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FEDERAL RESERVE PLANS TO BUY $40 BILLION IN MORTGAGE SECURITIES A MONTH



The Federal Reserve said today that it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a bid to boost growth and reduce unemployment, Bloomberg News reported today. "If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate," the Federal Open Market Committee said today. The FOMC said it would likely hold the federal funds rate near zero "at least through mid-2015." Since January, the Fed had said that the rate was likely to stay low at least through late 2014. The Fed also said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed “Operation Twist.” The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities. Read more.

FORECLOSURE STARTS FELL ON ANNUAL BASIS IN AUGUST



Foreclosure listing firm RealtyTrac Inc. said that fewer homes were placed on the foreclosure track last month than in August last year, when they hit a 17-year high, the Associated Press reported yesterday. More than 99,400 homes entered the foreclosure process in August 2012, up 1 percent from July but down 13 percent from August last year, RealtyTrac said. At the same time, foreclosure starts increased almost exclusively in judicial states like Florida and New York, where the courts must sign off on foreclosures, the firm said. Conversely, in many non-judicial states like California and Arizona, the number of foreclosure starts declined versus August last year. Read more.

ANALYSIS: INVESTMENT FIRMS FLOCK TO FORECLOSURE AUCTIONS



The business of buying foreclosed homes, renovating and renting them out is morphing from a largely mom-and-pop business into the next big thing on Wall Street, according to a report in yesterday's Wall Street Journal. Investors who once chased only big-ticket deals now are buying houses one at a time. According to investment bank Jefferies & Co., major financial firms led by Colony Capital LLC, Blackstone Group LP, Och-Ziff Capital Management and Oaktree Capital Group LLC have raised more than $8 billion to buy houses, largely in markets pummeled by the housing crisis. At first, many investors hoped lenders would sell foreclosed houses in bulk. But most banks prefer to sell one house at a time, figuring that approach will fetch higher prices. As a result, the foreclosure circuit has not yet produced a giant windfall for buyers like Colony, though executives say early returns are promising. Yields on rents from houses owned by the firm are 7 to 8 percent, higher than many other types of real estate. Purchase prices have averaged 12 percent less than Colony expected, which should make it easier to sell the homes or borrow against them and exit with double-digit percentage gains. Read more. (Subscription required.)

REPORT: FINANCIAL CRISIS, RECESSION COST U.S. $12.8 TRILLION



The financial crisis and the Great Recession have taken a heavy toll on the U.S., and now public interest group Better Markets, which supports tougher financial regulations, said that it has calculated that cost to be at least $12.8 trillion, the Los Angeles Times reported today. The report tries to calculate the effect of the crisis and the recession in terms of reduced economic output and the costs of stabilizing the markets and bailing out banks and large financial firms. The estimate builds off previous calculations, including one by economists Alan S. Blinder and Mark Zandi. Blinder and Zandi released a report in 2010 estimating the total budgetary cost of the financial crisis to be $2.35 trillion. Better Markets used that amount as a jumping-off point for what it said was a conservative estimate of the true costs of the crisis. The group estimated that the loss in gross domestic product from 2008 to 2018 will be $7.6 trillion. Then they used the estimates of Blinder and Zandi to add an additional figure: an estimate of how much GDP loss was avoided by government bailouts and other interventions. That figure was $5.2 trillion from 2008 to 2012. Read more.

COMMENTARY: WHY MARKETS NEED "NAKED" CREDIT DEFAULT SWAPS



Many regulators, politicians and academics are recommending a ban on "naked" credit default swap (CDS) purchases, but the premise that only sovereign-debt holders suffer when a country defaults is false, according to a commentary in the Wall Street Journal yesterday. Many other agents are adversely affected by a default, and they should be allowed to purchase sovereign CDS, according to the commentary. A 2006 Bank of England study found that the output losses for 45 sovereign debt defaults between 1970 and 2000 "appear to be very large—around 7 percent a year on the median measure—as well as long lasting." The haircut taken by investors after sovereign defaults ranges from 20-70 percent. But many bystanders in the sovereign-default drama also suffer significant losses of wealth and livelihood. Domestic importers and foreign exporters suffer when the default is accompanied by a devaluation. Financial institutions and holders of domestic corporate debt suffer as their asset values fall. Domestic companies suffer as their credit risk increases, with smaller businesses being especially harmed as banks reduce loan availability. Read the full commentary. (Subscription required.)

REPORT: HOUSEHOLD INCOME SINKS TO 1995 LEVEL



A report from the Census Bureau yesterday said that annual household income fell in 2011 for the fourth straight year to an inflation-adjusted $50,054, an amount last approached in 1995, the Wall Street Journal reported today. Median annual household income—the figure at which half are above and half below—now stands 8.9 percent below its all-time peak of $54,932 in 1999, at the end of the 1990s economic expansion. Other measures of well-being in the report were more positive. The poverty rate, which had risen in the past four years, held steady in 2011, and the number and share of people without health insurance fell. The shift in health coverage is in large part due to more Americans getting covered by government programs, such as Medicare. Read more. (Subscription required.)

ABI IN-DEPTH

ABI MEMBERS WELCOME TO ATTEND ACB'S FREE HALF-DAY "BANKRUPTCY: BACK TO THE FUTURE" PROGRAM IN SEPTEMBER



The American College of Bankruptcy invites you to attend a free half-day program on Sept. 28 in Chicago for a discussion of many of the challenging topics facing current bankruptcy and reorganization professionals. Topics to be addressed include recent decisions of the U.S. Supreme Court and Court of Appeals, important work of the Advisory Committee on Bankruptcy Rules, and developments in the field of bankruptcy ethics. The nation’s leading judges, academics and bankruptcy professionals are among the speakers for the program. While there is no cost to attend, seating is limited, so early reservation is suggested. For more information and to register, please click here.

LATEST CASE SUMMARY ON VOLO: LEFKOWITZ V. MICHIGAN TRUCKING LLC (IN RE GAINEY CORP.; 6TH CIR.)



Summarized by Omid Moezzi from the Office of Nancy Curry, Chapter 13 Trustee

The Sixth Circuit affirmed the bankruptcy court's ruling for an order dismissing the appellant's (the liquidation trustee) adversary complaint for failure to state a claim for relief pursuant to Federal Rule of Civil Procedure 12(b)(6).

There are more than 600 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: WHOSE FAULT IS IT THAT PONZI SCHEMES THRIVE?



The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines how defrauded investors are increasingly directing their blame at the SEC for failing to detect ponzi schemes.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Bankruptcy courts should have unfettered discretion in adjusting fee applications, even when no party-in-interest has raised objections.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

HAVE YOU TUNED IN TO BLOOMBERG LAW'S VIDEO PODCASTS?



Bloomberg Law's video podcasts feature top experts speaking about current bankruptcy topics. The podcasts are available via Bloomberg Law's YouTube channel so that you can access the programs from your computer or device of your choice! Click here to view the Bloomberg Law video podcasts.

INSOL INTERNATIONAL



INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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Join our networks to expand yours.

September

- 38th Annual Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization

     September 19-20, 2012 | New York, N.Y.

- "When Is an Individual Chapter 11 the Best Fit?" Live Webinar

     September 27, 2012

- American College of Bankruptcy's "Bankruptcy: Back to the Future" Program

     September 28, 2012 | Chicago, Ill.

October

- Nuts & Bolts for Young and New Practitioners - KC

     October 4, 2012 | Kansas City, Mo.

- Midwestern Bankruptcy Institute Program, Midwestern Consumer Forum

     October 5, 2012 | Kansas City, Mo.

- Bankruptcy 2012: Views from the Bench

     October 5, 2012 | Washington, D.C.

- Chicago Consumer Bankruptcy Conference

     October 8, 2012 | Chicago, Ill.

- "Trending Issues: Examiners and Select Plan Confirmation Issues" Webinar

October 15, 2012

- International Insolvency and Restructuring Symposium

     October 18, 2012 | Rome, Italy

November

- U.S./Mexico Restructuring Symposium

     November 7, 2012 | Mexico City, Mexico

- Professional Development Program

     November 9, 2012 | New York, N.Y.

- Detroit Consumer Bankruptcy Conference

     November 12, 2012 | Detroit, Mich.

- Winter Leadership Conference

     November 29 - December 1, 2012 | Tucson, Ariz.

December

- Forty-Hour Bankruptcy Mediation Training

     December 4-8, 2012 | New York, N.Y.

2013

February

- Kansas City Advanced Consumer Bankruptcy Practice Institute

     February 17-19, 2013 | Kansas City, Mo.

REPORT: HAMP INCREASED MORTGAGE RENEGOTIATIONS, BUT ONLY REACHED ONE-THIRD OF TARGETED HOUSEHOLDS



A recent report by academics and Federal Reserve researchers revealed that the 2009 Home Affordable Modification Program generated an increase in the intensity of renegotiations while adversely affecting the effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in the rate of foreclosures, but did not alter the rate of house price decline, durable consumption or employment in regions with higher exposure to the program. The overall impact of HAMP, according to the report, will be substantially limited since the renegotiations it induces will reach just one-third of its targeted 3 to 4 million indebted households. To read the full report, please click here.

COMMENTARY: TOO MUCH PROTECTION FOR DERIVATIVES IN BANKRUPTCY



Current "safe harbors" in the Bankruptcy Code are too broad and amount to little more than a subsidy to the derivatives industry, according to a commentary by Prof. Stephen Lubben in the New York Times DealBook blog today. The safe-harbor provisions Prof. Lubben addresses are derivatives and repo contracts that are exempt from the automatic stay, the prohibition on termination of contracts with the debtor, the prohibition on constructively fraudulent transfers and the prohibition on obtaining preferential treatment on the eve of bankruptcy. Similar provisions protect "securities contracts," and open up the argument that any transaction that occurs in the general vicinity of a broker-dealer is immune from the normal rules of bankruptcy. Prof. Lubben's concern with the safe harbors is not so much the statutory provisions but the role that courts have come to play in expanding the provisions beyond their already-broad statutory language. Read more.

DEBT COLLECTORS CASHING IN ON STUDENT LOANS



As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years, the New York Times reported on Sunday. Nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials. In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters. Unlike private lenders, the federal government has extraordinary tools for collection that it has extended to the collection firms. Overall, the government recoups about 80 cents for every dollar that goes into default — an astoundingly high rate, considering that most lenders are lucky to recover 20 cents on the dollar on defaulted credit cards. Read more.

TOUGHER DODD-FRANK FIDUCIARY STANDARD FOR BROKERS STALLED



Despite support from both Wall Street and consumer advocates, a U.S. Securities and Exchange Commission proposal to raise standards for brokers advising retail investors has run aground, Bloomberg News reported yesterday. The SEC, which has been drafting a rule for almost two years, has scheduled no action on the measure as 2012 wanes and a presidential election approaches. SEC Chairman Mary Schapiro, who pushed to include the measure in the Dodd-Frank Act to ensure that clients receive equal treatment from brokers and investment advisers, said that other rules will probably take precedence in coming months. Dodd-Frank instructed the SEC to consider mandating that brokers operate under a fiduciary standard as rigorous as that for investment advisers. Lawmakers sought the uniform standard to eliminate investor confusion over the roles of brokers and advisers, and to protect customers from being overcharged or sold inappropriate products. Schapiro declined to predict when the SEC will act on the rule, which is considered optional under Dodd-Frank. The agency is "steadily working through all the mandated rulemakings," she said. Read more.

SOME EXPERTS SEE AIG BAILOUT SUCCESS AS A DOUBLE-EDGED SWORD



The Treasury Department estimated yesterday that its pending sale of shares in global insurance giant American International Group would put taxpayers in the black, four years after the government rescued the company in one of the largest bailouts of the financial crisis, according to a Washington Post report today. Officials estimated that after the sale, the Treasury and the Federal Reserve will have netted $194.7 billion from its AIG investment, about $12 billion more than the government committed in aid. The stock sale would leave Treasury with approximately 317 million shares in AIG — a 21.5 percent stake in the company, down from a high of 92 percent — and leave open the possibility for future additional profit as the government exits the company. However, some experts insist that even a largely successful bailout comes with its own set of circumstances. "It creates perverse incentives,” said Prof. William Black of the University of Missouri-Kansas City Law School. "There's an enormous danger to providing bailouts to systemically dangerous institutions and, in particular, bailing out their creditors 100 cents on the dollar." Christy Romero, the special inspector general for the government’s bailout fund, the Troubled Assets Relief Program, shares concerns that the success of the AIG bailout could lead investors to expect the government to rescue other firms whose failure could threaten the economy and thereby does not adequately discourage excessively risky practices. Read more.

ABI IN-DEPTH

LATEST CASE SUMMARY ON VOLO: IN RE KNIGHT-CELOTEX LLC (7TH CIR.)



Summarized by Attorney Karl Johnson

Affirming the district court, the Seventh Circuit held that the bankruptcy court did not abuse its discretion by finding that a trustee was not judicially estopped from assigning claims against the principal of corporate debtors due to the trustee's failure to state an intent to pursue or abandon those claims in an application to employ counsel; instead, the omission was found to be a harmless violation of the disclosure requirements of Section 327(a) and Rule 2014(a) because the claims had been prominent in prior court records and because it "defie[d] belief to think that the trustee would abandon a possible multimillion dollar recovery on behalf of the companies’ creditors without a word."

There are more than 600 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: SECOND CIRCUIT TO WEIGH IN ON TRADING OF BANKRUPTCY CLAIMS



The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines how the Second Circuit Court of Appeals recently heard arguments in a case that could have substantial implications on the trading of bankruptcy claims. While the court could choose to resolve the case, Longacre Master Fund, Ltd. v. ATS Automation Tooling Systems Inc., based on a straightforward analysis of New York contract law, it may also take the opportunity to consider the controversial claims trading case of Enron v. Springfield Associates decided several years ago by the district court for the Southern District of New York.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Bankruptcy courts should have unfettered discretion in adjusting fee applications, even when no party-in-interest has raised objections.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

HAVE YOU TUNED IN TO BLOOMBERG LAW'S VIDEO PODCASTS?



Bloomberg Law's video podcasts feature top experts speaking about current bankruptcy topics. The podcasts are available via Bloomberg Law's YouTube channel so that you can access the programs from your computer or device of your choice! Click here to view the Bloomberg Law video podcasts.

INSOL INTERNATIONAL



INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

September

- Complex Financial Restructuring Program

     September 13-14, 2012 | Las Vegas, Nev.

- Southwest Bankruptcy Conference

     September 13-15, 2012 | Las Vegas, Nev.

- 38th Annual Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization

     September 19-20, 2012 | New York, N.Y.

- "When Is an Individual Chapter 11 the Best Fit?" Live Webinar

     September 27, 2012

- American College of Bankruptcy's "Bankruptcy: Back to the Future" Program

     September 28, 2012 | Chicago, Ill.

October

- Nuts & Bolts for Young and New Practitioners - KC

     October 4, 2012 | Kansas City, Mo.

- Midwestern Bankruptcy Institute Program, Midwestern Consumer Forum

     October 5, 2012 | Kansas City, Mo.

- Bankruptcy 2012: Views from the Bench

     October 5, 2012 | Washington, D.C.

- Chicago Consumer Bankruptcy Conference

     October 8, 2012 | Chicago, Ill.

- "Trending Issues: Examiners and Select Plan Confirmation Issues" Webinar

October 15, 2012

- International Insolvency and Restructuring Symposium

     October 18, 2012 | Rome, Italy

November

- U.S./Mexico Restructuring Symposium

     November 7, 2012 | Mexico City, Mexico

- Professional Development Program

     November 9, 2012 | New York, N.Y.

- Detroit Consumer Bankruptcy Conference

     November 12, 2012 | Detroit, Mich.

- Winter Leadership Conference

     November 29 - December 1, 2012 | Tucson, Ariz.

December

- Forty-Hour Bankruptcy Mediation Training

     December 4-8, 2012 | New York, N.Y.

2013

February

- Kansas City Advanced Consumer Bankruptcy Practice Institute

     February 17-19, 2013 | Kansas City, Mo.