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November 19, 2008
Mortgage Modification Bill to Be Considered by Senate Judiciary Committee
The 'Homeowner Assistance and Taxpayer Protection Act,' (S. 3690) will be examined at a hearing today before the Senate Judiciary Committee presided over by bill sponsor Sen. Dick Durbin (D-Ill.). Similar to legislation he introduced last year, Durbin's bill aims to let judges alter the terms of distressed mortgages in bankruptcy cases. The hearing, titled 'Helping Families Save Their Homes: The Role of Bankruptcy Law,' will be held at 10 a.m. ET in Room 216 of the Hart Senate Office Building. Click here to read the text of the legislation. Click here to view the charts.
Click here to read the witness list for and to watch the live Webcast of todays Senate Judiciary Committee hearing.
name='2'>Commentary: Credit Crunch Leading to Fewer Reorganizations in Corporate Bankruptcy
More companies that file for bankruptcy protection are shutting down rather than reorganizing, lawyers say, because they cannot obtain enough financing to operate while they reorganize, the New York Times reported today. Linens 'n Things, in bankruptcy since May, is liquidating now that creditors have refused to extend more credit. Another retailer, Mervyn's, announced it would also liquidate, and several analysts expect the same at Circuit City, which filed for bankruptcy protection last week. On Wall Street, Lehman Brothers is being dismantled in the biggest bankruptcy ever. While companies might have once gotten together with their creditors and worked out a plan in the common interest, they are avoiding bankruptcy court if at all possible because they know that without ready access to credit, the odds of emerging from legal proceedings are slim. Read more.
Autos
name='3'>Detroit Executives Plead for Aid
While the heads of the Big Three automakers of Detroit pleaded yesterday at a Senate Banking Committee for emergency government aid to stave off potential collapse, they appeared they had not persuaded enough lawmakers to move quickly on a bailout, the New York Times reported today. Senate Democratic leaders said that they had not been able to muster the support for legislation that would provide $25 billion to the troubled auto industry from the Treasury Department's $700 billion economic rescue fund. The frantic bid from Detroit for help was laid bare at the hearing in which two of the three automakers, General Motors and Chysler, said that they might run out of money by the end of the year. The cause of their misfortunes was not management mistakes, they said, but the weak economy and the inability of consumers to obtain credit to buy cars. Read more.
In related news, the House Financial Services Committee will hold a hearing today on extending the Department of Treasury's Troubled Asset Relief Program (TARP) to the U.S. auto industry, according to a press release. The bill, which is still being drafted, will extend the recently passed TARP program to help the financial stability of the American car industry. CEOs Rick Wagoner of General Motors, Alan Mulally of Ford and Robert Nardelli of Chrysler are set to testify along with UAW President Ron Gettelfinger. The hearing will take place at 10 a.m. EST. Click here to view the prepared testimony and to view the live Webcast.
name='4'>Analysis: Estimate of Potential Auto Industry Job Loss Receives Scrutiny
While supporters of a bailout for U.S. automakers have frequently cited a statistic that the industry supports one in 10 jobs in the country, some say that the figure likely overestimates the effect that a collapse of one or more carmakers would have on the economy, the New York Times reported today. The statistic seems to indicate that 10 percent of American jobs Ñ a total of about 14 million jobs, as measured by the Bureau of Labor Statistics nonfarm payroll report Ñ could evaporate if the three big Detroit automakers are allowed to fail. The figure appears to come from a 2003 study conducted by the Center for Automotive Research on the 'economic contributions of the motor vehicle to the U.S. economy, to a multitude of U.S. industries in retail, manufacturing and service sectors, and to individual Americans.' The center is a nonprofit research organization with ties to labor and government. The study was commissioned by the Alliance of Automobile Manufacturers, an industry group. The study concludes that 'new vehicle production sales, and other jobs related to the use of automobiles, are responsible for one out of every 10 jobs in the U.S economy.' The term 'responsible for' is interpreted quite broadly and covers jobs in steel, glass and electronics as well as those in taxi-driving, travel and advertising companies, among others. Read more.
name='5'>Commentary: Government Can Look to Handling of Airline Crisis to Help Automakers
The government's handling of the crisis in the airline industry following the Sept. 11, 2001, terrorist attacks could offer a blueprint for a potential intervention to prop up Detroit's ailing, unionized automakers, the Wall Street Journal reported today. In both cases, troubled companies sought government-subsidized loans, pleading that their financial problems grew out of a crisis not of their making. The government set up a special body to oversee how airlines spent federally subsidized loans, effectively forcing the hands of managers. A proposal put forward by Rep. Barney Frank (D-Mass.) would also set up a special board to conduct 'rigorous' oversight of automakers. As with the earlier airline model, Frank's plan could empower the board to receive stock warrants and condition loan terms upon viable restructuring plans. In the airlines' case, Congress passed legislation in the aftermath of Sept. 11 authorizing $5 billion of grants to compensate the industry for losses associated with the shutdown of commercial flights. It also created the Air Transportation Stabilization Board to provide another $10 billion of loan guarantees. Read more. (Registration required.)
name='6'>Commentary: Let Detroit Go Bankrupt
If Congress gives U.S. automakers the requested bailout money, the companies will maintain a disastrous course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses, according to a commentary by former Governor and Republican Presidential nominee Mitt Romney in today's New York Times. The Detroit automakers disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers. That extra burden is estimated to be more than $2,000 per car. Second, the management structure as it stands must be eliminated. New faces should be recruited from unrelated industries Ñ from companies widely respected for excellence in marketing, innovation, creativity and labor relations. Read more.
name='7'>Senate Might Take Up Stand-Alone Pension Overhaul Bill This Week
The Senate might take up a stand-alone bill this week to change pension funding rules to ease pressures on businesses facing financial crisis and reduce next year's tax burden on small businesses, CongressDaily reported today. The bill will include a provision explicitly allowing asset smoothing in pension plans, allowing companies to account for losses over a two-year period, said Lynn Dudley, the American Benefits Council's vice president for retirement policy. In 2008, companies were required to have their plans 92 percent funded; it moves up to 94 percent in 2009. However, a loophole in the law means that a company that increases funding to 93 percent next year is judged as having a 7 percent shortfallreferred to as a 'cliff' that companies fall off of if they cannot hit the transition targets.
name='8'>Future Shape of Fannie, Freddie Stirs Debate as Losses Mount
Debate is heating up over the future of Fannie Mae and Freddie Mac as the two government-backed mortgage companies struggle with heavy losses and investors continue to shy away from their debt, the Wall Street Journal reported today. Fannie and Freddie 'are teetering on the brink' as losses increase and borrowing costs rise, said Jerry Howard, CEO of the National Association of Home Builders. He called for the government to explicitly guarantee their debt and for Congress to quickly come up with a new structure and better-defined role for Fannie and Freddie. Some banks, which have long had an uneasy relationship with Fannie and Freddie, would like to see them disappear, at least in their current form. One idea being discussed among bankers is to replace Fannie and Freddie with several lender-owned cooperatives that would package loans into securities. Under this idea, the U.S. Treasury would get fees for backing up those securities if losses reached catastrophic levels. Read more. (Registration required.)
Study: Sold-Off Corporate Loans Underperform
A study set to be released today said that corporate bank loans sliced and sold to outside buyers perform far less well than loans kept by the lender, the Wall Street Journal reported today. The study by Anurag Gupta of Case Western Reserve University and Antje Berndt of Carnegie Mellon University concludes that syndicated loans underperform nonsyndicated issues by 8 to 14 percent in trading in the secondary markets. The study sampled 1,054 corporate loans made between 2000 and 2007. The study suggests three steps for improving the performance of syndicated loans: forcing banks to hold a significant portion of the loans they originate, more disclosure about which banks are lending to which corporate buyers, and establishing a loan-trading exchange and clearinghouse that would bring more transparency and accountability to the secondary market for such loans. Read more. (Registration required.)
name='10'>Disclosure Demands for Credit-Default Swaps Said to Increase
U.S. regulators may require banks and insurers to disclose data about all credit-default swap trades to a central registry to boost transparency in the $47 trillion market, Bloomberg News reported today. The Federal Reserve Bank of New York and the U.S. Securities and Exchange Commission want information about credit-default swaps that don't meet standard terms to be disclosed to a warehouse that would record all trades. The rules would offer details about the types of contracts that almost drove American International Group Inc. into bankruptcy. While information on $33 trillion of credit-default swaps is kept by the Depository Trust & Clearing Corp., which operates a central registry, the market may be as much as $14 trillion larger, according to data compiled by the International Swaps and Derivatives Association. Read more.
name='11'>Struggling Homeowners Flock to Texas to Duck Creditors
Homeowners fleeing underwater mortgages in California and Florida are flocking to Texas to take advantage of more lenient repayment terms, Bloomberg News reported yesterday. Texas bankruptcy filings involving delinquent out-of-state mortgages increased by at least a third in the past year, said Jan Northrup, a lawyer with Hughes Watters Askanase and a bankruptcy trustee in the U.S. District of Southern Texas. She said that many relocations to Texas involve people who moved from Florida, California, Colorado or Arizona. A still-robust job market draws nonresidents trying to get away from houses worth less than what they owe on the mortgage, said Jay Westbrook, a business-law professor at the University of Texas in Austin. These newcomers find employment, buy a home in Texas, and mail lenders the keys to the house they abandoned. Lenders in most states can sue to recover the difference between the mortgage balance and proceeds from selling the repossessed house, Westbrook said. Once a borrower has relocated to Texas, such judgments can't be satisfied with alimony, child support or garnisheed wages. Texas has the most generous provisions for what debtors may keep, far more than other states, said Wayne Kitchens, a bankruptcy attorney with Hughes Watters Askanase in Houston. Read more.
name='12'>New York Attorney General Queries AIG on Bonuses and Raises
New York Attorney General Andrew Cuomo demanded to know if American International Group Inc. will give bonuses or pay raises, a day after Goldman Sachs Group Inc. said it is scrapping 2008 awards for top executives, Bloomberg News reported yesterday. AIG, which got an expanded government rescue worth more than $150 billion last week, should be 'completely transparent' on executive pay, Cuomo said in a letter yesterday. It 'seems hard to imagine that AIG could pay significant bonuses or give raises to its executives after the company has quite literally been bailed out by the American taxpayer,' Cuomo said. AIG, once the world's largest insurer, has been under scrutiny from lawmakers and regulators as the $85 billion bailout it got in September almost doubled. The New York-based firm has agreed to halt severance payments to executives including former CEO Martin Sullivan and canceled most of its planned conferences. Read more.
name='13'>Mervyn's Asks Bankruptcy Court to Sell Store Leases
Bankrupt department store chain Mervyn's LLC is seeking court approval to sell off its remaining retail property leases as part of its planned liquidation, Bankruptcy Law360 reported yesterday. The Hayward, Calif.-based company has already obtained approval to sell 26 leases on stores subject to the first round of closures and wants authorization to auction off the remainder. Before filing for bankruptcy on July 29, Mervyn's operated 177 retail stores. The company told the court it had retained Hilco Real Estate LLC to market and sell the leases at an auction scheduled for Dec. 10 at the New York offices of counsel Morgan Lewis & Bockius LLP. Read more. (Subscription required.)
name='14'>Harbinger Asks for Probe of Lehman Transfers
Harbinger Capital Partners Special Situations Fund LP is calling for a probe of a transfer of equity stakes held by a brokerage unit of Lehman Bros. Holding Inc. to a nonbankrupt affiliate in the days before the investment bank's collapse, Bankruptcy Law360 reported yesterday. In a filing Friday in the U.S. Bankruptcy Court for the Southern District of New York, the hedge fund asked the court to allow a deposition of James W. Giddens, the trustee named to liquidate Lehman's brokerage. It also asked for documents pertaining to the purported transfer of Lehman Bros. equity interests between it and Lehman Ali Inc., a nondebtor affiliate. Harbinger first asked for discovery on the movement of property between Lehman Bros. and its affiliates in September 2008a move the company objected to the following month. Harbinger said that it learned that month that Lehman Bros. equity interests were transferred to Lehman Ali Inc., but that no information has been disclosed concerning the value of the equity or the mechanism used to determine the value. Read more. (Subscription required.)
name='15'>Judge Expunges $5.4 Billion in Delta Debt Claims
Bankruptcy Judge Adlai S. Hardin Jr. on Monday allowed Delta Air Lines Inc. to drop more than $5.4 billion in claims from the airline's chapter 11 bankruptcy, tying up loose ends in the company's 18-month reorganization, Bankruptcy Law360 reported yesterday. Judge Hardin expunged 27 claims composing $5.41 billion in debt, most of which was secured by company planes, according to court filings. The company said in an objection to the claims filed in September that the debts in question have been satisfied according to the terms established in the company's reorganization plan and through other court proceedings. Read more. (Subscription required.)
name='16'>Obama's Transition Team Looks to Tap Holder as Attorney General
President-elect Barack Obama's transition team has signaled to Eric H. Holder Jr., a senior official in the Justice Department in the Clinton administration, that he will be chosen as attorney general, but no final decision has been made, the New York Times reported today. As a top adviser to Mr. Obama, he has long been considered the front-runner for the job of attorney general because of his extensive record as a prosecutor and a judge. While President-elect Obama has yet to name any of his cabinet secretaries, his early choices for White House staff positions and the names currently at the top of the list for staff and cabinet jobs suggest that his administration could be heavily stocked with Democrats who served under Clinton. Read more.
International
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