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August 29, 2005
Experts Warn Debt May Threaten Economy
href='http://www.washingtonpost.com/wp-dyn/content/article/2005/08/27/AR20050…'>The
average American saves barely $1 of every $100 earned. Our profligate
ways at home are mirrored in Washington and in the global
marketplace, where as a society America spends $1.9 billion more a
day on imported clothes and cars and gadgets than the entire rest of the
world spends on its goods and services. A new Associated Press poll
finds that barely a third of Americans would cut spending to reduce the
federal deficit and even fewer would raise taxes.
href='http://www.washingtonpost.com/wp-dyn/content/article/2005/08/27/AR20050…'>Read
the full story.
Employment Grows, Manufacturing Picks Up
href='http://www.bloomberg.com/apps/news?pid=email_us&refer=home&sid=aszhUzCx…'>Companies
kept hiring this month and manufacturing grew at the fastest pace of the
year, evidence that record fuel costs aren’t derailing U.S.
economic growth, economists said in advance of reports this week,
Bloomberg News reported yesterday. Employers probably added 190,000
workers in August, after creating 207,000 jobs the previous month,
according to the median forecast in a Bloomberg News survey. It would be
the first time this year that job gains were above last year’s
average for two consecutive months. A manufacturing index probably rose
for a third month to the highest since December. More jobs and rising
wages are keeping consumers spending even as gasoline prices set records
almost every week. Factories are churning out more home electronics,
clothing and computers to meet the pickup in demand. With inventories
low and sales rising, production gains are likely to keep the economy
growing in coming months, economists said.
href='http://www.bloomberg.com/apps/news?pid=email_us&refer=home&sid=aszhUzCx…'>Read
the full story.
Judge Rules Parishes Owned by Diocese
href='http://www.spokesmanreview.com/tools/story_breakingnews_pf.asp?submitDa…'>A
federal bankruptcy judge ruled Friday that Catholic churches and schools
are legally owned by the Diocese of Spokane, and therefore available
to settle its bankruptcy case, a victory to the dozens of people who
have sued the diocese for alleged sexual abuse, the
Spokesman-Review reported. The ruling was devastating for
churchgoers. “The decision shows the grave danger a diocese or any
religious organization faces by making a decision to file for bankruptcy
in the first place unless the diocese has an agreement in principal for
a resolution,” the Association of Parishes said through their
lawyer, Ford Elsaesser. The Spokane ruling by U.S. Bankruptcy
Judge Patricia Williams is the first of its kind in the United
States and sets national precedent that could chill efforts by churches
to manage legal claims using federal bankruptcy law. The ruling is a
defeat for Bishop William Skylstad, who sought to exclude the valuable
parish properties from the diocese estate.
href='http://www.spokesmanreview.com/news/live/082605_diocese_decision.pdf'>Read
the judge’s ruling (PDF) and the
href='http://www.spokesmanreview.com/tools/story_breakingnews_pf.asp?submitDa…'>full
story.
Asbestos
Bill to Cost $70 billion
Proposed legislation to set up a bailout fund for asbestos lawsuits
would carry a $70 billion price tag over the next decade, with industry
contributing the bulk of the funding, the Congressional Budget Office
(CBO) said Friday, according to MarketWatch reports. Companies,
insurance firms and bankruptcy trusts would need to pitch in a combined
$63 billion over the next 10 years to pay for awards to lawsuits filed
by individuals with asbestos-related diseases, CBO said in its
cost-estimate report. The fund would also add $6.5 billion to the
federal deficit over the same period. The $70 billion would cover
settlements with claimants, startup costs for the trust fund, investment
transactions and administrative expenses, the report added. The
href='http://thomas.loc.gov/cgi-bin/bdquery/z?d109:s.00852:'>Fairness in
Asbestos Injury Resolution Act of 2005, drafted by Sens. Arlen
Specter (R–Pa.) and Patrick Leahy (D–Vt.), aims to pool $140
billion over the next 30 years to pay claims by employees diagnosed with
cancer stemming from exposure to asbestos. CBO estimated that the value
of asbestos claims submitted to the fund over the life of the
program—estimated to be 50 years—could range from $120
billion to $150 billion, a figure that does not include administrative
and financing expenses for the fund.
Bill Slighting Arkansas Victims
Arland “Bill” Blanton, a former manager for the W.R.
Grace Manufacturing Co. plant in North Little Rock, Ark., has been told
by his doctor that he has signs of asbestosis after working with
vermiculite for 20 years. Grace mined the material in Libby, Mont., then
shipped it across the country, including to several sites in Arkansas,
the Arkansas Democrat-Gazette reported Saturday. The
proposed
href='http://thomas.loc.gov/cgi-bin/bdquery/z?d109:s.00852:'>Fairness in
Asbestos Injury Resolution Act of 2005 (S. 852), approved by a
Senate committee in May, sets up a fund for companies to contribute to
compensate asbestos victims and, by precluding lawsuits, to help keep
manufacturing companies from having to go out of business. But
compensation awards in Arkansas would not be nearly as significant as
those in Libby, even though the company’s ore was processed at
plants in this state. The Columbia, Md.–based Grace, under
indictment on a range of criminal charges related to asbestos, refused
requests for a statement. According to a study by the Environmental
Working Group, between 1948 and 1993, Grace sent 64,637 tons of Libby
vermiculite to a site in North Little Rock.
Bankruptcy Not Expected to Close Delta
href='http://travel2.nytimes.com/2005/08/28/travel/28advdelta.html'>The
financial problems of Delta Air Lines are prompting customers to wonder
what to expect if it seeks bankruptcy protection this fall, the
New York Times reported Friday. Based on what has happened
at other airlines, customers should be prepared for some changes, but
they should not expect the airline to shut down—chapter 11
bankruptcy protection is intended to give companies the opportunity to
keep operating while they reorganize. Analysts say that it is likely
that Delta will seek bankruptcy protection sometime in the next month.
href='http://travel2.nytimes.com/2005/08/28/travel/28advdelta.html'>Read
the full story.
Judge Gives UA Two More Months to File
A judge
gave United Airlines two more months on Friday to devise its own
bankruptcy reorganization plan, but warned that there will be no
further extensions unless there are “unforeseeable
circumstances,” the Associated Press reported. Granting the 10th
such extension in UAL Corp.’s nearly three-year bankruptcy
overhaul, Judge Eugene Wedoff said he doesn’t intend to
give United any longer than Nov. 1 to put together a plan because all
major issues have been resolved. United lawyer James Sprayregen
said that it is the “hope and goal” of the airline to file
the reorganization plan in early September. The company is targeting a
late 2005 or early 2006 exit from chapter 11 bankruptcy.
href='http://www.cbc.ca/cp/business/050826/b0826124.html'>Read the full
story.
Igloo Denied Chapter 11 Security
href='http://www.bradenton.com/mld/bradenton/business/12491777.htm'>J.P.
Igloo’s attempt to gain chapter 11 protection from creditors was
rebuffed for the third time Friday, guaranteeing a foreclosure
hearing scheduled for Monday in Bradenton, Fla. will go on as planned,
the Tampa Herald reported. Earlier this month, U.S.
Judge Alexander Paskay told J.P. Igloo officials that re-filing
for chapter 11 protection would lead to sanctions against the
financially strapped ice arena, but the company did just that. It took
Paskay less than half an hour Friday to dismiss the case, which he had
previously dismissed with prejudice to prevent a re-filing.
href='http://www.bradenton.com/mld/bradenton/business/12491777.htm'>Read
the full story.
Bankruptcy Judges on the Way
href='http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20050827/BUSIN…'>Delaware’s
bankruptcy court, one of the nation’s busiest, is getting four new
judges, Delawareonline.com reported Saturday. The long-awaited
additions, who could be named as early as the fall, will triple the
number of judges based permanently at the U.S. Bankruptcy Court for the
District of Delaware. The new judges coming to Wilmington could include
a bankruptcy judge already on the bench in Philadelphia. Kevin
Carey, a judge on the U.S. Bankruptcy Court for the Eastern District
of Pennsylvania, confirmed Friday that he has applied for one of the
openings. Laura Davis Jones, considered the dean of the Delaware
bankruptcy bar and head of the Wilmington office of Pachulski, Stang,
Ziehl, Young, Jones & Weintraub, has been named in a legal trade
publication as a possible candidate. But Jones said that while
she’s honored to have so many people suggest her name, she has not
applied for the judgeship.
href='http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20050827/BUSIN…'>Read
the full story.
UAW Can’t Meet All of Delphi’s Demands
In his first face-to-face meeting with United Auto Workers President
Ron Gettelfinger, Delphi Corp. Chairman Robert S. Miller got right down
to business. A restructuring expert,
href='http://www.detnews.com/2005/autosinsider/0508/28/A01-295391.htm'>Miller
produced a list of his opening demands. They included wage cuts of
at least $5 an hour, benefit reductions and work rule changes that
together total roughly $2.5 billion in givebacks, according to people
familiar with the situation. Otherwise, Delphi likely would seek federal
bankruptcy protection, the Detroit News reported yesterday.
Miller’s message, delivered Aug. 3 at the UAW’s Solidarity
House in Detroit, didn’t play well. Last week, Richard Shoemaker,
a UAW vice president, told local union leaders assembled in Chicago that
there was no way to give Delphi all it wants.
href='http://www.detnews.com/2005/autosinsider/0508/28/A01-295391.htm'>Read
the full story.
Greenspan Warns That Economic Risks Remain
Even as he was being praised for fostering two decades of rising
prosperity, Alan Greenspan, the Federal Reserve’s chairman,
href='http://www.nytimes.com/2005/08/26/business/26cnd-fed.html?ex=1282708800…'>warned
on Friday that people were unrealistic in believing that the economy has
become permanently less risky, the New York Times
reported. In the first of two speeches at a Fed symposium about the
“Greenspan legacy,” Mr. Greenspan warned that investors as
well as ordinary consumers were being too complacent in assuming that
high interest rates, high inflation and sluggish growth in productivity
are all things of the past. Mr. Greenspan took particular aim at the
willingness of investors to pay ever-higher prices for stocks and bonds
and the torrid run-up in housing prices, as well as a greater
willingness of people to spend money on the basis of increases in their
apparent wealth rather than gains in their actual incomes.
href='http://www.nytimes.com/2005/08/26/business/26cnd-fed.html?ex=1282708800…'>
Read the full story.
In other FRB news, The Federal Reserve Board will release its H.15
statistical report, “Selected Interest Rates” today at 4
p.m. Visit the FRB site;
FRB reports are released every Monday.
Pensions
State Supreme Court Includes All Seniors in Lawsuit
href='http://www.oregonlive.com/newsflash/regional/index.ssf?/base/news-12/11…'>The
Oregon state Supreme Court said that a lawsuit by four retirees about
pension contributions applies to all state workers in the program,
the Associated Press reported Friday. Along with granting the suit
class-action status, the justices ordered the state to keep money
contributed to the Teacher and Employee Retention Incentive, or TERI,
program in an interest-bearing escrow account until the lawsuit is
settled. The four employees sued the state after lawmakers changed the
rules for the incentive program to help pump more money into the
retirement system. The program had allowed state employees who retire
after 28 years to return to work and earn pension benefits and a salary
for up to five years without contributing to the retirement system. The
pension benefits are set aside until the person retires permanently. But
the law changed in July, requiring retirees to resume pension
contributions if they returned to work. The change would bring in about
$50 million a year, state Budget and Control Board spokesman Mike
Sponhour said. The pension system needs the extra cash or it might not
meet 30-year federal guidelines for solvency.
href='http://www.oregonlive.com/newsflash/regional/index.ssf?/base/news-12/11…'>Read
the full story.
Governor Proposes Overhaul
href='http://www.chicagotribune.com/news/local/chi-050826pension,1,349476.sto…'>Gov.
Rod Blagojevich proposed a package of ethics reforms Friday that
would eliminate the type of windfall payments lobbyists have received as
part of the state pension deals now under federal scrutiny, the
Chicago Tribune reported. The Democratic governor said
that failing to hold the pension systems to the highest ethical
standards would “breach the public trust.” The
governor’s announcement is part of a growing pension reform
movement after the indictment of Stuart Levine, a former trustee of the
Teachers’ Retirement System, and the Tribune’s
disclosure of the windfall payments to a top national Republican
official. Levine, indicted in multiple federal corruption cases,
allegedly abused his trustee position to extort hundreds of thousands of
dollars in kickbacks in a probe that has snared two other attorneys.
Levine, a prominent Republican fundraiser who also contributed to
Blagojevich, has pleaded not guilty.
href='http://www.chicagotribune.com/news/local/chi-050826pension,1,349476.sto…'>Read
the full story.
Class-Action Racket
href='http://www.courant.com/news/opinion/editorials/hc-silicosis.artaug28,0,…'>A
federal judge in Houston exposed lawyers eager to make a killing on
class-action lawsuits, the Hartford Courant reported
yesterday. U.S. District Judge Janis Graham Jack concluded that most of
the 10,000 cases before her from plaintiffs claiming they were suffering
from silicosis were part of a get-rich scheme by lawyers. The disturbing
facts, as outlined in the judge’s 249-page decision, should
bolster the contention that class-action lawsuits have been subject to
widespread abuses. Silicosis, a serious lung disease caused by the
inhalation of silica dust at construction sites, has been waning.
href='http://www.courant.com/news/opinion/editorials/hc-silicosis.artaug28,0,…'>Read
the full story.
N.Y. Trustee Seeks Documents from Fire District Debtor
href='http://www.gjsentinel.com/news/content/news/stories/2005/08/28/8_28_Fir…'>The
president of a firm that owes the Grand Junction Rural Fire Protection
District about $600,000 hasn’t turned over documents in a
bankruptcy filing in New York, and the bankruptcy trustee says that
he is concerned about the missing documents, the Daily
Sentinel reported yesterday. Bankruptcy trustee Bruce Lawrence
said that Randy Phillips, president of e.NVIZION, an Internet service
provider in Rochester, N.Y., owes the fire district money, hasn’t
turned over documents he requested that are related to a bankruptcy
filing by Xtelegent. E.NVIZION changed its name to Xtelegent after
dealings with the fire district became public. Under the direction of
former fire district board member Rob Dixon, the fire district invested
$3.24 million of tax money into a company that later became e.NVIZION.
Dixon owned part of that company.
href='http://www.gjsentinel.com/news/content/news/stories/2005/08/28/8_28_Fir…'>Read
the full story.
College Students and Credit Cards Shouldn’t Mix
As a freshman at the University of Dayton, Sean Murphy succumbed to
marketing pitches and acquired four
href='http://www.daytondailynews.com/localnews/content/localnews/daily/0828st…'>credit
cards that he regarded as “free money,” the Dayton
Daily News reported yesterday. He wound up with a debt of at
least $1,000 and a scolding from his father, who came to his financial
rescue but urged him to become fiscally responsible. Murphy, 19, now a
sophomore, has cut back to two credit cards and took a job to earn money
to pay down his debt. He said that he has reduced it to about $500.
Marketers eagerly extend credit cards to college students on the
nation’s campuses, sweetening the offers with free T-shirts, teddy
bears or a submarine sandwich in exchange for a card application form.
href='http://www.daytondailynews.com/localnews/content/localnews/daily/0828st…'>Read
the full story.
BAPCPA Increases Filings, Likely to Raise Fees
While most of the media and general public have focused on the
consumer impact of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 that is slated to go into effect in mid-October,
the new law also imposes significant new responsibilities on the lawyers
who file bankruptcy cases, the Memphis Business Journal
reported today. Under the new law when an attorney brings a bankruptcy
case to court, that attorney is certifying, among other things, that he
has performed a thorough investigation into the circumstances leading to
the filing. Also in most consumer cases, a debtor’s counsel will
fit the definition of a “debt relief agency,” which entails
a host of restrictions and responsibilities. At the very least, this is
going to mean that bankruptcy attorneys will have to look more closely
at what they are filing and to ask more questions of their clients, says
Paul Matthews, a partner at Armstrong Allen and one of only a handful of
attorneys in the region that is certified to handle both business and
consumer bankruptcy cases. “I think it will cause debtors’
counsel to be more cautious,” he says. “It’s one of
those things that remains be seen. To some extent the words of the
statutes will probably have more play in them than a lot of people think
when they first read them, particularly in smaller cases.” Memphis
has excelled at those smaller cases. Court records show that in 2003
there were more than 28,000 bankruptcies filed in the Western District
of Tennessee, including more than 22,000 from the Memphis division.
That’s more bankruptcies than 28 entire states. More than 99
percent of those bankruptcies were non-business (consumer) filings.
Major Changes for Small Business
The new bankruptcy law will affect business debtors as well as
consumer debtors. Despite its publicity as a consumer bankruptcy bill,
the legislation has several provisions affecting businesses, BizJournals
reported Friday. One set of change relates to small-business bankruptcy
cases. For decades, business has looked to Congress to create a faster,
simpler process of achieving confirmation of chapter 11 plans where a
debtor’s problems aren’t too complex and its assets and
liabilities aren’t too large. Congress added harmless provisions
to address small-business bankruptcies in 1994. The new changes are,
however, more ominous. Small-business debtors are noted for having
limited internal accounting and administrative abilities and inadequate
records. They often have a few discreet issues with a few creditors, or
they need a simple reorganization plan without expensive and intricate
disclosure statements. They often hope for a brief respite and a fast,
inexpensive procedure to enable them to be on their way with bankruptcy
protection. Their creditors also want a fast and inexpensive system, but
they want one that will dismiss the cases of debtors that drag out
chapter 11 before converting or collapsing after spending assets
initially available to creditors before the bankruptcy filing. Both
looked to Congress and the president to create a law that could
accommodate these often-competing interests in a workable system.
Precision Castparts to Make Acquisition
Nickel alloy producer Special Metals Corp. will be acquired by
Precision Castparts Corp. for $295 million, the Associated Press
reported Friday. Precision Castparts also will take over payments on
Special Metals’ $245-million debt as part of the agreement.
Special Metals, based in Huntington, W.Va., employs 2,700 workers at 10
U.S. and European plants. The closely held company emerged from chapter
11 bankruptcy protection in late 2003. Precision Castparts, based in
Portland, Ore., makes metal components and products for the aerospace,
power generation, automotive and general industrial markets. CEO Mark
Donegan said that the acquisition will give the company an internal
supply of nickel-based billet for its forged products. Shares of
Precision Castparts were up $5.56, or 6.2 percent, to $95.58 in
Friday’s midday trading on the NYSE.