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Pierluisi Introduces Legislation Authorizing U.S. Treasury Department to Guarantee Future Puerto Rico Bonds

Resident Commissioner Pedro Pierluisi today introduced a bill, the Puerto Rico Financial Improvement and Bond Guarantee Act of 2015, that would authorize the U.S. Treasury Department to guarantee repayment of principal and interest on bonds to be issued in the future by bond-issuing government entities in Puerto Rico, but only if the Treasury Department first makes a determination — and notifies Congress — that the government of Puerto Rico has demonstrated meaningful improvement in managing its public finances, according to a congressional press release today. The bill would require any Puerto Rico bonds guaranteed by the Treasury Department to be used solely to meet urgent short-term financing needs like Tax and Revenue Anticipation Notes (TRANS), to make capital expenditures that promote long-term economic growth (as opposed to operating expenditures), or to refinance its
existing bond debt at a lower interest rate. Specifically, the Act would require the Secretary of the Treasury to examine the government of Puerto Rico's current financial management practices, to identify important gaps and weaknesses, and to make specific recommendations designed to help the government of Puerto Rico address those gaps and weaknesses. Read the full release.

In related news, a bill to allow Puerto Rico's distressed public agencies access to chapter 9 laws has drawn several Democratic co-sponsors but is not a partisan move, Reuters reported on Tuesday. Puerto Rico's representative in Congress, Pedro R. Pierluisi, introduced the bill — to allow public agencies and municipalities access to chapter 9 — in February in the U.S. House of Representatives. Democrats in the U.S. Senate introduced a companion bill in July. Read the full article.

Stay up to date with the latest news regarding this U.S. Territory by visiting ABI's Puerto Rico in Distress website.

Analysis: Dodd-Frank's Effect on Small Banks Is Muted

It's a favorite lament of community banks: The 2010 Dodd-Frank law is squeezing small financial firms and crimping access to credit for Main Street, all in the name of protecting the country from another financial crisis. A look at the data shows the reality is more complicated, however, and small banks are proving surprisingly resilient by some measures, according to an analysis in the Wall Street Journal Sunday. Meanwhile, the bigger challenge than weathering compliance costs, say banking consultants and analysts, is generating profits during a period of unusually low interest rates. "Dodd-Frank — that term — became the poster child for every regulatory ill that's been foisted onto community banks," said Camden Fine, president of the Independent Community Bankers of America, which represents thousands of small banks. "There are regulatory burdens that community banks face
today that are real, but had nothing to do with Dodd-Frank," he said, adding that in any case, low rates are a bigger issue for small banks. In other words, smaller banks are hanging on to market share despite stiff competition from larger firms, whose balance sheets have become increasingly bloated with non-loan assets, a side-effect of Fed programs to stimulate the economy.

Op-Ed: Why Student Debtors Are Going Unrescued

A vast majority of the more than 10 million Americans who have defaulted on or are behind on repaying their student loans could have benefited from income-driven repayment plans that are intended to ease pressure on distressed borrowers and keep them from defaulting on their federal loans, according to an op-ed in Wednesday's New York Times. These plans can allow borrowers with low income or high debt to pay less each month, or even nothing, until their finances improve without being penalized or going into default. As a result, borrowers who could easily have been spared instead slip into default. The government needs to demand more from these companies, which have operated with little oversight and have clearly been failing borrowers for a long time, according to the op-ed. The Consumer Financial Protection Bureau has issued a disturbing report on this problem. It can't delay and
should get the ball rolling by suing companies that violate the law and writing consumer-friendly rules that loan servicing companies would be legally required to follow, according to the op-ed.

Fed's Rate Delay Spurred by Worry over Low Inflation, Minutes Show

Federal Reserve officials held off on raising short-term interest rates at their September policy meeting because they had worries about when inflation would return to 2% after running below their official target for more than three years, according to minutes of the meeting released Thursday, the Wall Street Journal reported today. The Fed has twin goals of a robust labor market and low, stable inflation. Officials at the meeting — which had been signaled as potentially bringing the first interest-rate increase in nearly a decade — decided that they were near their goal of "full employment," but weren't yet convinced about inflation. With the job-market goal in sight, the minutes suggest that the prospective interest-rate decision will depend on whether officials become more confident that inflation won't continue to undershoot the 2% objective.

How the Fed Saved the Economy

For the first time in nearly a decade, the Federal Reserve is considering raising its target interest rate, which would end a long period of near-zero rates. Like the cessation of large-scale asset purchases in October 2014, that action will be an important milestone in the unwinding of extraordinary monetary policies to help the economy recover from a historic financial crisis, according to a commentary by Fed Chairman Ben Bernanke in Sunday's Wall Street Journal. As such, it's a good time to evaluate the results of those measures, and to consider where policymakers should go from here. To begin, it's essential to be clear on what monetary policy can and cannot achieve. What the Fed can do is two things: First, by mitigating recessions, monetary policy can try to ensure that the economy makes full use of its resources, especially the workforce. Second, by keeping inflation
low and stable, the Fed can help the market-based system function better and make it easier for people to plan for the future. Considering the economic risks posed by deflation, as well as the probability that interest rates will approach zero when inflation is very low, the Fed sets an inflation target of 2%, similar to that of most other central banks around the world. On the inflation front, various measures suggest that underlying inflation is around 1.5%. But if there is a problem with inflation, it isn't the one expected by the Fed's critics, who repeatedly predicted that the Fed's policies would lead to high inflation (if not hyperinflation), a collapsing dollar and surging commodity prices. None of that has happened.

Analysis: Foreclosure Abuses, Revisited

The promise of widespread relief for homeowners facing foreclosure in the wake of the housing bust has never been realized, according an analysis in the New York Times on Tuesday. The government did not require the banks to rework bad loans, which in many cases the banks offloaded on the federal agencies that insured them. Now these same agencies are selling some of these loans at a discount to hedge funds and private-equity firms. Has this merry-go-round helped homeowners? According to the analysis, it has not. At first glance, the sale of discounted mortgages to private firms would seem to be a way to help troubled borrowers. But according to a recent report, that's not the way things are working out. However great the discount, buyers of these loans almost always go ahead with foreclosure anyway, then repackage the debt into bonds that generate income from selling the
foreclosed homes or renting them out. In the aftermath of a bust, there is a legitimate role for distressed-debt investors who seek to extract what value remains in impaired assets. But the federal mortgage sales are apparently occurring before all borrowers have been given a chance to apply for and receive the help that was promised under the terms of the bank bailouts and, since then, under various legal settlements and regulations intended to prevent foreclosure abuses.

U.S. Consumer Credit Hits New Record of $3.47T in August, Led by Auto and Student Debt

U.S. consumer borrowing advanced at a solid pace in August, as Americans took out more auto and student loans, the Associated Press reported Wednesday. The Federal Reserve said Wednesday that consumer borrowing rose by $16 billion in August, pushing the total to a fresh record of $3.47 trillion. The August advance was slightly below the July gain of $18.9 billion. In June, credit had soared by $27.2 billion, the largest increase since November 2001. Borrowing for car and student loans expanded by $12 billion in August. Borrowing in the category that covers credit cards rose by $4 billion. Economists are forecasting that consumer spending, which accounts for 70 percent of economic activity, will remain strong in the coming months as households remain willing to take on more debt. But many economists believe growth slowed sharply in the July-September quarter to perhaps as low as 1.5
percent, reflecting the impact of a lackluster global economy.

Miss the "BAPCPA at 10": Consumer Bankruptcy Trends Media Webinar? Watch It Here!

Ten years after its implementation, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) continues to reshape the landscape for both consumer and business bankruptcies. Hear an expert panel assess the effects of BAPCPA on financially distressed consumers. Watch the video here.

Pot Businesses Are Sprouting Up in Legalized States; What Happens If Those Businesses Fail? Latest ABI Podcast Explores

ABI Executive Director Sam Gerdano talks with Prof. Michael Sousa of the University of Denver Sturm College of Law about the intersection of the pot business and federal law. Sousa examines cases and circumstances surrounding a financially distressed marijuana business in light of pot being an illegal substance under the Controlled Substances Act of 1970. Listen here.