Commentary: The New Plan to Bail Out “Too-Big-to-Fail” Banks

Regulators want to prevent taxpayers from having to ever again bail out big banks. The latest idea: make the banks bail themselves out, according to a Wall Street Journal commentary yesterday. Previously, banks had struggled to persuade regulators that they had a plan — called a “living will” — that would allow them to be dismantled and shut down if they got into trouble without taxpayers taking a hit. Now, banks are creating new structures that would allow their most important parts to keep functioning, even if the parent company has to file for bankruptcy. The aim is to avoid the kind of market chaos that could cause economic harm. To this end, there was a small structural change in the public portions of living wills released last week by the biggest U.S. banks. This involved the creation of a holding company to sit between the shareholder-owned parent company and its subsidiaries. The new companies will house resources meant to support banking and brokerage units in times of crisis. JPMorgan Chase & Co. said it had created a new entity to fill this role, while Bank of America Corp. is using an existing subsidiary. Citigroup Inc. said that it has similar plans.

Foreclosure Inventory Drops to Less Than 1 Percent Nationally

Foreclosure inventory in August declined significantly from last year, hitting its lowest point since the housing boom, according to the August 2016 National Foreclosure Report from CoreLogic, a property information, analytics and data-enabled solutions provider, HousingWire.com reported yesterday. Foreclosure inventory decreased 29.6 percent while completed foreclosures decreased 42.4 percent to 37,000, down from last year’s 64,000, according to the report. This is down slightly from last month’s 38,000 completed foreclosures. The decreased inventory is 69 percent less than its peak of 118,551 in September 2010. In August, the national foreclosure inventory hit 351,000, or 0.9 percent of all homes with a mortgage. This is down from 499,000, or 1.3 percent, in August 2015. This inventory is the lowest it’s been since July 2007.

Commentary: The Fix for America’s Student Loan Mess

As student debt swelled to $1.4 trillion in recent years while wages remained flat, millions of borrowers signed up for government plans allowing them to repay based on their earnings rather than what they owe, according to a Bloomberg News commentary yesterday. To enroll in income-driven plans, borrowers have to share their most recent earnings information with loan companies — such as Navient — working under contract for the U.S. Department of Education. Little more than a few recent pay stubs or a copy of their most recent tax return are required before borrowers can enjoy a year’s worth of payments indexed to their income. But getting enrolled is tough, thanks to slow application processing by loan companies, random rejections, and frequently lost paperwork, according to an August report by Seth Frotman, the U.S. Consumer Financial Protection Bureau’s student loan ombudsman. Compounding those issues is the fact that borrowers have to navigate the process every year, according to the commentary, since the government requires annual re-certifications. Fortunately for borrowers, there’s an easy fix — one that President Barack Obama embraced in March of last year and that the Treasury and Education Departments said “can and should be developed,” according to the commentary. It calls for the government to create an electronic system that would allow borrowers to give the Internal Revenue Service (IRS) permission to automatically share for several years a portion of their tax returns with the Education Department’s loan contractors. If such a system existed, there would be no need for annual paperwork nightmares that afflict hundreds of thousands of Americans. However, the IRS says that it doesn’t have enough money to create such a system, according to the Obama administration. Privacy issues are also probably hampering automatic disclosure of tax information. The frustration with such an easy fix being just out of reach has managed to bring together once-sworn enemies. A coalition of labor organizations, consumer advocacy groups and loan servicers seeks to pressure the White House to implement what Ben Miller, senior director for post-secondary education at the Center for American Progress, described as a “no-brainer.”

California Cities Seek Record Tax Increases as Boom Passes By

From Yreka, near the Oregon border, to El Centro, just north of Mexico, more than 80 local California governments are asking voters next month to approve sales-tax increases, Bloomberg News reported today. While some aim to boost spending on roads or other projects, most measures would just provide extra cash. In Ridgecrest, Fairfax, and Fountain Valley, officials say that the revenue would eliminate budget deficits or prevent cuts to police and fire departments. The governments’ revenues aren’t keeping up with rising expenses, including for employee pensions, despite the thriving technology industry, home-price gains and rapid economic growth in much of the state. That’s due in part to the landmark property-tax limits California voters approved almost four decades ago that have prevented municipalities from reaping windfalls as the housing market rebounded from last decade’s crash. “Like a lot of mid-sized communities in California, we are struggling with staffing our essential services," said Brent Weaver, vice mayor of Redding, which is seeking an increase in the sales tax so it can hire more police. "We have been really struggling the last several years trying to grow our economy." The proposals are timed to coincide with the presidential election, which will increase voter turnout in a state divided between the Democrat-heavy coast and the less-populous Republican interior. On Nov. 8, Californians will decide 427 local measures authorizing taxes and bond issues, almost twice the 240 on ballots four years ago, according to a report by Michael Coleman, the fiscal policy adviser for the League of California Cities.

Commentary: The Consequences of the D.C. Circuit's CFPB Smackdown

On its face, Tuesday’s federal appeals court decision curtailing the authority of the Consumer Financial Protection Bureau director was a blow to an agency that had become a jewel of the Dodd-Frank financial reform law, according to a National Law Journal commentary yesterday. The U.S. Court of Appeals for the D.C. Circuit that found too much power — with too little oversight — was vested in the agency’s director, a ruling that will provide fodder to Republicans who have long wanted to erase the agency itself from Washington’s regulatory landscape. But the court’s tailored decision, with what it called a “targeted remedy,” could limit any aftershock for future enforcement. Importantly, the CFPB remains independent as to its single director structure or its budget; the court did not dictate, for example, that the agency be subject to the annual appropriations process like other agencies. Indeed, the appeals court was insistent that the agency “will continue to operate and perform its many duties.” However, the D.C. Circuit’s decision could entice past targets of the agency to challenge the enforcement actions, according to the commentary. Companies might struggle on that front, however, because many enforcement actions are taken through consent orders. And revisiting past enforcement actions could also exacerbate reputational damage or further strain relations with the agency.

Trump's Casino Experience Demonstrates Job and Revenue Losses, According to Legal Scholar on Latest ABI Podcast

ABI Executive Director Sam Gerdano talks with Prof. Jonathan C. Lipson of the James E. Beasley School of Law at Temple University about Lipson's paper, "Making America Worse: Jobs and Money at Trump Casinos, 1997-2010." Lipson discusses his findings, which revealed that Atlantic City casinos owned or controlled by Donald Trump between 1997-2010 (the Taj Mahal, Marina, and Plaza) lost far more jobs and revenue than other Atlantic City casinos. 

Redesigned "Eye on Bankruptcy" Site Allows You to Binge-Watch Past Episodes, Register for the Upcoming Live Program!

Visit the re-designed “Eye on Bankruptcy” website to watch experts providing analysis of the latest case developments in each episode. Currently containing an archive of 18 episodes, the Eye on Bankruptcy online series is produced monthly by Bloomberg Law and ABI. Recorded at ABI’s studios in Alexandria, Va., each new episode is aired on the last Thursday of each month and provides commentary by top practitioners, academics and judges. Elevate your understanding, and keep your Eye on Bankruptcy. Click here to watch, or register for the next episode!

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