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December 18,
2008
More California Towns Face
Bankruptcy
While the city of Vallejo, Calif., gained national attention earlier
this year by filing for chapter 9 protection, California may soon have
more bankrupt towns on its hands, the Wall Street Journal reported
today. Isleton and Rio Vista, small towns roughly 50 miles northeast of
San Francisco, say that they have begun consulting with bankruptcy
lawyers as they draw up plans to deal with their mounting budget crises.
The towns' leaders say that they hope to avoid bankruptcy, but
concede the move may eventually be their only option. 'We're strapped
for cash and by the end of March or early April we may not have enough
money to pay for payroll,' says Hector De La Rosa, Rio Vista's city
manager. California's troubled towns can't expect much help from the
state. A state board voted yesterday to shut off $3.8 billion in
financing to hundreds of infrastructure projects to preserve cash as the
nation's most populous state struggles under a budget deficit that
officials say could balloon to more than $40 billion over the next two
years.
href='http://online.wsj.com/article/SB122954346309915189.html#'>Read
more. (Subscription required.)
HUD Chief Calls Aid on
Mortgages a Failure
Secretary of Housing and Urban Development Steve Preston said
that the centerpiece of the federal government's effort to help
struggling homeowners has been a failure, the Washington Post
reported yesterday. The three-year program was supposed to help 400,000
borrowers avoid foreclosure. However, it has attracted only 312
applications since its October launch because it is too expensive and
onerous for lenders and borrowers alike, Preston said. The criticism
comes as Congress prepares to weigh in with further plans to help
distressed borrowers facing foreclosures, which are at the root of the
financial meltdown. This week, House Speaker Nancy Pelosi (D-Calif.)
demanded that the Treasury Department use some of the money from the
$700 billion emergency rescue package to help at-risk homeowners. One of
several federal and state foreclosure prevention initiatives facing
difficulties, HUD's Hope for Homeowners program has been especially
hamstrung. For instance, a program launched by the Federal Deposit
Insurance Corp. on behalf of IndyMac Bank customers has modified more
than 3,500 mortgages in two months of operation.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/12/16/AR2008121603177_pf.html'>Read
more.
Autos
Chrysler to Shut Factories for a
Month
Chrysler said yesterday that it would close all 30 of its factories for
at least one month, starting at the end of this week, in response to
plunging vehicle sales in the United States, the New York Times
reported today. The company said that the plants, which employ 46,000
union workers, would resume production no sooner than Jan. 19.
Meanwhile, worries that Chrysler could be forced to file for bankruptcy
have spooked many auto dealers into borrowing so much money from the
automaker's lending arm that the company said that it might need to
suspend the loans. Dealers have been requesting nearly $60 million a day
from a fund used to finance vehicle inventories, and a total of $1.5
billion since July, Chrysler Financial's CEO Thomas F. Gilman.
href='http://www.nytimes.com/2008/12/18/business/18chrysler.html?ref=business&pagewanted=print'>Read
more.
GM and Chrysler Reopen Talks on a
Merger
General Motors Corp. and Chrysler LLC have reopened merger talks, as
Chrysler owner Cerberus Capital Management LP has signaled its
willingness to give away part of its ownership in the automaker, the
Wall Street Journal reported today. With cash running low at
both companies, Cerberus took the initiative to restart discussions that
sputtered just weeks ago. At that time, both GM and Chrysler viewed a
business combination as impractical and as a distraction from their
mounting liquidity problems. The renewal of the talks could be a way for
Cerberus to show lawmakers and regulators -- who are weighing a $14
billion rescue package for the auto industry -- that it wants to
cooperate in restructuring the industry. It could also offer the firm a
way to protect its stakes in two distressed auto-finance companies, GMAC
LLC and Chrysler Financial, which are crucial to the survival of the
Detroit automakers.
href='http://online.wsj.com/article/SB122957294608617461.html'>Read
more. (Subscription required.)
Paulson Takes Lead in Auto Rescue
Talks
The White House and the Treasury are deep into negotiations with General
Motors and Chrysler over reorganization plans that could result in
freeing up more than $14 billion in emergency loans to keep the
companies afloat through the first quarter of 2009, the New York
Times reported today. The Bush administration appears to want an
agreement with the automakers before Dec. 25. In the negotiations,
Treasury secretary Henry M. Paulson Jr. is effectively taking on the
role of “auto czar,” which was envisioned in the carmakers
rescue bill written by the White House and Congressional Democrats and
approved by the House but blocked by Senate Republicans. In the days
since the White House said that it would step in to prevent the collapse
of GM and Chrysler, Treasury officials have been poring over detailed
financial data. The auto companies have said that they expect the terms
of the emergency government assistance to match roughly the requirements
in the legislation approved by the House, which would force them to
submit to strict oversight and impose numerous taxpayer
protections.
href='http://www.nytimes.com/2008/12/18/business/18auto.html?_r=1&ref=business&pagewanted=print'>Read
more.
Commentary: The Fed's Price
Controls
The Federal Reserve cut rates to historic lows on Tuesday, but today it
plans to vote to tighten consumer credit, imposing what amounts to
federal price controls on credit cards, according to an editorial in
today's Wall Street Journal. In the past, the Fed and other
regulators have limited themselves chiefly to regulating disclosure of
credit policies. This is one reason that credit-card agreements are now
21 pages on average, up from three pages in the 1980s. However, the
Fed's new rules would go well beyond that, regulating how card issuers
price their products and adjust those prices to changing credit
conditions. The result, as with all price controls, is likely to be
restricted consumer credit at the very moment that the federal
government is desperately trying to keep credit markets liquid.
href='http://online.wsj.com/article/SB122956332371616791.html'>Read
more. (Subscription required.)
General Growth's Lenders Agree to Extend
Loan
Ailing mall giant General Growth Properties Inc. and a group of lenders
agreed to extend a past-due $900 million loan until Feb. 12 after six of
the banks used a pressure tactic on Citigroup Inc. to go along with the
extension, the Wall Street Journal reported today. Citigroup
has for weeks been trying to get General Growth to give it other
concessions in exchange for its consent for the extension, but six
lenders yesterday threatened an end run to get Citigroup's cooperation.
General Growth announced yesterday that the syndicate of lenders and the
company had entered into a 'forbearance and waiver' agreement that
extends until Feb. 12. It wasn't clear from the announcement whether
Citigroup was part of the syndicate or the other banks had gone around
Citigroup to extend the loan.
href='http://online.wsj.com/article/SB122956547772517031.html'>Read
more. (Subscription required.)
Lender Offers $50 Million for Control
of Kosher Meat Packer
A Florida-based lender agreed to provide up to $50 million to bankrupt
kosher meatpacking company Agriprocessors Inc. in exchange for a
controlling share in the family-owned business, Bankruptcy
Law360 reported yesterday. Quantum Partners Inc. filed a letter of
intent on Dec. 12 in the U.S. Bankruptcy Court for the Eastern District
of New York, stating that the financing company was prepared to pay off
Agriprocessors' major secured creditor, First Bank Business Capital
Inc., which would help enable the meat packer to emerge from chapter 11
protection. Quantum said that it was also ready to advance up to $15
million to restart full-scale operations at Agriprocessors' Postville,
Iowa, plant upon completing the First Bank deal.
href='http://bankruptcy.law360.com/articles/80590'>Read
more. (Subscription required.)
AHM Seeks $5 Million to Defend
Executives in Securities Suits
American Home Mortgage Investment Corp. (AHM) is looking to secure an
additional $5 million in insurance proceeds for current and former
executives facing securities fraud charges related to the company's
bankruptcy, Bankruptcy Law360 reported yesterday. In a motion
filed Monday with the U.S. Bankruptcy Court for the District of
Delaware, AHM disclosed that roughly 19 securities class actions had
come in around the time of its chapter 11 filing. In April, the court
entered an order allowing the company's officers and directors to
receive $5 million for defense costs. However, that money has since run
out and AHM is asking the court to approve an additional $5
million. Read
more. (Subscription required.)
Mary Schapiro to Run SEC for
Obama
President-elect Barack Obama has chosen Mary Schapiro, chief executive
of a securities-industry regulator for securities firms, to lead the
Securities and Exchange Commission, the Wall Street Journal
reported today. Shapiro was credited with beefing up enforcement while
at the National Association of Securities Dealers and guiding the
creation of the Financial Industry Regulatory Authority, which she now
leads. The SEC has been overshadowed in dealing with the 2008 market
meltdown by the Federal Reserve and U.S. Treasury Department, and its
very existence is in danger as Congress weighs a big regulatory revamp
expected next year. Some officials have suggested reassigning its
responsibilities to other agencies or merging it with the Commodity
Futures Trading Commission. Under current chairman Christopher Cox, the
SEC has been dogged by criticism that it hasn't acted forcefully to
police securities-industry risk taking, greasing the skids for the
crisis that resulted in the collapse of two major firms, Bear Stearns
Cos. and Lehman Brothers Holdings Inc.
href='http://online.wsj.com/article/SB122955639309716037.html'>Read
more. (Subscription required.)
Madoff Misled SEC in 2006, Avoided
Discovery of Fraud
Securities and Exchange Commission investigators discovered in 2006 that
Bernard Madoff misled the agency about how he managed customer money
according to documents, yet the SEC missed an opportunity to uncover an
alleged Ponzi scheme, the Wall Street Journal reported today.
The documents indicate that the agency had Madoff in its sights amid
multiple violations that, if pursued, could have blown open his alleged
multibillion-dollar scam. Instead, his firm registered as an investment
adviser at the agency's request, and the public got no word of the
violations. Harry Markopolos -- who once worked for a Madoff rival --
sparked the probe with his nearly decade-long campaign to persuade the
SEC that Mr. Madoff's returns were too good to be true.
href='http://online.wsj.com/article/SB122956182184616625.html'>Read
more. (Subscription required.)
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