Appeals
Bankruptcy Judge
face='Times New Roman' size='3'>Arthur J. Gonzalez
size='3'>lifted the automatic stay over litigation against the remnants
of Chrysler LLC to allow the company to begin settlement talks with two
plaintiffs who won a combined $60 million in damages from
DaimlerChrysler Corp. over alleged product defects,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported
yesterday.
size='3'>While both groups of plaintiffs sought to restart the appeals
lodged by Chrysler against their jury verdicts, Judge Gonzalez's orders
primarily limit both parties to talks aimed at reaching a deal on
settlement amounts. The appellate court handling the the appeals,
however, will be allowed to begin scheduling oral arguments in the
pending appeal.
href='http://bankruptcy.law360.com/articles/112849'>Read
more. (Subscription required.)
GM Adds 5 Directors and
Announces Several Top-Level Retirements
General Motors filled out its new board yesterday and
announced a wave of management changes, including the retirements of
several longtime executives and the elimination of some vice president
jobs, the
size='3'>New York Times reported today. New
members of GM’s board include Daniel F. Akerson, managing director
of the private equity firm Carlyle Group; David Bonderman, co-founding
partner of TPG Capital; Robert D. Krebs, retired chairman and chief
executive of the Burlington Northern Santa Fe railroad; and Patricia F.
Russo, former chief executive of the telecommunications company
Alcatel-Lucent. The Treasury Department has appointed a total of 10
members to the new GM board.
href='http://www.nytimes.com/2009/07/24/business/24auto.html?ref=business&pagewanted=print'>Read
more.
Canon Balks at Ritz Camera
Asset Sale to RCI
Canon USA Inc. has objected to Ritz Camera Centers
Inc.'s proposed asset sale to RCI Acquisition LLC, claiming that it
amounts to a disguised transfer of potentially hundreds of millions of
dollars in assets to an entity controlled by Ritz's former CEO,
size='3'>Bankruptcy Law360 reported yesterday.
Canon filed its objection on Wednesday saying that the proposed sale, if
approved, would be made without meaningful disclosure to Ritz's
creditors, divest Ritz's estate of significant assets, including
potential claims and causes of action against directors and officers,
and violate the rights of Ritz's creditors. Ritz filed a notice on
Tuesday of its auction results, saying RCI won with a bid of $16.25
million in cash. According to the notice, Ritz will retain its real
estate other than a Kansas warehouse, and RCI will assume up to $1
million of Ritz's warranties.
href='http://bankruptcy.law360.com/print_article/112950'>Read more.
(Subscription required.)
Once an Opponent of
Monitoring Derivatives, CFTC Chief Now Urges Tighter
Rules
Since President Obama brought Gary G. Gensler on to
lead the Commodity Futures Trading Commission (CFTC), Gensler has
aggressively pushed for strict new rules to govern derivatives as the
administration campaigns to revamp financial regulation, the
Washington Post reported today. This has meant confronting
former colleagues at Goldman Sachs, where he began his career, and at
other big banks that have profited from the agency's traditionally light
touch. 'Both the financial system and the regulatory system failed the
American public,' he said. 'I want all options on the table.' Gensler
has faced skepticism about whether he is suited for the job after being
part of the team that exempted derivatives from regulation a decade ago.
Several senators held up his nomination for months out of concern that
he was not committed to reining in Wall Street's use of derivatives.
Using existing powers, Gensler is pushing for tighter regulation of the
trade in oil, wheat and other commodities as evidence grows that
speculators have been inflating prices. He also has been out in front in
publicly advocating strict regulation of derivatives. Early on, he
pushed for a requirement that derivatives be traded on exchanges, almost
like stocks and bonds. Later, the Obama administration offered that
proposal, which if adopted would make it easier for regulators to
monitor trading in derivatives and foster a more orderly market.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/23/AR2009072303609_pf.html'>Read
more.
CIT Considers Breakup
Proposals
Conglomerates Berkshire Hathaway Inc. and Leucadia
National Corp. made a bid last spring to buy parts of CIT Group Inc. but
were rebuffed by CIT because the price was too low, the
face='Times New Roman'>Wall
Street Journal reported today. Now CIT and its
advisers are evaluating a similar breakup, this time with the threat of
bankruptcy bearing down, and its shares worth roughly a quarter of their
value when the offer appeared last spring. CIT's aviation-finance and
rail-finance operations are the units most likely to be sold. CIT is
likely to keep its corporate-finance department, which is its largest
division, handling asset-based loans and other commercial loans. Another
sector expected to remain is its factoring business, which provides
trade finance to retailers and many small retail vendors.
href='http://online.wsj.com/article/SB124839094561577461.html#mod=testMod'>Read
more. (Subscription required.)
Hedge-Fund Manager
Investigated for Fraud
Federal criminal authorities are investigating whether
Corey Ribotsky, a Long Island, N.Y., hedge-fund manager who has said he
has $770 million under management, lied to investors about their returns
and the holdings of his various funds, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Prosecutors from the U.S. Attorney's Office in
Brooklyn and investigators from the Federal Bureau of Investigation and
the Securities and Exchange Commission are looking at whether Ribotsky
and his firm defrauded investors as the stock market fell amid the
credit crisis. Authorities have not accused Ribotsky of wrongdoing.
Separately, outside of his hedge funds, Ribotsky was involved in
managing more than $5 billion worth of mortgage-related securities
underwritten by Merrill Lynch & Co. that lost much of their value
amid the credit crisis.
href='http://online.wsj.com/article/SB124840478374278275.html#mod=testMod'>Read
more. (Subscription required.)
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