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September 25,
2008
Federal Bailout
Package
Bush and Candidates to Meet on
Bailout
President Bush appealed to the nation last night to support a $700
billion plan to avert a widespread financial meltdown, and signaled that
he is willing to accept tougher controls over how the money is spent,
the New York Times reported today. As Democrats and the
administration negotiated details of the package late into the night,
presidential candidates Sens. Barack Obama (D-Ill.) and John McCain
(R-Ariz.) planned to meet Bush at the White House today, along with
leaders of Congress. The president said he hoped the session would
“speed our discussions toward a bipartisan bill.” On Capitol
Hill, Democrats said that progress toward a deal had come after the
White House had offered two major concessions: a plan to limit pay of
executives whose firms seek government assistance, and a provision that
would give taxpayers an equity stake in some of the firms so that the
government can profit if the companies prosper in the future. Details of
those provisions, and many others, were still under discussion.
href='http://www.nytimes.com/2008/09/25/business/economy/25bush.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
Bailout Could Deepen Financial
Crisis, CBO Chief Says
The director of the Congressional Budget Office (CBO) said yesterday
that the proposed Wall Street bailout could actually worsen the current
financial crisis, the Washington Post reported today. During testimony
before the House Budget Committee, CBO director Peter R. Orszag said
that the bailout could expose the way companies are stowing toxic assets
on their books, leading to greater problems. 'Ironically, the
intervention could even trigger additional failures of large
institutions, because some institutions may be carrying troubled assets
on their books at inflated values,' Orszag said in his testimony.
'Establishing clearer prices might reveal those institutions to be
insolvent.'
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092402799_pf.html'>Read
more.
Provision to Alter Loans Is
Sought
Judges and other legal experts say that the addition of a provision to
modify mortgages for people in bankruptcy to the federal bailout package
potentially could save hundreds of thousands of homeowners from future
foreclosure, the Wall Street Journal reported yesterday. The
provision is being demanded as part of an effort to make the $700
billion bailout plan for financial institutions more populist, so that
individuals will see more of its direct benefits. 'The government is
providing a trillion dollars in assistance to financial institutions to
deal with the problem that people can't afford to pay mortgages, so
there ought to be something in the program to help people pay their
mortgages,' said Bankruptcy Judge Samuel L. Bufford. Several federal
bankruptcy judges said in interviews that they support including the
provision in the bailout package -- the second attempt this year by
Democratic lawmakers to change bankruptcy laws. About two-thirds of
debtors who file for chapter 13 protection have a mortgage, and half of
them aren't able to keep paying the mortgage as part of their
reorganization, judges and lawyers say.
href='http://online.wsj.com/article/SB122220652452268643.html?mod=googlenews_wsj'>Read
more. (Subscription required.)
Unions Seek Pension Protections in
Bailout
Organized labor wants Congress to add to any bailout plan more
protections for workers' pensions battered by the market meltdown, the
Wall Street Journal reported today. James Hoffa, president of
the International Brotherhood of Teamsters, asked that pension plans be
allotted more time to make up funding shortfalls caused by huge
investment losses and the recent market turmoil. By law, companies must
fund their pension plans to meet future pension liabilities or risk
monetary penalties. Many of those pension funds assumed a 7 percent
annual return on their investments, but have lost money instead. Union
pension plans held more than $800 billion in assets in 2005, the latest
figures available, according to a July report by the Hudson Institute
href='http://online.wsj.com/article/SB122230375080973519.html'>. Read
more. (Subscription required.)
Congress Weighs Tax Relief for
Banks Hurt by Fannie Mae and Freddie Mac
Congress is considering giving billions of dollars in special tax relief
to banks that suffered losses related to the federal takeover of Fannie
Mae and Freddie Mac, the Wall Street Journal reported today. A provision
in the proposed bailout package that would offer the tax relief for
banks was included in a memo from the Senate Finance Committee on
proposed tax provisions in the bailout. House Financial Services
Chairman Barney Frank (D., Mass.) indicated yesterday that he supports
the idea of assistance for such banks. The cost of the special tax
relief wasn't clear, but it is estimated to be at least $3 billion, most
of which likely will be borne this year and next.
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more. (Subscription required.)
PBGC Director Requests More Authority
to Look into Defined Benefit Plans
Pension Benefit Guaranty Corp. Director Charles Millard asked Congress
yesterday for the authority to demand more information from companies
with defined pension benefits in the midst of a financial crisis that
has left the already struggling corporation potentially facing an
additional $100 million in obligations, CongressDaily reported
today. The extra information could help the agency because companies
deemed healthy by credit rating agencies have to provide less
information to PBGC. '[American International Group] is not on our
reasonably possible list because it's still an A-rated company,' Millard
said. He told the House Ways and Means Oversight Subcommittee that the
PBGC estimates it would be on the hook for approximately $100 million in
costs if it picks up pension plans from AIG, Lehman Brothers, IndyMac,
Fannie Mae and Freddie Mac. Those companies' plans are underfunded by
$400 million, though Millard noted that they had not all filed for
bankruptcy.
Mortgage Lending
Court Rejects Class Action on
Option ARM Loans
In the first major lawsuit involving complex loans known as option
adjustable-rate mortgages, a federal appeals-court panel ruled yesterday
against a group of borrowers who sought to get out of these loans
because of violations of the federal Truth in Lending Act, the Wall
Street Journal reported today. The ruling, by the Seventh Circuit Court
of Appeals, reversed an earlier ruling by a federal judge in Wisconsin.
The lower court held that Chevy Chase Bank must rescind option ARM
loans made to certain borrowers because of Truth in Lending Act
violations. In the 2-to-1 decision, the panel called option ARMs
'complex, with a potential trap for the unwary.' However, it held that
rescissions under the Truth in Lending Act were intended to be 'a purely
individual remedy that may not be pursued' on a class-action
basis.
href='http://online.wsj.com/article/SB122230520554673801.html'>Read
more. (Subscription required.)
States Look to Maintain Individual
Lawsuits Against Countrywide Mortgage
Six plaintiffs, including Calif. Attorney General Jerry Brown, will ask
a federal panel today to keep their individual lawsuits against
Countrywide Financial Corp. untangled and out of a single federal court,
Law.com reported. Lawyers for Brown, the state of Illinois, the city of
San Diego and plaintiffs in three private class actions say their claims
against the troubled mortgage lender would be better heard in local
courts close to regional foreclosure hot spots. San Diego City Attorney
Michael Aguirre says he wants to remain legally untied from Brown
because the attorney general isn't pursuing the best sanctions against
Countrywide's new parent company, Bank of America Corp. Aguirre, backed
by several consumer and community groups, is seeking a quick moratorium
on Countrywide home foreclosures as well as a deal that would rework
certain subprime loan terms to link borrowers' payment rates with their
net income. In a separate Cook County lawsuit, Illinois Attorney General
Lisa Madigan is also asking for a 90-day stay on foreclosures as well as
restitution.
href='http://online.wsj.com/article/SB122230672551773977.html'>Read
more.
In related news, Countrywide Financial Corp., the biggest U.S. mortgage
lender, made large, previously undisclosed home loans to two additional
executives of Fannie Mae, the government-chartered firm at the center of
the U.S. credit crisis, the Wall Street Journal reported today.
One of Countrywide's previously undisclosed customers at Fannie was
Jamie Gorelick, an influential Democratic Party figure whose $960,000
mortgage refinancing in 2003 was handled through a program reserved for
influential figures and friends of Countrywide's CEO at the time, Angelo
Mozilo. Another Countrywide client was recently ousted Fannie Mae Chief
Executive Daniel Mudd, though it isn't clear whether he received special
treatment on two $3 million mortgage refinancings he made when he was
the company's chief operating officer.
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more. (Subscription required.)
SEC Presses Hedge Funds
The Securities and Exchange Commission ordered more than two dozen hedge
funds to turn over trading information as it ramps up its investigation
into whether traders were spreading rumors to manipulate shares, the
Wall Street Journal reported today. The order, dated Sept. 22,
identifies six financial institutions the SEC believes may have been
subject to such manipulation. It seeks a wide range of trading data and
e-mail communications over a period of three weeks involving American
International Group Inc., Goldman Sachs Group Inc., Lehman Brothers
Holdings Inc., Morgan Stanley, Washington Mutual Inc. and Merrill Lynch
& Co., according to the order.
href='http://online.wsj.com/article/SB122230230724873499.html'>Read
more. (Subscription required.)
WCI Seeks to Sell 22 Condo
Units
Home builder WCI Communities Inc. is seeking bankruptcy-court approval
to sell 22 condominium units to Southern Caledonian Properties Ltd. for
$3.52 million, the Wall Street Journal reported yesterday. The units
make up one of the three buildings that are the first phase of a
condominium project under way in the Pelican Preserve neighborhood in
Fort Myers, Fla. WCI currently owns or is building homes and mid- or
high-rise residential units and operating amenity facilities at about 40
communities. While working to complete its existing projects, the
company also holds about 12,000 acres of land, which could ultimately be
developed into about 15,000 residences. The Bonita Springs, Fla.- based
company, unlike many other home builders felled by the global credit
crunch and falling housing market, is trying to reorganize rather than
liquidate.
href='http://online.wsj.com/article/SB122222827852870563.html?mod=googlenews_wsj'>Read
more. (Subscription required.)
Regulators Look to Broker Deal for
Washington Mutual
Federal regulators are moving quickly to broker a deal for Washington
Mutual as the savings-and-loan comes under mounting financial pressure,
the New York Times reported today. Standard & Poor's
yesterday downgraded Washington Mutual's debt further into junk
territory, citing the increased chance that the company might have to be
split up to facilitate a sale. Washington Mutual insists that it is
well-capitalized and has adequate access to funding and noted “the
rating actions do not affect the safety of customer deposits, which are
insured up to the limits allowed” by the federal government. The
government's entrance suggests the sales process may be entering a new
phase after the bank struggled to find an interested buyer. Washington
Mutual had vowed that it could remain independent, but it quietly hired
Goldman Sachs early last week to identify potential bidders.
href='http://www.nytimes.com/2008/09/25/business/25wamu.html?ref=business&pagewanted=print'>Read
more.
Autos
Loans for Automakers Advance on
Capitol Hill
Congress appears set to pass a $25 billion loan package to help
companies meet new federal fuel-efficiency standards, but General
Motors, Ford and Chrysler will still face significant hurdles before
they can put the funding to use, the Wall Street Journal
reported today. The House of Representatives yesterday voted 370 to 58
to approve a broad spending bill that includes $7.5 billion to start the
loan program. The Senate is expected to pass the budget bill this week,
and President Bush is expected to sign it. Once the legislation passes,
the Department of Energy would have two months to promulgate its own
regulations, governing how and when auto makers and suppliers can apply
for the loans and what criteria the government will use to approve those
loans.
href='http://online.wsj.com/article/SB122229932759273247.html'>Read
more. (Subscription required.)
Cerberus in Talks to Buy
Remainder of Chrysler
Cerberus Capital Management said yesterday that it was negotiating to
buy Daimler AG's 19.9-percent stake in Chrysler, a move that could pave
the way for further changes at the American automaker, the New York
Times reported today. Cerberus bought 80.1 percent of Chrysler a
year ago for $7.4 billion, ending the troubled nine-year marriage
between Daimler and Chrysler. Since then, Chrysler's automotive
operations have struggled amid speculation that Cerberus might be
looking to sell the business or align Chrysler with a foreign automaker.
Chrysler's United States sales have fallen 24 percent this year, as
consumers have fled from its core truck products into smaller, more
fuel-efficient vehicles.
href='http://www.nytimes.com/2008/09/25/business/25auto.html?ref=business&pagewanted=print'>Read
more.
FBI Began Investigating AIG in
March
Federal investigators have been scrutinizing American International
Group since March, focusing on whether the insurance giant knowingly
concealed mammoth losses that helped lead to the company's $85 billion
federal bailout this month, the Washington Post reported today.
Investigators are interviewing witnesses and examining previous
statements and disclosures made by AIG and its former officials. As with
the 25 other ongoing FBI inquiries involving the mortgage turmoil, the
main focus of interest is whether companies and their executives misled
investors and auditors when they put a value on their mortgage-related
investments. On Feb. 28, AIG posted its largest quarterly loss ever,
blaming complex financial instruments known as derivatives for
write-downs of more than $11 billion. Martin J. Sullivan, the insurer's
CEO at the time, resigned in June after AIG suffered another
multibillion-dollar quarterly loss on its derivatives connected to
defaulting home mortgages.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403589.html'>Read
more.
International
Anxious Depositors Withdraw Cash
from Asian Bank
Throngs of depositors lined up outside the headquarters and branches of
the Bank of East Asia in Hong Kong yesterday to withdraw their money,
highlighting widespread anxiety in Asia that Wall Street's recent
difficulties might spread across the Pacific, the New York
Times reported today. The Bank of East Asia, Hong Kong's
third-largest with $51 billion in assets, said that rumors that the bank
was in distress had begun spreading through cellphone text messages late
Tuesday, and the Hong Kong police said they would investigate. The Hong
Kong Monetary Authority and the bank itself denied that there was any
basis to the rumors.
href='http://www.nytimes.com/2008/09/25/business/worldbusiness/25emerging.html?ref=business&pagewanted=print'>Read
more.