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July 15, 2008
Congressional Leaders to Act on
Housing-Assistance Bill with Treasury Plan
Congressional leaders pledged yesterday to move quickly to pass a
housing-recovery bill with a proposal to allow the Treasury Department
to provide capital to Fannie Mae and Freddie Mac, believing that it is
crucial to help stabilize the home mortgage market,
CongressDaily reported today. House Financial Services Chairman
Barney Frank (D-Mass.) is aiming to get the final package to the House
floor vote by Thursday so that the Senate could clear the measure next
week. Frank said that it would include a Treasury plan to provide a
temporary increase for the line of credit the two have with Treasury,
allow for Treasury to purchase equity in the two, and grant the Federal
Reserve new powers so it can consult their regulator on setting capital
standards for Fannie and Freddie. Treasury Secretary Paulson announced
the plan Sunday in an effort to build up investor confidence in the two
government-sponsored enterprises that own or guarantee more than 40
percent of the home mortgage market.
Analysis: Scramble Led to Rescue Plan
on Mortgages
The Bush administration hastily arranged the dramatic Sunday evening
rescue of Fannie Mae and Freddie Mac after Wall Street executives and
foreign central bankers told U.S. lawmakers that any further erosion of
confidence could have a cascading effect around the world, the New
York Times reported today. Treasury Secretary Henry M. Paulson Jr.
and other top officials were warned, after Fannie and Freddie lost
nearly half their stock market value on Friday morning, that any more
turmoil threatened to reduce the value of trillions of dollars of the
companies' debt and other obligations, which are held by thousands of
domestic and foreign banks, pension funds, mutual funds and other
investors. The warnings of a potential systemic failure led to the
resulting rescue package, and one of the most striking - though unspoken
- regulatory shifts in modern times. For decades, Treasury secretaries
and Federal Reserve chairmen have insisted that the government did not
stand behind the debt of Fannie and Freddie. However, the safety net
Paulson announced on Sunday sends the opposite message: that the
government is determined not to let either one fail.
href='http://www.nytimes.com/2008/07/15/washington/15fannie.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Fed Sets Rules Meant to Stop Deceptive
Lending Practices
The Federal Reserve adopted sweeping rules yesterday aimed at barring
abusive or deceptive mortgage lending practices of the kind that
analysts say have led to widespread delinquencies and foreclosures, a
collapse of the housing market and an economic downturn, the New
York Times reported today. The rules, which are modifications of
draft proposals issued in December, do not take effect until Oct. 1,
2009, in order to give lending institutions time to adjust. The new
rules would bar lenders of “higher-priced mortgage loans”
from ignoring a borrower's ability to repay from income and assets other
than the home itself. In a concession to consumer groups and other
advocates for borrowers, the Fed dropped a provision that would have
required a borrower seeking to sue a lender to demonstrate that the
lender had engaged in a “pattern or practice” of deceptive
activities.
href='http://www.nytimes.com/2008/07/15/business/15lend.html?ref=business&pagewanted=print'>Read
more.
Mortgage Insurers Tighten Lending
Standards
Mortgage insurers have been dramatically tightening their standards
throughout the United States, further squeezing potential home buyers,
the Wall Street Journal reported today. Stung by growing
defaults, lenders are offering borrowers fewer ways to avoid purchasing
private mortgage insurance. Punished with continual downgrades by
credit-rating agencies, mortgage insurers have been trying to shore up
their stricken balance sheets. One large player, Triad Guaranty Inc.,
said last month that it would stop writing new insurance and gradually
wind down its business. Radian Group Inc. announced management changes
last week aimed at restoring investor confidence.
href='http://online.wsj.com/article/SB121607937863152693.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
IndyMac Reopens, Halts Foreclosures on
Its Loans
IndyMac Bancorp Inc. reopened its doors under federal control
yesterday and promptly moved to toss ailing homeowners a lifeline by
halting all foreclosures on the mortgages it owns, the Wall Street
Journal reported today. Federal Deposit Insurance Corp. Chairman
Sheila Bair said that the agency is focused on keeping borrowers in
their homes for both their sakes and to maximize IndyMac's value for
taxpayers. The FDIC's move came as hundreds of depositors lined up to
withdraw funds at the branches of the thrift, now renamed IndyMac
Federal Bank. The FDIC typically insures as much as $100,000 per
depositor, but nearly $1 billion of IndyMac's roughly $19 billion in
deposits was uninsured, affecting about 10,000 people, according to the
FDIC. Officials have said they would be able to make 50 percent of
customers' uninsured funds available.
href='http://online.wsj.com/article_print/SB121607890530252639.html'>Read
more. (Registration required.)
IRS Tightens Rules to Counter Offshore
Tax Avoidance
The Internal Revenue Service plans to tighten the rules for a
multibillion-dollar program created to make sure offshore bank customers
pay their U.S. taxes, the New York Times reported today. A
little-noticed program has come under greater scrutiny amid a widening
investigation into whether UBS, the world's largest private bank,
misused the program to help American clients evade federal income taxes
through secret offshore entities. Known as Qualified Intermediary, the
program, which was created in 2001, has allowed foreign banks to funnel
hundreds of billions of dollars offshore to United States clients in
recent years without disclosing their names to the IRS. In exchange, the
banks promise to know who their clients are, withhold any taxes due on
U.S. securities in their accounts and send that money to the IRS. More
than 7,000 foreign banks have signed on to the program. Prosecutors
suspect UBS of helping these clients hide as much as $20 billion in
assets offshore, thereby evading at least $300 million in taxes.
href='http://www.nytimes.com/2008/07/15/business/15tax.html?ref=business&pagewanted=print'>Read
more.
More Cuts Expected at General
Motors
General Motors is expected to reveal a plan today to address its
deteriorating sales and liquidity by cutting more jobs and taking other
steps aimed at reviving its turnaround effort, the New York
Times reported today. The latest move comes six weeks after another
major revamping announcement and amid considerable speculation that GM
could be headed toward a bankruptcy filing. The job cuts are expected to
include both hourly and salaried positions. GM has about 32,000
white-collar jobs in the United States, down from 45,000 in 2000. The
company has already eliminated more than 40,000 hourly jobs through
buyouts and early retirements since 2006.
href='http://www.nytimes.com/2008/07/15/business/15auto.html?ref=business&pagewanted=print'>Read
more.
Midwest Air Cutting 40 Percent of
Workforce
Midwest Airlines said yesterday that it would reduce its workforce by
1,200 people as it grounds its 12 MD-80 air planes, the Associated Press
reported. Besides the MD-80s, which it is flying until this fall,
Midwest also flies 25 Boeing 717s. The company said that it began
notifying affected employees yesterday, with most jobs ending by
mid-September. The job cuts will include union pilots and flight
attendants. The Texas-based private equity firm TPG Capital completed
its roughly $450 million acquisition of Midwest Air Group in January,
paying 53 percent of the purchase price, while Northwest Airlines owns
the rest.
href='http://www.nytimes.com/2008/07/15/business/15air.html?ref=business&pagewanted=print'>Read
more.
Bankrupt Music Label Auctioned for $24
Million
Death Row Records, the bankrupt hip-hop label that released rap albums
by Tupac Shakur, Dr. Dre and Snoop Dogg, has been auctioned for $24
million, the Associated Press reported yesterday. The New York-based
Global Music Group said yesterday that it purchased Death Row Records on
June 24, including its back catalog and current artist contracts. Under
owner Marion 'Suge' Knight, Death Row sold tens of millions of albums in
the early '90s before collapsing in debt and mismanagement. A former
couple, Lydia and Michael Harris, claimed they helped found the label,
and won a judgment of $107 million, which they tried to collect in 2006.
Unable to pay, Death Row and Knight filed for bankruptcy in April 2006,
claiming debts of more than $100 million.
href='http://www.mercurynews.com/business/ci_9878903?source=rss'>Read
more.
Bankrupt C.W. Mining Creditors Sue
Aquila
The secured creditors of C.W. Mining Co. have sued energy company Aquila
Inc., claiming that the company, an unsecured creditor, bankrupted
the Utah miner by garnishing its bank funds, Bankruptcy Law360
reported yesterday. Six creditors filed the suit on July 10 against
Aquila - which was acquired by two different companies on Monday - in
the U.S. District Court for the District of Utah. Kansas City-based
Great Plains Energy, which absorbed part of Aquila, will take on this
litigation. The creditors are asking the court for compensatory and
punitive damages of more than $400 million.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=62212'>Read
more. (Registration required.)
Tower Records Settles Claims with
Deutsche Bank
Music retailer Tower Records has agreed to pay $4.5 million to settle
with Deutsche Bank Securities Inc., the assignee of claims held by
Universal Music Group and Video Products Distributors Inc., in Tower's
ongoing bankruptcy proceedings, Bankruptcy Law360 reported
yesterday. Bankruptcy Judge Brendan Shannon filed
an order on July 10 approving a settlement agreement and release of
claims between Tower, known in its chapter 11 proceedings as Three A's
Holdings LLC, and Deutsche Bank, which purchased the claims against the
debtors' estates in May 2007. Tower is settling the Universal Music
claims for $3.8 million and the VPD claim for $773,780, according to the
order.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=62155'>Read
more. (Registration required.)
International
British Politician Proposes
U.S.-Style Bankruptcy System for U.K. Business
David Cameron, leader of Britain's opposition Conservative Party, said
that he wants to introduce bankruptcy laws modeled on the U.S. system to
give struggling businesses space to turn their fortunes around,
Bloomberg News reported yesterday. Cameron is looking to set out
specific moves to help companies coping with rising costs and falling
sales. “We will consult on taking the best aspects of the American
chapter 11 system and give good companies breathing space to allow them
to rescue or restructure the business in the face of the credit
crunch,'' according to Cameron. The Conservatives say that current
insolvency rules in the United Kingdom focus on closing down
failing companies and paying off creditors. Instead, Cameron wants
businesses to be able to freeze debt payments and to offer priority
status to backers who are willing to extend more loans. They also want
to restrict the ability of individual creditors to block this
process.
href='http://www.bloomberg.com/apps/news?pid=20601102&sid=a33A8nChNNZE'>Read
more.
Spanish Real Estate Developer
Seeks Bankruptcy Protection after Failing to Get Loan
/>
Martinsa-Fadesa SA became the first publicly traded Spanish developer to
seek protection from creditors since a decade-long real estate boom
ended last year, Bloomberg News reported yesterday. Martinsa sought
bankruptcy protection after failing to secure a loan that banks had
demanded as part of a debt refinancing, the Madrid-based company said
yesterday. Martinsa has a market value of 680 million euros ($1.1
billion), less than half of a peak reached in March. Sixty-five
developers and real-estate brokers based in Spain have sought bankruptcy
protection this year, according to Credito y Caucion, a Spanish credit
insurer.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aTctW1u1FNug&refer=home'>Read
more.