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September 30,
2008
Federal
Bailout
House Rejects Financial Rescue,
Stocks Plummet
The House of Representatives voted down (228-205) a $700 billion
rescue plan for the nation's financial system yesterday, sending global
stock prices plunging, the Washington Post reported today.
House Democratic and Republican leaders vowed to go back into
negotiations to devise compromise legislation to stabilize the credit
markets, but no talks were scheduled. After U.S. financial markets
closed, with the Dow Jones industrial average down a one-day record of
778 points, or 7 percent, Treasury Secretary Henry M. Paulson Jr. tried
to calm frazzled traders, assuring them that work on a market
intervention would resume.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/09/29/AR2008092900623_pf.html'>Read
more.
Treasury and the Fed Looking at
Options
Without the broad bailout plan they invented and lobbied hard for, the
Federal Reserve and Treasury Department are once again forced to find
possible solutions to rescue the global financial system, the New
York Times reported today. With money markets around the world
seizing in fear, the Fed yesterday announced that it would provide an
extra $150 billion through an emergency lending program for banks, and
an additional $330 billion through so-called swap lines with foreign
central banks to help money markets from Europe to Asia. This display of
financial power reflected acute new anxiety at the Fed and central banks
around the world that the crisis of confidence in American financial
markets had metastasized to money markets everywhere.
href='http://www.nytimes.com/2008/09/30/business/30plan.html?_r=1&hp=&oref=slogin&pagewanted=print'>Read
more.
Commentary: Bailout Bust May Have
a Benefit
By voting down the bailout plan yesterday, the House may have created an
opportunity to craft a more effective response to the financial crisis,
according to a commentary in today's Wall Street Journal. The
$700 billion package was meant to calm markets, but for that to happen
the plan needed to be built and sold in a way that smoothed its passage
through Congress. Instead, the Treasury's first document incited
opposition because it gave the department extraordinary powers and
demanded almost no quid pro quo from participating banks. Next,
congressional leaders who crafted the compromises to the Treasury's
proposal now need to demand real concessions. The provisions limiting
executive pay need to be stronger. The bill also needs to contain
hard-and-fast arrangements for the government to be properly
compensated, with equity stakes, for taking on toxic assets. More
important, Treasury needs to address the two big problems crippling the
banking system: lack of liquidity and capital.
href='http://online.wsj.com/article/SB122274011275388805.html'>Read
more. (Subscription required.)
Mortgage Lending
Mortgage Lenders Fight Off
Rescission Class Action in Seventh Circuit
In a 2-1 decision on Wednesday, the U.S. Court of Appeals for the
Seventh Circuit ruled that the Truth in Lending Act does not allow for
rescission of mortgages on a class action basis, the National Law
Journal reported today. The ruling averts the potential of
significant damages for creditors accused of violating disclosure
requirements in some of the exotic mortgage vehicles that exacerbated
the mortgage market meltdown and has Congress contemplating ways to
restore credit market confidence. The Circuit decision joins an earlier
ruling by the First and Fifth Circuits and one California state
appellate court that have held that the Truth in Lending Act (TILA) does
not allow claims for rescission in a class action format.
href='http://www.law.com/jsp/article.jsp?id=1202424898392'>Read
more.
Freddie Mac and Fannie Mae Receive
Subpoenas
Fannie Mae and Freddie Mac, the mortgage finance giants that were taken
over by the government this month, said yesterday that they were
subpoenaed for documents as part of federal grand jury investigations
into their accounting, Reuters reported. The U.S. Attorney's Office for
the Southern District of New York subpoenaed the two companies on Friday
for documents related to accounting, disclosure and corporate governance
dating from Jan. 1, 2007, to the present. The Securities and Exchange
Commission is also investigating these matters and directing the
companies to preserve the documents, Fannie Mae and Freddie Mac said.
href='http://www.nytimes.com/2008/09/30/business/30subpoena.html?ref=business&pagewanted=print'>Read
more.
Senate Approves $25 Billion Loan for
Auto Industry
The U.S. Senate has approved legislation that would grant a $25 billion
loan to the troubled auto industry to help manufacturers and suppliers
update their plants to meet new fuel efficiency standards by 2011,
Bankruptcy Law360 reported yesterday. As part of the measure,
automakers will have 25 years to repay the loans and could ask the
Energy Department for a deferral for up to five years. Congress
appropriated $7.5 billion to take care of loan costs as well as the
possibility of default. The loan package, which was approved 78-12 by
the Senate on Saturday after passing the U.S. House of Representatives
last week, is expected to be signed by President Bush today.
href='http://bankruptcy.law360.com/articles/70892'>Read
more. (Subscription required.)
Steve & Barry's Creditors Move to
Subpoena Docs
Creditors of bankrupt Steve & Barry's want permission to review the
fashion retailer's financial records as part of an investigation into
potentially improper accounting practices and questionable transactions,
Bankruptcy Law360 reported yesterday. The creditors' committee
asked to examine documents related to Steve & Barry's $152 million
deal with TA Associates Inc. in October 2006 and the purchase by the
founders of a junior participation interest in the $197 million
agreement with General Electric Corp. “less than one month prior
to the debtors' bankruptcy filing.”
href='http://bankruptcy.law360.com/articles/70828'>Read more.
(Subscription required.)
Friedman Billings Sues Lehman to
Retrieve $250 Million Security
Friedman Billings Ramsey Group Inc. on Friday sued a unit of Lehman
Brothers Holding Co. and the trustee managing the bankruptcy of the
investment bank to retrieve a $250 million Fannie Mae mortgage-backed
security, Bankruptcy Law360 reported yesterday. In an adversary
suit filed in the U.S. Bankruptcy Court for the Southern District of New
York, Friedman Billings said that Lehman Brothers Inc. was required to
return the security under the terms of a repurchase agreement the two
investment houses agreed to in August 2007. The complaint also named the
Securities Investor Protection Corp. as a defendant. The agreement took
effect in the event of “an act of insolvency” and takes
precedence over the usual bankruptcy proceedings, according to the
complaint.
href='http://bankruptcy.law360.com/articles/70847'>Read more.
(Subscription required.)
NextWave Shares Down after Unit Files
for Bankruptcy
Shares of NextWave Wireless Inc., which owns wireless spectrum and makes
wireless network equipment, hit an all-time low yesterday after it said
an Israel-based unit had filed for bankruptcy, the Associated Press
reported. On Saturday, the San Diego-based company said that its GO
Networks unit, which makes Wi-Fi network equipment, would cease
operations and had filed for bankruptcy protection in Israel. Shares of
the company dropped to sub-dollar levels on Aug. 8, after it said its
cash would run out in October unless it was able to find financing. It
blamed worldwide economic conditions for a drop in bookings and sales of
its network equipment.
href='http://www.forbes.com/feeds/ap/2008/09/29/ap5484769.html'>Read
more.
Weekly Newspaper Publisher Files for
Chapter 11
With a $40 million loan default looming, Creative Loafing Inc., the
owner of Washington City Paper and a handful of other weeklies
across the United States, filed for chapter 11 protection yesterday, the
Washington Business Journal reported. According to a filing
with the U.S. Bankruptcy Court's Middle District of Florida, Tampa,
Fla.-based Creative Loafing reported estimated assets of between $10
million and $50 million and liabilities of the same amount. Creative
Loafing has publications in Tampa and Sarasota, Fla., Atlanta, Chicago,
Washington, D.C. and Charlotte, N.C.
href='http://www.bizjournals.com/washington/stories/2008/09/29/daily21.html?t=printable'>Read
more.
Chicago Hospital Files for
Bankruptcy
Michael Reese Medical Center Corp., owners of Michael Reese Hospital,
one of the oldest hospitals in Chicago, filed for chapter 11 protection
yesterday, the Associated Press reported today. Owners of the hospital
say the facility has been deteriorating for years, and they've been
shutting down operations this year. In a statement accompanying the
filing, Michael Reese says creditors in recent weeks have obtained
sizable judgments against the hospital. The land underneath the hospital
has been part of Chicago's bid for the 2016 Summer Olympic games. Mayor
Richard Daley has introduced a plan to acquire the site and several
nearby parcels to expand the Olympic Village.
href='http://biz.yahoo.com/ap/080930/il_hospital_closing.html?.v=1'>Read
more.
Leading Chevy Dealership Files for
Chapter 11
Bill Heard Enterprises Inc., one of the largest Chevrolet dealers in the
United States, filed for chapter 11 protection in a Decatur, Ala., court
after shutting down last week amid a prolonged downturn in the U.S. auto
industry, the Wall Street Journal reported today. Bill Heard
had closed his 14 Chevrolet dealerships before filing for chapter 11,
putting nearly 3,200 people out of work. The company operated in
Florida, Alabama, Georgia, Tennessee, Texas, Arizona and Nevada. Several
auto dealerships have gone out of business in 2008. In a note to
investors Monday, Wachovia auto analyst Rich Kwas said that as many as
60 dealerships have closed since mid-summer and 'the worst operators
[and] stores are not expected to survive over the next three to six
months.'
href='http://online.wsj.com/article/SB122272847811388021.html#'>Read
more. (Subscription required.)