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December 19,
2008
Analysis: Tax Break May Have Helped Cause Housing
Bubble
A tax break proposed by President Bill Clinton and approved by Congress
in 1997 that allowed home sellers to avoid paying capital gains tax on
the sale of their home may have contributed to the housing bubble, the
New York Times reported today. The different tax treatments on
homes versus other investments gave people a new incentive to plow ever
more money into real estate, and they did so. By itself, the change in
the tax law did not cause the housing bubble, economists say. Several
other factors - a relaxation of lending standards, a failure by
regulators to intervene, a sharp decline in interest rates and a
collective belief that house prices could never fall - probably played
larger roles. However, many economists say that the law had a noticeable
impact, allowing home sales to become tax-free windfalls. A recent study
of the provision by an economist at the Federal Reserve suggests that
the number of homes sold was almost 17 percent higher over the last
decade than it would have been without the law.
href='http://www.nytimes.com/2008/12/19/business/19tax.html?_r=1&ref=business&pagewanted=print'>Read
more.
Obama's Transition Team Assembling
$850 Billion Stimulus Package
President-elect Barack Obama and congressional Democrats have entered
discussions over an economic stimulus package that could grow to include
$850 billion in new spending and tax cuts over the next two years, the
Washington Post reported today. A package of that size -- which
would include at least $100 billion for cash-strapped state governments
and more than $350 billion for investments in infrastructure,
alternative energy and other priorities -- is a significant increase
over the numbers previously contemplated by Democrats. Obama also
expects to include significant new tax cuts for the middle class,
probably modeled on his campaign promise to lower the tax burden on
workers, students, the elderly and families. The package could also
include his proposal to offer tax credits to companies that create
jobs.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/18/AR2008121804204.html'>Read
more.
In related news, President-elect Barack Obama said yesterday that
remaking the nation's financial regulatory system will be one of his
first initiatives, and he pledged to streamline authority, consolidate
agencies and spread financial oversight far beyond the banking system,
the Wall Street Journal reported today. New regulations are
likely to fall on financial institutions currently seeking federal
assistance that are either lightly regulated or not regulated at all.
Mortgage brokers are under particular scrutiny, as are hedge funds and
private-equity firms. Obama, who introduced his financial-regulatory
team yesterday, hinted at consolidating financial regulators, including
the Securities and Exchange Commission and the Commodity Futures Trading
Commission. One focus will be revamping the system so that financial
firms can no longer shop around for regulatory agencies that offer the
lightest possible touch. Obama aides said that they hope to have the
beginnings of a new regulatory regime ready to present April 2, when the
Group of 20 nations convenes in London.
href='http://online.wsj.com/article/SB122965186108420649.html'>Read
more. (Subscription required.)
Polaroid files for Chapter
11
Consumer electronics company Polaroid Corp. said yesterday that it filed
for chapter 11 protection in order to facilitate its restructuring,
Reuters reported yesterday. The maker of iconic instamatic cameras said
that its bankruptcy was due to events at Petters Group Worldwide, which
has owned the company since 2005. The founder of Petters is 'under
investigation for alleged acts of fraud that have compromised the
financial condition of Polaroid and other entities owned by Petters
Group,' the company said in a statement. The company said that the
restructuring should not impact its day-to-day operations and that it
was not seeking additional debtor-in-possession financing. The case is
In re Polaroid Corp., U.S. Bankruptcy Court, District of
Minnesota, No. 08-46617.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/18/AR2008121803619_pf.html'>Read
more.
Circuit City Not to Shutter Additional
Stores
Consumer electronics retailer Circuit City Stores Inc., which is
operating under chapter 11 protection, said yesterday that it does not
have plans to close any additional stores, Reuters reported. The
company, which is currently closing 155 of its 722 stores, issued a
statement responding to a Credit Suisse research note that said it
planned to shutter more outlets. The initial Credit Suisse note said
'Circuit City's move to close an additional 150 stores will likely make
it that much harder to survive, in our view.' The note added that
Circuit City closures would benefit main rival Best Buy Co. Credit
Suisse later corrected its research note. Circuit City said in a court
notice on Wednesday that it was seeking to reject leases on 154 of the
155 stores it is closing. The company canceled an auction of these
leases that had been set for yesterday after it did not receive enough
bids.
href='http://www.reuters.com/article/ousiv/idUSTRE4BH5RJ20081218'>Read
more.
KB Toys Gets Approval for Store
Liquidations
Bankruptcy Judge Kevin Carey authorized KB Toys to
begin going-out-of-business sales after attorneys said that they had
resolved several concerns of landlords and creditors about rent and
other issues, the Associated Press reported yesterday. Judge Carey also
approved KB Toys' request to pay store-closing bonuses of up to $1,500
to store managers and assistant managers to ensure that the liquidation
sales proceed smoothly. The Pittsfield, Mass.-based company plans to
start liquidation sales Friday, with a targeted end date of Feb. 9. KB
Toys, the nation's largest mall-based toy retailer filed for chapter 11
protection last week.
href='http://www.chron.com/disp/story.mpl/ap/business/6172275.html'>Read
more.
Pilgrim's Pride Board Targeted in
ERISA Suit
A Pilgrim's Pride Corp. worker has filed a proposed class action
alleging that the bankrupt company's board of directors and compensation
committee have violated the Employee Retirement Income Security Act by
mishandling pension plans, Bankruptcy Law360 reported
yesterday. The lawsuit, filed by Kenneth Patterson on Tuesday in the
U.S. District Court for the Eastern District of Texas, seeks to recover
pension plan losses, which are a product of investments in the poultry
company's stock. The Pilgrim's Pride Stock Investment Plan is
administered through the Retirement Savings Plan and the To-Ricos Inc.
Employee Savings and Retirement Plan, which is for the company's Puerto
Rican employees. The plans invested in Pilgrim's Pride common stock or
units, which were offered as one of the investment alternatives in the
plans, the suit said. The suit alleges that the defendants made false
and misleading statements about Pilgrim's Pride business during the
proposed class period, which is May 5 to the present. When facts about
the company's financial status came to light, its stock dropped from a
class period high of more than $12 per share to its current value of
about $0.10 a share.
href='http://bankruptcy.law360.com/articles/80858'>Read
more. (Subscription required.)
Court Agrees to End Whitehall Credit Card
Program
Bankruptcy Judge Kevin Gross on Tuesday approved a
request made by Whitehall Jewelers Inc. to terminate its private-label
credit card program administered by GE Money Bank, Bankruptcy
Law360 reported yesterday. Whitehall had asked the court in late
November to terminate its private-label credit card agreement with GE
Money Bank. Before the company filed for bankruptcy protection in June,
Whitehall offered its customers Whitehall credit cards through GE Money
Bank. However after the filing, GE Money Bank claimed that the agreement
it had made with Whitehall to provide the credit cards included
provisions giving the company the right to terminate the program.
Whitehall was initially unwilling, and attempted to negotiate with GE
Money Bank with an eye toward continuing the credit card program on a
post-petition basis.
href='http://bankruptcy.law360.com/articles/80816'>Read more.
(Subscription required.)
Prosecutors Accuse Ex-Lehman Broker of
Passing Tips on Mergers
Prosecutors accused the broker, Matthew C. Devlin of Lehman Brothers, of
illegally passing on inside information about at least 12 coming mergers
- including InBev's takeover of Anheuser-Busch and Dow Chemical's
acquisition of Rohm & Haas - that he surreptitiously obtained from
his wife, the New York Times reported today. The United States
attorney's office for the Southern District of New York charged four
people, including Devlin, with conspiracy and securities fraud that took
place over more than four years, during the latest takeover boom.
Separately, the Securities and Exchange Commission filed civil charges
against seven people and is seeking to reclaim trading profits from two
others, including a Playboy playmate.
href='http://www.nytimes.com/2008/12/19/business/19insider.html?ref=business&pagewanted=print'>Read
more.
New Rules Aim to Protect Credit Card
Users
Federal regulators yesterday adopted sweeping new rules for the credit
card industry that will shield consumers from increases in interest
rates on existing account balances, among other changes, the Associated
Press reported. The rules, which take effect in July 2010, will allow
credit card companies to raise interest rates only on new credit cards
and future purchases or advances, rather than on current balances. In
addition, consumers will have to be given 45 days' notice before any
changes are made to the terms of an account, including a higher penalty
rate for missing payments or paying bills late. Under current rules,
companies in most cases give 15 days' notice before making certain
changes to the terms of an account. The rules were approved by the
Federal Reserve, the Treasury Department's Office of Thrift Supervision
and the National Credit Union Administration. The changes could cost the
banking industry more than $10 billion a year in interest payments,
according to a study by the law firm Morrison & Foerster.
href='http://www.nytimes.com/2008/12/19/business/19credit.html?ref=business&pagewanted=print'>Read
more.
href='http://www.federalreserve.gov/newsevents/press/bcreg/20081218a.htm'>Click
here to read the Federal Reserve's press release on the new
credit card rules.
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