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July 21, 2009
Congressional Hearings Today Focus on Automaker Bankruptcies, Systemic Risk to the Financial System
The House Judiciary Committee will continue its examination of U.S. automaker bankruptcies today at 11 a.m. ET as the Subcommittee on Commercial and Administrative Law holds a two-part hearing titled 'Ramifications of Auto Industry Bankruptcies.' Click here for more information.
The House Financial Services Committee will also hold a hearing today at 2 p.m. ET titled 'Systemic Risk: Are Some Institutions Too Big to Fail, and If So, What Should We Do About It?' Panelists include Alice M. Rivlin, Senior Fellow at the Brookings Institution; Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute; Prof. Simon Johnson of the Massachusetts Institute of Technology; Mark Zandi, Chief Economist at Moody's Economy.com; and Paul G. Mahoney, Dean of the University of Virginia School of Law. Click here
TARP
name='2'>Inspector General Says TARP Costs May Reach $23.7 Trillion
Neil Barofsky, special inspector general for the Treasury's Troubled Asset Relief Program, said that U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, Bloomberg News reported yesterday. The Treasury's $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released yesterday. Treasury officials said that the U.S. has spent less than $2 trillion so far and that Barofsky's estimates are flawed because they don't take into account assets that back those programs, or fees charged to recoup some costs shouldered by taxpayers. Barofsky's estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs. Barofsky is scheduled to testify today before the House Committee on Oversight and Government Reform. Read more.
Click here for more information on the House Committee on Oversight and Government Reform hearing.
name='3'>Federal Report Details How Banks Use TARP Funds
Banks that have received federal funds are using that money to fuel residential mortgage lending but are also holding onto some of it through the recession, according to a U.S. government regulatory report released Monday. The Washington Business Journal reported today that of the 360 banks nationwide that have received funds through the U.S. Treasury's Troubled Asset Relief Program (TARP), 83 percent of those institutions say they are using some or all of the money to make loans, and 43 percent are holding onto some or all of the funds to buffer against bad loans. The new data was released by the Office of the Special Inspector General, which oversees the government's TARP program. Banks recently responded to a government survey about their use of those funds. The 44-page report found that 31 percent of banks nationwide are using federal funds for investments and 14 percent are paying back debt. Only 4 percent are using the money to buy weaker financial institutions. Read more.
Continental Airlines to Cut 1,700 Jobs
Continental Airlines posted a big loss for the second quarter as traffic fell, and the carrier says it will cost 1,700 jobs and raise the fee for checking luggage, the Associated Press reported today. The Houston-based airline said it lost $213 million, or $1.72 per share, in the quarter that ended June 30, compared with a loss of $5 million, or 5 cents per share, a year earlier. Excluding one-time charges, the loss was $169 million, or $1.36 per share. Analysts expected a loss of $1.35 per share excluding charges. Revenue tumbled 22.7 percent to $3.13 billion. The company said it would cut jobs and raise by $5 each the fees for checking a first bag and booking a reservation over the phone. Read more.
name='5'>Bernanke: Fed Able to Foil Inflation When Time Comes
Federal Reserve Chairman Ben Bernanke said the huge amounts of money the U.S. central bank has pumped into the economy would not undercut its ability to push borrowing costs higher when the time is ripe, Reuters reported today. Stressing that the weak U.S. economy will likely warrant exceptionally easy policies for a long time to come, Bernanke outlined in a newspaper opinion piece how the Fed could raise interest rates even with cash flooding the financial system. 'Accommodative policies will likely be warranted for an extended period,' Bernanke wrote in the article published on the Wall Street Journal's Web site. 'At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.' The outline of the Fed's 'exit strategy' from the extraordinary monetary policy easing it has undertaken offers a preview of testimony Bernanke will deliver to Congress on Tuesday as he presents the Fed's twice-a-year economic report. Investors have shown little reaction to the article. Read more.
name='6'>Avaya Set to Buy Nortel's Enterprise Solutions Arm
Network communications company Avaya has signed an agreement to acquire most of Nortel's enterprise solutions business for $475 million, itp.net reported today. The 'stalking horse' agreement, which will allow other interested parties to make bigger bids for the business until the sale is finalized, includes Nortel's enterprise solutions divisions in North America, Caribbean, Latin America and Asia. The deal also includes the Europe, Middle East and Africa portion of Nortel's enterprise solutions business, dependent on an asset sale agreement between the two companies. The agreement follows Nokia Siemens Networks' proposed $650 million deal to take on the wireless assets of Canadian network and communications giant Nortel, which filed for bankruptcy protection in January 2009. Read more.
name='7'>GM Official: New Cars Must Be Hits
As the new chief of product development for General Motors, Tom Stephens knows he has no margin for error, the Associated Press reported today. Gasoline, he says, will dictate what cars or trucks people buy. Pump prices will rise again due to simple world supply and demand, raising the need for small cars. Yet GM has to plan for low prices, too. Amid the gas price swings, GM's new vice-chairman says there cannot be any mistakes in quality or appearance, given the company's recent emergence from bankruptcy protection. Stephens, who has spent his entire 40-year career at GM, plans to build on GM's recent product launches including the Chevrolet Malibu midsize car, the Cadillac CTS luxury sport sedan, the Camaro, a retro-style muscle car and new crossover vehicles that carry people with the capability of sport utilities but perform more like cars. All new vehicles, he said, will be more fuel-efficient than their predecessors as GM tries to meet government fuel-economy standards and satisfy the marketplace, both of which point to higher gas mileage. Read more.
name='8'>Last Big Globe Union Bends on Cuts
Smoothing the way to a potential sale of the Boston Globe, members of the final big union that had been holding out against sweeping pay and benefits cuts ordered by parent New York Times Co. voted overwhelmingly Monday to accept the reductions, the Boston Business Journal reported today. The Newspaper Guild vote was 366 in favor of cuts and 179 against, the Guild reported on its Web site. The roughly 700 reporters, editors, advertising workers and financial staff who comprise the bargaining unit will see compensation fall by about 10 percent. The Times Co., which faces its own financial pressures and has been losing money of late on its New England properties, has put the Globe and Worcester Telegram & Gazette up for sale. Read more. (Subscription required.)
name='9'>SemGroup Suitor Drops Out
John Catsimatidis' departure from the SemGroup stage ends a colorful, competitive chapter in the company's yearlong bankruptcy proceeding, Tulsa World reported today. He ultimately opted to take a small piece of the asphalt business and move on. 'Hopefully sanity will prevail,' the New York billionaire said in an e-mailed response last week to a question about negotiations over the reorganization fight. In the end, he apparently decided that a settlement under which he will buy some SemGroup LP asphalt assets for $3.9 million was preferable to a court hearing this week to decide control of the company. Catsimatidis seemed to be sympathetic toward co-founder and former CEO Tom Kivisto's alleged role in SemGroup's collapse, calling it a 'hedging mistake.' SemGroup filed for chapter 11 bankruptcy protection last July after reporting at least $2.4 billion lost in failed oil futures positions guided by Kivisto. Read more.
name='10'>Creditors Push Wilton Holdings into Bankruptcy
Creditors filed an involuntary chapter 11 petition against Wilton Holdings Inc., a Woodridge, Ill.-based supplier of cake decorating equipment and crafts, the Chicago Tribune reported yesterday. JGF Credit LLC, an affiliate of private equity group TowerBrook Capital Partners, said it is owed $104 million, according to documents filed Friday. Deutsche Bank Trust Co. Americas joined the petition as administrative agent for another $104 million claim. Wilton, founded in 1929, is owned by GTCR Golder Rauner LLC, a Chicago-based equity firm. The loan dates back to 2007, when Wilton merged with companies in the GTCR portfolio. Read more.
name='11'>Analysis: Low-priced Foreclosures Incite Bidding Wars
In areas of the nation saturated with foreclosed homes, low prices for bank-owned properties are sparking bidding wars that drive up sale prices, entice investors and frustrate traditional buyers who make dozens of offers and still cannot land a home, MSNBC.com reported yesterday. Experts say the environment is strikingly similar to what they saw at the height of the real estate bubble. 'This market is about as abnormal as the hypermarket that we came out of a few years ago,' said Jay Butler, director of the Realty Studies program at Arizona State University. Just as they did during the boom period, investors now are stocking up on homes, driving up prices and forcing traditional buyers to the sidelines in some areas, Butler said. Because they often pay cash and buy several houses at once, investors are attractive to banks trying to shed dozens of foreclosures, he said. Traditional buyers add time and hassle to the process because they have to be approved for a mortgage. The market will not stabilize until investor influence diminishes and it is once again driven by buyers who plan to live in the home, Butler said. The problem is centered in newer, lower-priced communities affordable for young families and other first-time home buyers. They are the same neighborhoods that were overrun with foreclosures as mortgage rates adjusted and home values dropped. Real estate agents have been noticing the problem for the past two to three months, said Walter Molony, a spokesman for the National Association of Realtors. Read more.
name='12'>Minimum Wage Workers Set to Get a Raise
On July 24, the federal minimum wage will increase from $6.55 to $7.25 an hour, the final stage of a three-year plan to raise the lowest pay rate allowable for hourly workers, MSNBC.com reported yesterday. Economists say the nearly 11 percent raise will provide a substantial boost in spending power for some workers but also could hurt some small businesses and job seekers because it will make the cost of hiring and retaining workers more expensive. Overall, however, many expect the economic effect to be minimal, in part because so few employers actually pay workers that low rate. The effect is lessened in part because 21 states already require employers to pay wages at or above the new federal rate, including large states such as California. In addition, employers in the other states have known for several years that this latest boost was coming, and therefore have had time to plan for it. Also, most workers make substantially more than the new minimum wage. The average hourly wage for U.S. workers is $18.52 an hour, according to seasonally adjusted data from the Bureau of Labor Statistics. Still, there are pockets of the economy where the wage hike could have a significant impact. David Wyss, chief economist with Standard & Poor's, said those include rural areas or states where wages tend to be lower. Read more.
International
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