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October 1, 2008
Federal
Bailout
Senate to Vote Today on the
Bailout Plan
Senate leaders scheduled a vote today on a $700 billion financial
bailout package after accepting tax breaks and a higher limit for
insured bank deposits in a bid to win House approval and send
legislation to President Bush by the end of the week, the New York
Times reported. As they explored ways to modify the proposal in
consultation with the Bush administration, all sides agreed that any
revisions would not change the underlying concept of granting the
Treasury Department access to up to $700 billion to purchase - and
eventually resell - troubled securities that were clogging the financial
system. Another provision that gained consensus yesterday was to
increase the amount of a bank deposit insured by the FDIC from the
current $100,000 to $250,000. The Senate proposal would extend and
expand many individual and business tax breaks, including tax credits
for the production and use of renewable energy sources. The bill would
also extend the business tax credit for research and development, expand
the child tax credit, protect millions of families from the alternative
minimum tax and provide tax relief to victims of recent floods,
tornadoes and severe storms.
href='http://www.nytimes.com/2008/10/02/business/02bailout.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
Businesses Pressure Congress on
Bailout Plan
A chorus of business leaders and trade groups urged Capitol Hill to
enact a financial-markets rescue plan, warning that inaction would have
dire consequences for the economy and their businesses, the Wall
Street Journal reported today. Calls for passage of a measure
designed in part to get the nation's financial institutions lending
again came from the National Association of Manufacturers, as well as
organizations representing retailers, restaurants,
wholesaler-distributors and other industries. General Electric Co. and
Verizon Communications Inc. also have begun lobbying drives, and
Microsoft Corp., which has relatively limited borrowing needs, 'strongly
urges' Congress to reconsider a rescue package 'that will re-instill
confidence and stability in the financial markets.”
href='http://online.wsj.com/article/SB122281874953692447.html'>Read
more. (Subscription required.)
Bush Approves Loans for Auto
Makers
President Bush yesterday signed into law a low-interest loan package to
aid U.S. auto makers as a way to help auto makers and their suppliers
meet fuel-economy standards set by the federal government, the Wall
Street Journal reported today. However, the struggling companies
will still have to wait months to find out how and when they can tap the
$25 billion designated to smooth their transition to building more
fuel-efficient vehicles. The loan package was approved last year, but
the funding for the package wasn't passed by Congress until this year.
One estimate put the total cost to auto makers at $100 billion to meet
stricter efficiency standards that require vehicles to reach 35 miles
per gallon by 2020.
href='http://online.wsj.com/article/SB122281787423492359.html'>Read
more. (Subscription required.)
Loan Servicer Ciena Files for
Bankruptcy
Ciena Capital LLC, the New York loan servicing firm that is 95 percent
owned by Allied Capital Corp., filed for bankruptcy due to a
“deterioration in the value” of assets due to declining
financial markets and fewer loan buyers, Bloomberg News reported
yesterday. Ciena sought chapter 11 protection along with 10 affiliates.
The company's largest unsecured creditor is the U.S. Small Business
Administration, with a disputed claim of $1.8 million, according to a
court filing yesterday in U.S. Bankruptcy Court in Manhattan. Ciena,
formerly known as Business Loan Express, listed both debt and assets
ranging from $100 million to $500 million in its chapter 11 filing. The
case is In re Ciena Capital LLC, 08-13783, U.S. Bankruptcy Court,
Southern District of New York (Manhattan).
href='http://www.bloomberg.com/apps/news?pid=20601208&sid=aIwk0ApDKnPk'>Read
more.
SEC Decision May Relax Asset Rule
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The Securities and Exchange Commission (SEC) yesterday issued
an interpretation of an accounting standard that could make it easier
for banks to report smaller losses, or perhaps even profits, when they
announce results for the third quarter, the New York Times
reported today. The move drew praise from the American Bankers
Association, which had complained to the SEC that auditors were forcing
banks to value assets at unrealistically low “fire sale”
prices, rather than at the higher values the banks believe the assets
should be worth in an orderly market. Some congressmen had pressed to
order a suspension of the fair-value rule, known as S.F.A.S 157, as part
of the bailout bill that the House defeated on Monday but that may be
revived later in the week. That bill stopped short of that, but did
require a study of the rule and authorized the SEC to suspend it. The
SEC said that it was interpreting, not changing, the mark-to-market
rule.
href='http://www.nytimes.com/2008/10/01/business/01audit.html?ref=business&pagewanted=print'>Read
more.
States Seek Federal Grants to Save
Jobs in Danger
Expecting the loss of as many as 120,000 jobs in the region because of
the financial crisis emanating from Wall Street, New York State
officials are preparing to ask for more than $60 million in federal aid
to preserve threatened jobs and retrain displaced workers, the New York
Times reported today. M. Patricia Smith, New York's labor commissioner,
said that labor department commissioners from several states, including
New Jersey and Connecticut, were to discuss the potential fallout with
federal officials today. She said that her department had been working
closely with New Jersey officials to coordinate assistance for people
losing jobs in financial services, many of whom commute between states.
“What we're saying is we're having an economic emergency
here,” Smith said. “We're predicting 40,000 jobs lost in the
financial sector and an additional 80,000 jobs as secondary effects.
That's 120,000 people that we need to help find jobs.”
href='http://www.nytimes.com/2008/10/01/nyregion/01aid.html?ref=business&pagewanted=print'>Read
more.
Under Strain, Cities Are Cutting Back
Projects
Cities, states and other local governments that have been effectively
shut out of the bond markets for the last two weeks, increasing the cost
of daily operations, are finding long-term projects threatened, the
New York Times reported today. Washington, D.C. has shelved a
planned bond offering to pay for terminal expansion and parking garages
already under construction at Dulles and Reagan National Airports.
Billings, Mont., is struggling to come up with $70 million more for a
new emergency room. The state of Maine has been unable to raise $50
million for highway repairs. Analysts said the dysfunction in the
municipal bond markets appeared to signal the end of an era of
relatively cheap money for governments and, probably, the start of an
era of tough choices for communities. Last year, governments across the
country issued about $23 billion of fixed-rate municipal bonds in
September. This September they issued $15 billion - all but about $2.2
billion of it in the first two weeks of the month, according to
Municipal Market Advisors, a research and strategy firm.
href='http://www.nytimes.com/2008/10/01/business/01muni.html?ref=business&pagewanted=print'>Read
more.
Creditors Oppose Goody's
Reorganization Plan
About a dozen objections opposing bankrupt Goody's Family Clothing
Inc.'s reorganization plan, including one by the federal government,
were filed on Monday, Bankruptcy Law360 reported yesterday. The
Ohio Department of Taxation, Tennessee Department of Revenue and Capital
Business Credit LLC are among those objecting to the plan in the Monday
motions, filed in the U.S. Bankruptcy Court for the District of
Delaware. The federal government objected on behalf of its Bureau of
Customs and Border Protection, which has a prepetition claim in the
liquidated priority amount of about $604,000 and a general secured claim
of $2.2 million. A hearing on the objections is scheduled for Oct.
6. Read
more. (Subscription required.)
Commentary: Mutual Distrust Freezes
Lending Among Banks
One of the roots of the current financial crisis is that banks don't
fully trust each other in order to lend to each other without charging
high rates, according to a commentary in today's Washington
Post. The best indicator of the simmering interbank distrust is the
Libor, or the London interbank offered rate. Yesterday, the annualized
rate for those overnight loans spiked by more than four percentage
points, to 6.9 percent, its highest level ever. Normally, Libor on
dollar loans is not much higher than what it costs the U.S. government
to borrow short-term money, which yesterday was nearly zero. That tells
experts that banks around the world are basically unwilling to lend to
each other at any price. It means that cash is not flowing to places
that need it. If this continues, it could ultimately lead to higher
borrowing costs for ordinary U.S. households and businesses.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/30/AR2008093002629_pf.html'>Read
more.
Analysis: Securities Lending Being
Squeezed
The collapse of Lehman Brothers Holdings Inc. and Washington Mutual Inc.
have set off new troubles in the securities-lending business, and the
recent freeze in short-term debt markets has only compounded the problem
for public pension funds and other big investors, the Wall Street
Journal reported today. A number of big investors -- from the
California State Teachers' Retirement System to giant mutual funds -
have been left with at least temporary losses. The California Public
Employees' Retirement System, for instance, earned $118 million in net
income for a $38 billion securities-lending program for the year ended
in June. Over the past eight years, the program had cumulative net
earnings of nearly $1.2 billion. This practice has worked reliably for
years. However, the decline in Lehman and Washington Mutual has set off
an unsettling chain of events: first causing the value of their own
securities to plummet, then contributing to a freeze in the credit
markets that hurt most short-term debt securities. After that happened,
the investors were forced to make up the difference when they returned
the collateral to the borrower of the securities.
href='http://online.wsj.com/article/SB122282046109792599.html?mod=article-outset-box'>Read
more. (Subscription required.)
International
U.S. Financial Crisis Spreads to
Europe
Nearly a week after Europeans rebuffed American pleas to join in their
bailout of the banking system, Europe now faces a financial crisis
almost as grave as that in the United States - demonstrating how swiftly
economic problems can spread around the world, the New York
Times reported today. In the last two days, governments from
England to Germany have seized or bailed out five faltering banks. In
Ireland, where rumors of panicked withdrawals from banks spooked the
stock market, the government has offered a two-year blanket guarantee on
all deposits and bank debt. Asia has been less buffeted by the turmoil,
though a brief run on a bank in Hong Kong last week brought back dark
memories of June 1997, when speculation against the Thai currency
sparked a financial crisis that fanned rapidly across Asia, and later to
href='http://www.nytimes.com/2008/10/01/business/worldbusiness/01global.html?ref=business&pagewanted=print'>Read
more.