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October 2, 2008
Federal
Bailout
Senate Passes Bailout Plan; House May
Vote by Friday
The Senate strongly endorsed the $700 billion economic bailout plan last
night, leaving backers optimistic that the easy approval, coupled with
an array of popular additions, would lead to House acceptance by Friday
and end the legislative uncertainty that has rocked the markets, the
New York Times reported today. The Senate voted 74-25 in favor
of the White House initiative to buy troubled securities in an effort to
avoid an economic catastrophe. Only Sen. Edward M. Kennedy (D-Mass.),
who is being treated for brain cancer, did not vote. In the House,
officials of both parties said they were increasingly confident that
politically enticing provisions bootstrapped to the original bill -
including $150 billion in tax breaks for individuals and businesses -
would win over at least the dozen or so votes needed to reverse Monday's
outcome and send the measure to President Bush. Besides the tax breaks,
the Senate version also provided a temporary increase in the amount of
bank deposits covered by the Federal Deposit Insurance Corp., to
$250,000 from $100,000. The entire package was attached to legislation
requiring insurers to treat mental health conditions more like general
health problems, a long-sought goal of many lawmakers who demanded such
parity.
href='http://www.nytimes.com/2008/10/02/business/02bailout.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
href='http://banking.senate.gov/public/_files/latestversionAYO08C32_xml.pdf'>Click
here to read the full bill text.
Reps. Steve Chabot (R-Ohio) and Carolyn Cheeks Kilpatrick (D-Mich.) will
join Mike Calhounis, president and COO of the Center for Responsible
Lending, and Wade Henderson, president and CEO of the Leadership
Conference on Civil Rights, for a conference call at 1 p.m. ET today to
discuss the bailout plan and bankruptcy issues. To listen to the call,
dial 800-895-0231 and provide the passcode “Main
Street.”
FHA Launches Program to Rework Loans
of Struggling Homeowners
The Bush administration rolled out a program yesterday that aims to help
thousands of struggling borrowers refinance into more affordable,
government-backed mortgages, the Washington Post reported
today. The Federal Housing Administration program, which would insure up
to $300 billion in mortgages, was part of a broader housing rescue bill
enacted this summer. Borrowers who took out a mortgage on or before Jan.
1 can apply if they have made at least six payments on their existing
loans and they do not own a second home. If their lender goes along with
the deal, they can refinance into a 30-year, fixed-rate loan. They will
need to verify that they cannot pay their existing loan without help and
that their monthly payments were more than 31 percent of their gross
monthly income as of March.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/10/01/AR2008100102861_pf.html'>Read
more.
SEC Extends Ban on
Short-Selling
The Securities and Exchange Commission said yesterday that it was
extending a temporary emergency action to prohibit short-selling in
financial company stocks, Dow Jones Newswires reported. Regulators said
that the ban on short-selling, set to expire today, would remain in
place to give Congress time to work on a financial rescue package, but
will not run beyond 11:59 p.m. Eastern time on Friday, Oct. 17. The ban
could end sooner if lawmakers act swiftly as the SEC called for the ban
to end on the third business day after Congress enacts the legislation.
Other temporary measures put in place by the SEC last month that also
were set to expire will be extended until Oct. 17. They include an
easing of restrictions on the ability of companies to buy back their own
shares, and a requirement for large money managers to provide weekly
reports on short positions.
href='http://www.nytimes.com/2008/10/02/business/02short.html?ref=business&pagewanted=print'>Read
more.
U.S. Auction-Rate Investigation Picks
Up Steam
The Justice Department is ramping up criminal investigations into the
collapse of the market for investments known as auction-rate securities,
the Wall Street Journal reported today. One investigation is
looking at whether Lehman Brothers Holdings Inc. defrauded its clients,
and another probes whether a former executive at UBS AG was involved in
insider trading. The investigations are among the first to look at
whether individuals committed crimes as the market collapsed in the
credit crisis. Federal and state securities regulators have so far
settled civil claims with many firms that sold the securities.
href='http://online.wsj.com/article/SB122291293581297001.html'>Read
more. (Subscription required.)
Bank Limits Fund Access by
Colleges
Wachovia Bank has limited the access of nearly 1,000 colleges to $9.3
billion the bank has held for them in a short-term investment fund,
raising worries on some campuses about meeting payrolls and other
obligations, the New York Times reported today. Wachovia, the North
Carolina bank that agreed this week to sell its banking operations to
Citigroup, has held the money in its role as trustee for a fund used by
colleges and universities and managed by a Connecticut nonprofit,
Commonfund. Wachovia on Monday announced that it would resign its role
as trustee of the fund, and would limit access to the fund to 10 percent
of each college's account value. On Tuesday, Commonfund said that by
selling some government bonds and other assets held in the fund, it had
succeeded in raising its liquidity to 26 percent.
href='http://www.nytimes.com/2008/10/02/education/02college.html?ref=business&pagewanted=print'>Read
more.
Bankruptcy Judge Approves Sale Plan
for Boscov's
Bankruptcy Judge Kevin Gross accepted Boscov's proposed
bid deadline of Oct. 15, followed by an auction on Oct. 20 and sale
hearing the next day, the Associated Press reported yesterday. 'The
timing is appropriate,' Judge Gross said. 'The court is fully aware that
the Christmas season is critical to the sale process...If we allow
delay, then we're just going to be hurting the estate.'
Philadelphia-based Versa Capital Management has emerged as the lead
bidder for Reading, Pa.-based Boscov's, which filed for chapter 11
protection in August and announced that it would close 10 of its 49
stores. Versa has offered to pay $11 million in cash and assume Boscov's
debt in a deal valued at about $288 million.
href='http://www.forbes.com/feeds/ap/2008/10/01/ap5495981.html'>Read
more.
Momentum Gathers to Ease
Mark-to-Market Accounting Rule
The banking industry and a band of lawmakers have used the scramble to
salvage the financial-markets rescue plan to give new life to an
industry push to avoid billions in further write-downs with an
accounting regulatory change, the Wall Street Journal reported. A
proposal contained in the revised financial-rescue bill the Senate
considered Wednesday reaffirms the Securities and Exchange Commission's
existing authority to suspend 'mark-to-market' accounting. The language
was meant to send a message to the agency to re-evaluate the issue. The
practice, adopted in the aftermath of the savings-and-loan collapse in
the 1980s, pegs the value of assets to their current market price,
rather than the price paid for them. Banks have complained that the
strict application of mark-to-market rules has forced them to write down
billions of dollars worth of mortgage-related securities, intensifying
the squeeze in the credit markets.
href='http://online.wsj.com/article/SB122290736164696507.html'>Read
more. (Subscription required.)
Autos
Auto Sales Fall 27 Percent as
Credit Tightens
Americans steered clear of auto dealerships in September, sending sales
of new cars and trucks tumbling as credit conditions tightened, the
Washington Post reported today. Overall, automakers sold
964,873 new cars, trucks and minivans in the United States last month, a
fall of 27 percent from September a year ago, according to preliminary
data released yesterday by the industry research firm Autodata. General
Motors, Toyota, Ford and Chrysler, the four largest automakers in the
U.S. market, reported double-digit sales drops. GM said sales sank 16
percent in September versus a year ago. At Toyota and Ford, sales were
down 32 percent and 34 percent respectively. Chrysler's sales fell 33
percent.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/10/01/AR2008100102928_pf.html'>Read
more.
Ford CEO Sees 'Deeper and Longer'
U.S. Slowdown
Ford Motor Co. CEO Alan Mulally said he believes the U.S. economic slump
will be 'deeper and longer' than most people previously expected, the
Wall Street Journal reported today. Mulally also said the
global auto industry is slowing down, a trend likely to crimp auto
makers' revenue. Mulally also reiterated past statements that a
bankruptcy filing for Ford is unlikely. Bankruptcy 'is not in our
consideration,' he said. Ford 'is going to keep restructuring for lower
demand' and has ample financing 'in place,' he explained.
href='http://online.wsj.com/article/SB122294224581897859.html'>Read
more. (Subscription required.)
Facing Losses, Farmer Mac Raises
Capital
Weeks after mortgage giants Fannie Mae and Freddie Mac were taken over
by the government, the Federal Agricultural Mortgage Corp. (Farmer Mac)
had to raise $65 million in fresh capital to offset heavy losses caused
by its investments in Fannie Mae and Lehman Brothers securities,
Bankruptcy Law360 reported yesterday. The company said that its
holdings of stock in Fannie Mae, the mortgage-financing giant that the
government seized in early September, left it facing a $44 million
write-down. Farmer Mac also warned of another major write-down due to
its holdings of $60 million in debt of Lehman Brothers, the investment
bank that filed for bankruptcy on Sept. 15. The investors in the capital
infusion include AgFirst Farm Credit Bank, AgriBank FCB, CoBank ACB,
Farm Credit Bank of Texas, U.S. AgBank FCB and Zions Bancorp.
href='http://bankruptcy.law360.com/articles/71183'>Read
more. (Subscription required.)
Independent D.C. Bookseller to
Liquidate
Olsson's Books and Records, which had closed one of its six stores to
reduce overhead and had been forced into bankruptcy protection this
summer by creditors, petitioned a bankruptcy court to convert its case
to liquidate its assets, the Washington Post reported
yesterday. Two of Olsson's biggest creditors, Random House and Penguin
Group, as well as Hachette Book Group, called in its debts in June,
petitioning the U.S. Bankruptcy Court to place Olsson's in involuntary
chapter 7. Two other creditors also hold claims on the company's book
and music inventories. Washington, D.C.-based Olsson's convinced the
court to convert the involuntary filing that to chapter 11.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/30/AR2008093002599_pf.html'>Read
more.
GE Turns to Warren Buffett for $3
Billion Infusion
In the latest unexpected deal stemming from the financial crisis,
General Electric Co. turned to Warren Buffett to inject at least $3
billion in the company, the Wall Street Journal reported today.
Buffett's Berkshire Hathaway Inc. agreed to invest $3 billion, and
perhaps as much as $6 billion, in GE. GE also said that it would sell a
minimum of $12 billion in stock to other investors. GE stock is down
almost 35 percent this year as investors worry about the vulnerability
of its finance arm. Buffett will receive $300 million in annual
dividends on the $3 billion in preferred shares he is buying, and he
also gains the right to buy $3 billion in GE common stock at $22.25 a
share for five years.
href='http://online.wsj.com/article/SB122288377688594651.html'>Read
more. (Subscription required.)
International
EU Is Divided on Crisis
Measures
Germany dismissed France's call for a Europe-wide response to the
financial crisis while Ireland's new broad-based bank guarantees drew
criticism from other European officials, putting the European Union
increasingly at odds with itself as its governments struggle to ensure
the soundness of their banking system, the Wall Street Journal
reported today. German finance minister Peer Steinbrück said that
the crisis was U.S.-centered and suggested European governments are
overreacting if they pursue coordinated plans for bank bailouts. 'To put
it mildly, Germany is highly cautious about such grand designs for
Europe,' he said. 'Other countries are free to think about it. I just
don't see any German interest in it.' German officials are opposed to
any European plan that would mirror the U.S.'s proposed $700 billion
purchase of banks' bad assets. Steinbrück questioned why German
taxpayers should have to pay 'to stabilize situations for which other
countries are responsible.'
href='http://online.wsj.com/article/SB122294203036597849.html'>Read
more. (Subscription required.)