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December 16,
2008
Total Bankruptcy Filings up 34
Percent, Business Filings Up 61 Percent in Third Quarter
The 292,291 total U.S. bankruptcies filed during the third quarter of
2008 (July 1 - Sept. 30) represented a 34 percent increase over the
218,909 cases filed over the same period in 2007, according to data
released yesterday by the Administrative Office of the U.S. Courts.
Total filings for the first nine months of 2008 (Jan. 1 - Sept. 30) were
up 35 percent to 841,496, compared to the 622,999 filings during the
same period in 2007. The 29,960 business bankruptcies recorded during
the first three quarters of 2008 (Jan. 1 - Sept. 30) have eclipsed the
full year 2007 (Jan. 1- Dec. 31) business filing total of 28,137.
Business filings represented the sharpest increase during the
three-month period ending Sept. 30, 2008, with 11,504 filings, up 61
percent over the 7,167 business filings in 2007. Consumer filings
totaled 280,787 during the third quarter of 2008 (July 1-Sept. 30),
representing a 33 percent increase over the 211,742 filed during the
same period of 2007.
href='http://www.abiworld.org/AM/Template.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=55930'>Read
ABI's press release on the third quarter stats.
House Speaker Pressures Treasury to
Help Homeowners
House Speaker Nancy Pelosi (D-Calif.) suggested yesterday that Congress
will force the Treasury Department to do more to help struggling
homeowners if the administration seeks access to the second half of its
$700 billion financial-rescue fund, the Wall Street Journal
reported today. Pelosi's comments reflect frustrations of lawmakers from
both parties who feel Treasury Secretary Henry Paulson has not spent the
funds the way Congress intended. Specifically, they say that the
Troubled Asset Relief Program (TARP) hasn't been used to directly aid
homeowners having trouble paying their mortgages. Rather than spending
the money to help struggling homeowners, lawmakers complain, the
Treasury Department provided cash infusions to banks, which haven't used
it to start lending their funds to businesses and consumers again. As a
result, they say that little of the money has trickled down to ordinary
homeowners and the expenditures have done little to energize the
economy.
href='http://online.wsj.com/article/SB122937897614008423.html'>Read
more. (Subscription required.)
Home Buyers Turn to USDA for
Mortgages
An obscure home-loan program offered by the U.S. Department of
Agriculture (USDA) is helping cash-strapped buyers obtain favorable
financing terms while banks tighten their lending standards, the
Wall Street Journal reported today. Created in 1991 as a way to
boost homeownership in rural areas, the USDA program is being tapped by
home buyers in overbuilt exurbs who are attracted to the no-money-down
terms. To be eligible for a USDA-backed loan, a borrower can't have
income that exceeds 115 percent of the median county income, and the
loans are restricted to areas with lower population density -- generally
towns of no more than 25,000 residents. The USDA insured $7 billion in
loans during the 2008 fiscal year, which ended Sept. 30, up from $3.6
billion the previous year. In October and November, the agency has
already insured some $1.7 billion in loans.
href='http://online.wsj.com/article/SB122937640286608173.html'>Read
more. (Subscription required.)
Autos
Treasury May Give Car Czar Power
to Force Bankruptcies
Sen. Carl Levin (D-Mich.) said that the U.S. Treasury may adopt a plan
that would let a car czar or the Treasury Secretary force General Motors
Corp. and Chrysler LLC into bankruptcy if the automakers don't show they
can survive without government aid, Bloomberg News reported today. GM
and Chrysler would be required to submit viability plans by March 31 or
lose any further U.S. support, Levin said today. The Bush administration
agreed Dec. 12 to consider options, including use of the Troubled Asset
Relief Program, after Senate Republicans refused to take up the plan
passed by the House on Dec. 10. Senate Republicans sought more specific
automaker conditions, such as pay in line with foreign manufacturers'
operations in the United States. House Speaker Nancy Pelosi (D-Calif.)
said at a news conference yesterday that she expects the White House to
approve the money for automakers and that something will have to happen
“imminently.”
href='http://www.bloomberg.com/apps/news?pid=20601092&sid=aOq9h59M.NQA'>Read
more.
Commentary: Chapter 11 Would Help
Detroit Automakers
While Washington tries to arrange a bailout for U.S.
automakers, a chapter 11 filing will likely result in a stronger
domestic industry, according to a commentary by Prof. Todd Zywicki in
today's Wall Street Journal. General Motors looks to be a
financially failed enterprise in need of reorganization not liquidation.
Bankruptcy would provide the automaker the ability to shed labor
contracts, retirement contracts, and modernize its distribution systems
by closing many dealerships. It would also offer the ability to
construct a new management team for the company. Detroit and the public
has little to fear from a bankruptcy filing, but much to fear from the
corrupt bargain that is emerging among incumbent management, the UAW and
Capitol Hill to spend our money to avoid their reality check.
href='http://online.wsj.com/article/SB122939117718809261.html'>Read
more. (Subscription required.)
Majority of Public Opposes Auto
Rescue
Most Americans continue to oppose a government-backed rescue plan for
Detroit's Big Three automakers as majorities blame the industry for its
own problems and are unconvinced failure would hurt the economy,
according to a new Washington Post-ABC News poll released
yesterday. Overall, 55 percent of those polled oppose the latest plan
that Chrysler, Ford and General Motors executives pitched to Congress
last week, on par with public opposition to earlier, pricier efforts.
Opposition to the automaker bailout is fueled by the widespread
perception that the companies themselves are responsible for their
predicament, not the faltering economy. In the new poll, three-quarters
of Americans said that Detroit's woes are mainly the fault of its own
management decisions, and a sizable majority of those who blame the
front office object to government help. The poll was conducted by
landline and cellphone from Dec. 11 - 14 among a random national sample
of 1,003 adults.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/15/AR2008121502727_pf.html'>Read
more.
Global Car Industry Fearful for
Detroit
While the overseas operations of Ford and General Motors helped
buoy Detroit when times were difficult in the United States, there are
growing concerns that the automakers' problems in the United States will
weigh down their more successful units in Europe, Asia and Latin
America, the New York Times reported today. Both GM and the
Ford Motor Company were profitable in Europe last year and in the first
half of 2008. However, neither of their European operations is large
enough to survive on its own, according to car industry experts. Other
automakers may be reluctant to assume that role, given the lower sales
of European giants like Renault, Fiat and Daimler. The tight credit
markets would also inhibit any large deals. Many analysts say that they
are skeptical that Opel, GM's German subsidiary, can survive as an
independent company if GM seeks bankruptcy protection. A more workable
solution might be to combine GM's entire overseas business, they said,
which would produce roughly three million to four million cars
annually.
href='http://www.nytimes.com/2008/12/16/business/16global.html?ref=business&pagewanted=print'>Read
more.
AIG Sells $39 Billion Securities Stake
to Settle Lending Transactions
American International Group Inc. said that its U.S. life insurance
companies sold their interests in a pool of $39.3 billion of residential
mortgage-backed securities and used the money to settle outstanding
securities-lending transactions, the Wall Street Journal
reported yesterday. The residential mortgage-backed securities were sold
to Maiden Lane II LLC, a newly formed firm owned by the Federal Reserve
Bank of New York. The federal government initially rescued AIG in
mid-September, when the insurer faced possible bankruptcy, by loaning it
as much as $85 billion at high interest rates. Since then, the
government has twice agreed to change the deal. Initially, it increased
the possible loan to nearly $123 billion. Then, in mid-November, it
agreed to a new package valued at about $150 billion -- of which as much
as $60 billion is a loan -- that slashed AIG's interest rate on the
loan. AIG is planning to sell off much of its life-insurance businesses
around the world, as well as its aircraft-leasing unit, in hopes of
raising tens of billions of dollars.
href='http://online.wsj.com/article/SB122938291283108719.html'>Read
more. (Subscription required.)
FASB Studies Expanding
'Mark-to-Market' Rules
Accounting-rule makers moved to launch an effort that could lead to an
expansion of mark-to-market accounting, a practice many banks say has
worsened the financial crisis, the Wall Street Journal reported
today. The Financial Accounting Standards Board (FASB) yesterday told
its staff to begin work on a project to re-examine accounting for
financial instruments. Under one scenario likely to be examined, the use
of mark-to-market accounting might be extended to a wider variety of
securities, with FASB taking a more holistic view of accounting for
loans, bonds, derivatives and stocks. Banks and some regulators have
attacked mark-to-market accounting, saying that it gives too much weight
to downbeat assessments of securities values by panicked investors.
Critics say that the approach ignores long-term values, while ensuing
losses deplete bank capital when they need it the most. FASB members
said that investors want better information about the values of assets
on banks' books, citing a series of recent roundtables to discuss
financial-statement issues. Despite flaws, mark-to-market accounting is
the best approach, those investors said, according to Thomas Linsmeier,
a FASB board member.
href='http://online.wsj.com/article/SB122939407427409413.html'>Read
more. (Subscription required.)
Yellowstone Wins DIP
Approval
A bankruptcy judge on Friday approved Yellowstone Mountain Club LLC's
request to tap into a $19.75 million replacement debtor-in-possession
loan from Boston hedge fund CrossHarbor Capital Partners LLC, The
Deal reported today. The DIP financing agreement mandated that
Yellowstone must file a reorganization plan by Feb. 13 and have it
confirmed by March 31. If Yellowstone's plan isn't confirmed by March
31, the company must sell the club through a §363 sale by April 30.
It is unclear whether those terms were changed through the final
order. Yellowstone filed for chapter 11 on Nov. 1 because of the
slumping real estate market and an inability to get credit. As of Aug.
28, the property was valued at $778 million, not including $336 million
in unsold memberships. The company listed between $100 million and $500
million in assets and debts in its petition.
href='http://www.thedeal.com/servlet/ContentServer?cid=1229013203307&pagename=TheDeal%2FNWStArticle&c=TDDArticle'>Read
more.
Losses in Madoff Case Spread
Investigators dug through financial records at Bernard Madoff's
investment firm as the list of victims of his alleged Ponzi scheme
widened to include a charitable trust of real-estate magnate Mortimer
Zuckerman, the foundation of Nobel laureate Elie Wiesel, Sen. Frank
Lautenberg and a charity of movie director Steven Spielberg, the
Wall Street Journal reported yesterday. The scandal
reverberated around the world, with banks including Spain's Grupo
Santander and France's BNP Paribas saying on Sunday that their clients
and shareholders together face billions of euros of losses. Monday
morning in Tokyo, Nomura Holdings Inc. said that its exposure to
investments with Mr. Madoff totaled 27.5 billion yen ($302 million).
Madoff's office has been sealed since Thursday, when he was arrested
and, according to authorities, admitted that he had carried out a $50
billion Ponzi scheme. Madoff's track record of steady investment returns
attracted high-profile clients to invest billions of dollars over the
course of decades.
href='http://online.wsj.com/article/SB122938212422208613.html'>Read
more. (Subscription required.
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