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August 7, 2009
Senate Adds Cash to
‘Clunkers’ Plan
The Senate voted (60-37) to provide another $2 billion
for the “cash for clunkers” program yesterday, keeping it
alive through the month of August, the
face='Times
New
Roman' size='3'>New York Times reported today.
The House approved an additional $2 billion last Friday, before its
summer recess, and President Obama is expected to sign the bill as soon
as possible. The “cash for clunkers” program offers rebates
of $3,500 to $4,500 for trade-ins of vehicles with low fuel economy if
the buyer picks a more efficient replacement. The precise rules to
qualify vary by category of vehicle. The additional money is borrowed
from another stimulus program, a loan program for green energy
projects.
href='http://www.nytimes.com/2009/08/07/business/07clunker.html?_r=1&hp=&pagewanted=print'>Read
more.
With the housing market possibly bottoming out, the
Obama administration has begun to ponder the future of Fannie Mae and
Freddie Mac, which have profoundly influenced U.S. residential real
estate, according to a
face='Times New Roman' size='3'>Washington Post
size='3'>editorial today. These government-sponsored enterprises (GSEs),
which dominate the secondary market for home mortgages, have been under
federal control since September, when mounting losses forced the Bush
administration to take them over. The Treasury Department has pumped $85
billion of equity into the firms, and the Federal Reserve and the
Treasury have bought more than $800 billion of their debt. However,
quasi-nationalization is not a permanent solution, as the GSEs own or
guarantee $5.5 trillion in U.S. mortgages; their $5.5 trillion debt,
much of it held by the central banks of China and Japan, approaches the
privately held debt of the whole federal government. One idea under
discussion would be to break the firms into 'good' and 'bad' entities.
However, the tough question is what form the 'good' entity would take.
Before he headed President Obama's National Economic Council, Lawrence
H. Summers advocated breaking the companies into pieces and selling them
to the private sector. In a July 30 speech, James B. Lockhart III, the
retiring Fannie-Freddie regulator, suggested letting a newly privatized
secondary mortgage sector pay into a government-managed fund -- thus
providing explicitly, and at a price, the backing that Fannie and
Freddie once enjoyed implicitly and for free. Whatever structure the
Obama administration chooses, it must reject the old business model
under which Fannie and Freddie pursued profit for private shareholders
with funds borrowed cheaply based on a perceived government
guarantee.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/06/AR2009080603197_pf.html'>Read
more.
In related news, the White House yesterday played down
internal discussions of creating a government-backed 'bad bank' to take
hundreds of billions of dollars in troubled loans off the books of
mortgage-finance giants Fannie Mae and Freddie Mac, the
face='Times New Roman'>
size='3'>Washington Post reported today.
However, an e-mail dated Wednesday between the Treasury Department and
the White House's National Economic Council said that the bad bank
approach has been the subject of policy papers distributed across the
administration. Other government officials
and lawmakers, including Fannie and Freddie's outgoing chief regulator
James B. Lockhart III, confirmed that the administration is discussing
the idea of the “bad bank,” but they said that any decision
about the future shape of the two firms might not come until next
year.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/06/AR2009080603852_pf.html'>Read
more.
in Accredited Chapter 11
Bankruptcy Judge
face='Times
New
Roman' size='3'>Mary F. Walrath on Wednesday
refused to allow a committee in Accredited Home Lenders Holding
Co.’s chapter 11 liquidation to represent the borrowers who were
allegedly blindsided by the fallen mortgage lender’s predatory
loan practices, Bankruptcy Law360 reported
yesterday. Borrowers Lyle and Patricia Wroan urged the court to allow
the formation of a committee that would safeguard the rights of the
thousands of borrowers battling foreclosure, especially as many of the
other creditors are intent on limiting liability for the types of
unscrupulous loan practices that decimated Accredited and harmed the
borrowers, according to the borrowers’ motion for a committee. The
unsecured creditors’ committee came out against the formation of a
second creditors committee, contending that the borrowers are already
amply represented in the proceeding.
href='http://bankruptcy.law360.com/articles/115286'>Read
more. (Subscription required.)
Boscov’s Receives
Federal Loan to Get Out of Bankruptcy
The Boscov's department store chain has received a
$43.7 million loan from the U.S. Department of Housing and Urban
Development that will be used to buy the company out of bankruptcy,
the
size='3'>Beaver (Pa.) Times reported today.
Jim Boscov, assistant to company chairman and CEO Albert Boscov, said
that the money will be used as part of a financial package, including
$200 million in bank financing and about $60 million from Boscov family
members, to purchase the company’s assets. Boscov’s filed
for chapter 11 protection in 2008, prompting Albert Boscov to come out
of retirement and form a family group that bought the company out of
bankruptcy court for $300 million in December.
href='http://www.timesonline.com/articles/2009/08/06/news/top_stories/doc4a7b6fc508461937131566.prt'>Read
more.
Discovery Bid by Tessera
Bankrupt flash memory maker Spansion Inc.has objected
to Tessera Technologies Inc.'s discovery bid, arguing that the request
is unduly burdensome and an effort to gain an unfair advantage in
negotiations related to a patent feud between the rivals,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
Tessera filed an amended complaint in 2006 in the U.S. District Court
for the Northern District of California accusing Spansion and other
defendants of infringing patents related to miniaturizing semiconductor
chip assemblies. That litigation has been stayed pending the outcome of
a complaint Tessera subsequently filed with the U.S. International Trade
Commission. The ITC in May issued a limited exclusion order prohibiting
Spansion from activities including the sale of products infringing
certain claims of the Tessera patents, and a Spansion appeal is pending
before the U.S. Court of Appeals for the Federal Circuit. As recently as
July, Tessera and Spansion had been in negotiations to resolve the
patent litigation, the debtor said.
href='http://bankruptcy.law360.com/print_article/115306'>Read
more. (Subscription required.)
Demand Increases for
Government’s Consumer Credit Program
Investors' appetite picked up this month for a
government program aimed at spurring lending to consumers and small
businesses at lower rates, the Associated Press reported yesterday. The
Federal Reserve Bank of New York said yesterday that investors requested
$6.9 billion worth of loans, up from $5.4 billion worth of loans
requested last month. Investors use the money to buy newly issued
securities backed by, among other things, auto and student loans, credit
cards, business equipment and loans guaranteed by the Small Business
Administration. The Term Asset-Backed Securities Loan Facility started
in March and figures prominently in efforts by the Fed and the Obama
administration to ease credit problems. It has the potential to generate
up to a $1 trillion in lending. So far a total of $40.8 billion worth of
loans have been requested by investors to buy securities backed by
consumer and small-businesses loans.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/06/AR2009080602669_pf.html'>Read
more.
Judge Permits Balsillie to
Bid on NHL's Coyotes
Bankruptcy Judge
face='Times
New
Roman' size='3'>Redfield Baum ruled Wednesday
that a group led by James Balsillie, the co-CEO of BlackBerry maker
Research in Motion, will be allowed to bid in the September auction for
the National Hockey League's bankrupt Phoenix Coyotes franchise, Reuters
reported yesterday. RIM's had offered $212.5 million when the team filed
for bankruptcy in May on condition he be allowed to move it to Hamilton,
Ontario. The NHL, which has said it wants the team in Arizona, last week
said Balsillie was not a 'viable buyer.' The auction was to have taken
place this week and be limited to bidders wanting to keep the team in
Glendale, Ariz. Earlier this week, Judge Baum postponed the auction
until Sept. 10 to allow the bidders to finalize their offers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/06/AR2009080601609_pf.html'>Read
more.
Bankers Beat Odds in Toxic
Pay Plan
Credit Suisse Group's novel plan to pay bankers with a
brew of its own toxic bonds and corporate loans has gotten off to an
unexpectedly strong start, which could put further political pressure on
other Wall Street firms to change how they pay their employees,
the
size='3'>Wall Street Journal reported today.
Late Wednesday, the bank told 2,000 of its top bankers that a $5 billion
fund of soured mortgages and bonds -- which it granted as a big portion
of 2008 pay -- had returned 17 percent since January. Many were
originally skeptical of the plan, with one decrying what he called the
'eat your own cooking' plan as unfair to employees who didn't contribute
to the bank's 2008 net loss. Starting at the end of 2008, the bank took
a significant portion of the annual bonus pool and switched it from
stock to shares in a fund made up primarily of distressed assets. In
essence, this means the performance of bets these bankers were
originally involved in structuring will help determine whether their
2008 compensation turns into big money or big losses down the
road.
href='http://online.wsj.com/article/SB124960277918712887.html'>Read
more. (Subscription required.)
Former AIG CEO to Pay $15
Million in SEC Case
Maurice R. 'Hank' Greenberg, the former head of
American International Group Inc., agreed to pay $15 million to settle a
securities-violation allegation arising from the giant insurer's past
accounting improprieties, the
face='Times
New
Roman' size='3'>Wall Street Journal reported
today. The SEC's complaint against Greenberg and former AIG CFO Howard
Smith filed yesterday in federal court in Manhattan said that AIG under
Greenberg's leadership 'faced a number of financial challenges that, had
they been properly reported or accounted for, would have exposed
significant missteps in AIG's operations and caused the company to miss
certain key earnings and growth targets.' Smith who currently works with
Greenberg at closely held C.V. Starr & Co., an insurance firm, also
yesterday settled SEC allegations of civil fraud for $1.5
million.
href='http://online.wsj.com/article/SB124956529248610983.html#'>Read
more. (Subscription required.)
Morgan Stanley Will Pay
Back $950 Million in Government Aid
Morgan Stanley said yesterday that it had agreed to
pay $950 million to buy back a warrant it issued to the federal
government last fall as part of the broad financial rescue plan,
the
size='3'>New York Times reported today. Morgan
Stanley said that it would have paid the government nearly $1.3 billion,
including dividends, for the $10 billion the firm received as part of
the Troubled Asset Relief Program. Morgan Stanley paid back the
investment in June, as did several other firms, including Goldman Sachs
and JPMorgan Chase. With the repayment of the warrant, Morgan Stanley
will free itself of a government investment that came with strings
attached, particularly oversight over salaries and bonuses.
href='http://www.nytimes.com/2009/08/07/business/07morgan.html?ref=business&pagewanted=print'>Read
more.
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