NEWS AND ANALYSIS
ANALYSIS: AN IN-DEPTH LOOK AT HOW DETROIT WENT BROKE
Detroit's financial history back to the 1950s shows that its elected officials and others charged with managing its finances repeatedly failed -- or refused -- to make the tough economic and political decisions that might have saved the city from financial ruin, according to a Detroit Free Press analysis on Sunday. Faced with a huge exodus of residents, plummeting tax revenues and skyrocketing rates of home abandonment, Detroit's leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits -- saddling the city with staggering costs. The State of Michigan also bears some of the blame, as Lansing politicians reduced Detroit's state-shared revenue by 48 percent from 1998 to 2012, withholding $172 million from the city, according to state records. Decades of mismanagement added to Detroit's fiscal woes. The city notoriously bungled multiple federal aid programs and outrageously overpaid to incentivize projects such as the Chrysler Jefferson North plant. Read more.
SINCE LEHMAN'S COLLAPSE, COMPANIES MORE FORTHCOMING ON COMPLIANCE
One major change since the financial crisis is how companies have become more transparent about pending litigation and government investigations, the New York Times DealBook blog reported yesterday. And in response to greater public scrutiny, that has meant committing a lot more money and resources to comply with a host of regulatory requirements. The collapse of Lehman Brothers had little to do with how well, or poorly, the firm followed the rules. Public outrage, however, over the government's failure to oversee financial institutions has created a much tougher regulatory environment in which companies cannot afford to fall short. The Dodd-Frank Act was adopted in 2010 to address inadequate oversight and regulation of the financial markets. But many of the rules mandated by the law have yet to be adopted, as the Securities and Exchange Commission and the Commodity Futures Trading Commission are bogged down with figuring out exactly how to regulate financial products like derivatives and money market funds. Companies, surprisingly though, have not waited around to be prodded. Read more.
ABI held a media teleconference on Sept. 12 that discussed the Lehman chapter 11 filing, the lessons learned from it five years later and what the future holds for distressed large financial institutions. An audio archive of the teleconference is available here.
COMMENTARY: REGULATORS SHOULD DRAW A LINE BETWEEN FINANCE AND COMMERCE
The Federal Reserve, Congress and some of the world's largest financial institutions are about to tackle the existential issue of what a bank is, according to a commentary in today's Wall Street Journal. The narrow version of the debate, according to the commentary, is whether JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley should continue to own, store and transport commodities such as oil, copper and electricity. But its ramifications reach into a cornerstone of modern U.S. financial architecture: the separation of finance and commerce. Decisions made in the coming weeks should determine the boundaries of what banks can and can't do, as well as affect other participants in the economy ranging from brewers to Coke drinkers. Read more. (Subscription required.)
ANALYSIS: A TOXIC SUBPRIME MORTGAGE BOND'S LEGACY LIVES ON
Composed entirely of loans made by Countrywide Financial Corp., subprime mortgage bond "CWABS 2006-7" was so battered by delinquencies in 2009 that it appeared that nearly all of the thousands of mortgages held by the bond could default, according to an analysis in Friday's Wall Street Journal. Subprime bond CWABS 2006-7 began as a bundle of nearly 6,000 mortgages in 2006, but by 2013, fewer than a third remained. One might think that today, such a relic of misbegotten lending would be as dead as orbiting space junk. Instead, CWABS 2006-7 is alive and well, a sought-after asset that has made big profits for savvy investors. A senior slice of it now trades at 91 cents on the dollar, having come nearly all the way back. That has been a boon for firms such as bond giant Pimco, whose stake in the Countrywide bond has helped make one of Pimco's funds a top performer in its category. At the same time, the bond has affected the lives of struggling Florida homeowners; some are unable to make their payments, and others determinedly continue to do so at above-market mortgage rates. Read more. (Subscription required.)
ABILIVE WEBINAR ON SEPT. 24 TO EXAMINE THE COMPLEX REQUIREMENTS AND ETHICAL DUTIES OF REPRESENTING CONSUMER DEBTORS
The abiLIVE webinar on Sept. 24 will feature a panel of experts discussing the ethical and compensation issues that can arise while representing chapter 7 and 13 debtors as well as individual chapter 11 debtors. Topics covered include client fraud and an attorney's duty to verify client information, attorney fee structures, and complex issues in individual chapter 11 cases. The panel includes perspectives from the attorneys and trustees, as well as the academic reporter for the ABI Ethics Task Force. Click here to register.
NEW ABILIVE WEBINAR OCT. 3: THE INTERSECTION OF INTELLECTUAL PROPERTY AND BANKRUPTCY: KODAK, NORTEL AND OTHER CASES
IP experts will shed light on the mysteries of understanding IP law and navigating the often puzzling sales processes, drawing from their experiences in Nortel, Kodak and other important cases, in an abiLIVE webinar on Oct. 3 from 1:00-2:15 p.m. ET. Speakers will include David Berten (Global IP Law Group, LLC; Chicago), Pauline K. Morgan (Young Conaway Stargatt & Taylor, LLP; Wilmington, Del.), Cassandra M. Porter (Lowenstein Sandler LLP; Roseland, N.J.), Kelly Beaudin Stapleton (Alvarez & Marsal; New York) and Christopher Burton Wick (Hahn Loeser & Parks LLP; Cleveland). To register, click here.
RECORDING AVAILABLE OF THE ABILIVE WEBINAR EXAMINING THE NEW U.S. TRUSTEE FEE GUIDELINES!
If you were not able to join ABI's recent well-attended abiLIVE webinar examining the U.S. Trustee Fee Guidelines for chapter 11 cases filed on or after Nov. 1, a recording of the program is now available for downloading! A panel of experts, including Clifford J. White, the director of the U.S. Trustee Program, discussed some of the ways the new guidelines could change day-to-day operations in firms, issues relating to the new market rate benchmarks, and how these changes might alter insolvency practice. The 90-minute recording is available for the special ABI member price of $75 and can be purchased here.
ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER
The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup sponsored by Great American Group is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.
ABI IN-DEPTH
NEW CASE SUMMARY ON VOLO: MORRIS AVIATION LLC V. DIAMOND AIRCRAFT INDUSTRIES INC. (6TH CIR.)
Summarized by Mike Debbeler of Graydon Head & Ritchey LLP
The Sixth Circuit ruled that the airplane manufacturer's opinion of the "quality and reliability" of components was not a fraudulent or negligent misrepresentation where the component manufacturer filed bankruptcy and voided warranties on components shortly after plaintiff purchased the airplane from the manufacturer. The airplane manufacturer's mere opinion as to component manufacturer's financial health did not form the basis of a misrepresentation claim.
There are more than 1,000 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: FURTHER ANALYSIS OF JPMORGAN'S SETTLEMENT OVER "LONDON WHALE" LOSSES
The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post explores JPMorgan Chase's $750 million to $800 million settlement with U.S. and U.K. regulators related to last year's $6 billion "London Whale" trading loss.
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
Success fees for financial advisors should be prohibited.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
INSOL INTERNATIONAL
INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 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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