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September 26,
2008
Federal Bailout
Package
Negotiations Continue on Bailout
Proposal
Democratic and Republican negotiators return today to try to revive a
deal over a $700 billion rescue fund for at-risk financial institutions
after interrupted by presidential politics and stymied by partisan
sniping, CongressDaily reported today. House and Senate
lawmakers met again last night with Treasury Secretary Paulson and
Federal Reserve Chairman Bernanke at the Capitol, exactly one week after
the two warned them to act fast to pass a bailout plan or risk bringing
the economy to a standstill due the greatest liquidity crisis since the
Great Depression. The meeting came after the principals attended a White
House summit called by President Bush with presidential nominees Sens.
John McCain (R-Ariz.) and Barack Obama (D-Ill.). The talks continued
after negotiators said they had reached an agreement in principle
yesterday afternoon in a meeting with key Senate Republicans and House
Financial Services ranking member Spencer Bachus (R-Ala.). President
Bush made an address this morning in which he expressed confidence that
a deal would be struck despite differences over aspects of the plan by a
few members of Congress.
Commentary: Will the Bailout
Proposal Work?
A Wall Street Journal commentary today looked into the
fundamental question outstanding amid the political brinksmanship
yesterday over a proposed $700 billion financial bailout: will it work?
The original proposal was designed to relieve pressure on financial
institutions by removing impaired mortgage-related assets from their
books. Those assets have fallen in value as the housing sector has
fallen, knocking holes in firms' balance sheets and creating a global
climate of distrust that has undermined the ability of banks to raise
capital. Under the Bush proposal, and subsequent versions hammered out
by congressional leaders, the Treasury Department would have offered to
buy these assets. That would give companies cash to replace toxic debts,
restoring capital, as well as the trust that enables banks to borrow and
lend at reasonable terms. However, economists and industry figures
questioned whether it would work amidst inquiries over what price the
troubled assets will be.
href='http://online.wsj.com/article/SB122238888884077341.html'>Read
more. (Subscription required.)
WaMu Seized, Sold Off to
JPMorgan
In the largest bank failure in U.S. history, federal regulators seized
Washington Mutual Inc. and struck a deal to sell the bulk of its
operations to JPMorgan Chase & Co., the Wall Street Journal
reported today. J.P. Morgan agreed to pay $1.9 billion to the government
for WaMu's banking operations and will assume the loan portfolio of the
thrift, which has $307 billion in assets. The full cost to JPMorgan will
be much higher, because it plans to write down about $31 billion of the
bad loans and raise $8 billion in new capital. All WaMu depositors will
have access to their cash, but holders of more than $30 billion in debt
and preferred stock will likely see little if any recovery.
href='http://online.wsj.com/article/SB122238415586576687.html'>Read
more. (Subscription required.)
New York Probes Credit-Default Swap
Market
New York Attorney General Andrew Cuomo has expanded his investigation
into short selling of stocks to encompass trading activity in the
credit-default swap market, the Wall Street Journal reported
today. Cuomo's office yesterday subpoenaed data from market-data
providers. It believes the contracts may have been abused in schemes by
short-sellers to spread rumors about a company and profit from their
negative bet in the stock market. Cuomo is one of several regulators
looking at the credit-default swap market, which has ballooned over the
past few years to about $55 trillion worth of contracts. The Securities
and Exchange Commission is investigating the swaps market in connection
with its probe of short selling, and the New York State Insurance
Department last week said that it would regulate certain types of
swaps. The Federal Reserve has pushed the market to improve its trading
processes and set up a central clearinghouse that will reduce the
dependence of firms on one another.
href='http://online.wsj.com/article/SB122238927454777389.html'>Read
more. (Subscription required.)
Companies Feel Pressure of Credit
Crunch
As a government bailout of the financial industry seemed elusive
yesterday, and the credit markets remained on edge, many analysts saw
more pain ahead for debt-burdened companies, as well as their
shareholders and employees, the New York Times reported today.
Some of these companies, like Pilgrim's Pride, went into debt when times
were good to make acquisitions and grow. Yields on corporate junk bonds
- that is, those without investment grade credit ratings - jumped to
nearly 14.6 percent yesterday, the highest level since late 2002. Prices
of risky corporate loans, which are traded like bonds on Wall Street,
fell to record lows, fetching about 82 cents on the dollar on average,
according to Standard & Poor's. Bonds and loans of blue-chip
companies like General Electric weakened too.
href='http://www.nytimes.com/2008/09/26/business/26credit.html?sq=bankruptcy&st=cse&scp=6&pagewanted=print'>Read
more.
Commentary: Credit Enters a
Lockdown
With the economy already suffering the strains of plunging
housing prices, growing joblessness and the new-found austerity of
debt-saturated consumers, many experts fear the fraying of the financial
system could pin the nation in distress for years, according to a
New York Times commentary today. Without a mechanism
to shed the bad loans on their books, financial institutions may
continue to hoard their dollars and starve the economy of capital.
Americans would be deprived of financing to buy houses, send children to
college and start businesses. That would slow economic activity further,
souring more loans - and making banks tighter still. Fear of this
outcome has become self-fulfilling, prompting a stampede toward safer
investments. Investors continued to pile into Treasury bills yesterday
despite rates of interest near zero, making less capital available for
businesses and consumers.
href='http://www.nytimes.com/2008/09/26/business/26assess.html?ref=business&pagewanted=print'>Read
more.
Judge Approves GM Deal to Help Delphi
Exit Bankruptcy
Bankruptcy Judge Robert Drain yesterday approved an
agreement between General Motors Corp. and Delphi Corp. that will help
GM's former parts subsidiary exit bankruptcy, the Associated Press
reported. Prior to the hearing, Delphi negotiated changes to appease
creditors who had originally objected to the deal. The creditors'
committee will now get some Delphi shares that would have gone to GM
under a $2.06 billion claim. The creditors could get stock worth up to
20 percent of their claims, and GM would get the rest. Under the new
agreement announced earlier this month that covers a wide range of
issues, the automaker's financial support of Delphi amounts to $10.6
billion, up from $6 billion in an earlier plan. That includes the
assumption of $3.4 billion in pension obligations for hourly workers and
$1.2 billion in cash through the end of 2008, as well as legacy labor
costs and costs related to attrition and employee transitions.
href='http://biz.yahoo.com/ap/080925/delphi_bankruptcy.html?.v=6'>Read
more.
Hearing on Boscov's Bankruptcy Sale
Postponed
A Delaware bankruptcy court hearing on the proposed the sale of
department store chain Boscov's has been postponed until next week, the
Associated Press reported yesterday. The court had been scheduled to
consider the proposed bid procedures Thursday, but Judge Kevin
Gross rescheduled the matter for Oct. 1. 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, but the U.S. trustee
has filed an objection, saying Boscov's seemed to be impermissibly
favoring Versa over other bidders.
href='http://news.yahoo.com/s/ap/20080925/ap_on_bi_ge/de_boscov_s_bankruptcy_4'>Read
more.
Diamond Glass Inches Closer to Chapter
11 Exit
Bankruptcy Judge Christopher S. Sontchi approved the
second amended disclosure statement and voting procedures for next
month's confirmation hearing on Diamond Glass' chapter 11 liquidation
plan, Bankruptcy Law360 reported yesterday. Judge Sontchi
approved the procedures and set the confirmation hearing for Oct. 30
with objections due a week before. Under its reorganization plan, the
debtor said that it expects to allow $200,000 in administrative claims,
$25,000 in priority tax claims, $420,000 in professional fee claims and
$16 million in miscellaneous secured claims. Diamond Glass estimates up
to 18.4 percent of $60 million in general unsecured claims will be
distributed under the plan.
href='http://bankruptcy.law360.com/articles/70450'>Read
more. (Subscription required.)
International
Financial Chill Threatens
Developing Countries
As Europe and Asia play down the need for an American-style bailout for
their banks, the crisis may threaten a different class of countries:
those in Eastern Europe, Latin America and Africa that depend on foreign
capital and shoulder American-style trade deficits, the New York
Times reported today. Alarmed by the threat, the managing director
of the International Monetary Fund, Dominique Strauss-Kahn, is calling
for a multilateral consultation - involving the United States, Europe,
China and other financial powers - to develop a coordinated response to
the crisis. The crisis, by squeezing the flow of capital, threatens
countries from the Baltic to Africa that depend on foreign money to
finance their deficits.
href='http://www.nytimes.com/2008/09/26/business/worldbusiness/26global.html?ref=business&pagewanted=print'>Read
more.