ANALYSIS: DETROIT FIXES LIKELY TO BE A TEMPLATE FOR OTHER CITIES
Just as the bankruptcy of Detroit is a symbol of urban decay, the effort to fix it through cost-cutting measures may set a stricter made-in-Michigan standard for the rest of the U.S., Bloomberg News reported yesterday. "Other major cities are not too far behind, and they are going to be watching," said John Mogk, a professor at Wayne State University Law School in Detroit. While Michigan has ridden the wild swings of auto-industry fortunes for more than 75 years, it has struggled to recover from the economic swoon that began in 2008. The eighth-largest U.S. state, with 9.9 million people, Michigan was the only one whose population dropped in the last decade. It lost almost 550,000 jobs as unemployment stayed above 10 percent -- reaching a high of 14.2 percent -- from December 2008 through October 2011. Bonds from Michigan issuers have lost about 4 percent this year, more than the 3.8 percent drop for the broader $3.7 trillion municipal-debt market, according to Barclays Plc data. Only 11 states have had bigger declines, the data show. Union members made up 26 percent of the workforce in 1989, according to the Bureau of Labor Statistics. The number dropped to 16.6 percent last year, including the loss of 42,000 employees. While the predecessors of Chrysler Group LLC and GM that filed for bankruptcy in 2009 and emerged last year are now profitable, they've succeeded with smaller workforces and wage contracts for new hires cut by as much as half. Read more.
For more on the situation in Detroit, be sure to listen to ABI's latest podcast and for the latest information and analysis about the Detroit case, be sure to visit http://news.abi.org/Detroit.
COMMENTARY: THE WRONG LESSON FROM DETROIT'S BANKRUPTCY
Fewer than 8 percent of American workers today are employed in manufacturing, and many Rust Belt cities are skeletons, according to a commentary in yesterday's New York Times. The distressing facts about Detroit are by now almost a cliche: 40 percent of streetlights were not working this spring, tens of thousands of buildings are abandoned, schools have closed and the population has declined 25 percent in the last decade alone. The violent crime rate last year was the highest of any big city. In 1950, when Detroit's population was 1.85 million, there were 296,000 manufacturing jobs in the city; as of 2011, with a population of just over 700,000, there were fewer than 27,000. Some critics might say that maybe Detroit and cities like it are just in the wrong location for the goods and services that 21st-century America demands. However, Detroit's demise is not simply an inevitable outcome of the market, according to the commentary. For one, the description is incomplete: Detroit's most serious problems are confined to the city limits. Elsewhere in the metropolitan area, there is ample economic activity. In suburbs like Bloomfield Hills, Mich., the median household income is more than $125,000. A 45-minute drive from Detroit is Ann Arbor, home of the University of Michigan, one of the world's pre-eminent hubs of research and knowledge production. Detroit's travails arise in part from a distinctive aspect of America's divided economy and society, according to the commentary. As sociologists Sean F. Reardon and Kendra Bischoff have pointed out, our country is becoming vastly more economically segregated. Read more.
COMMENTARY: SEIZING MORTGAGES FOR FUN AND PROFIT
The small city of Richmond, Calif., has some big ideas about seizing private property, and now it also has a big lawsuit on its hands, according to an editorial in Friday's Wall Street Journal. Last week, the Bay Area city became the first in America to say that it intends to use eminent domain to seize private mortgages whose value is higher than the current value of the homes they helped to buy. The city wants to force mortgage companies to sell loans on 624 properties, and if they refuse the city is threatening to seize the loans by brute government force. Richmond wants to refinance the loans through the taxpayer-backed Federal Housing Administration, pool them into a new security, and sell them to other private investors. Homeowners will get a free principal reduction, and the politicians will claim they eased the financial burden on borrowers. The biggest winner will be Mortgage Resolution Partners, the San Francisco-based "community advisory firm" that came up with this idea, has been pitching it around the country, and will earn a fee on the repackaged mortgages. The losers will be investors who currently own the mortgages and are unlikely to receive fair-market value from the city. If the city does pay market value, Mortgage Resolution Partners might not make a profit with its loan rebundling. Three mortgage-bond trustees sued on Aug. 7 in federal court to block the property seizure as unconstitutional. The Constitution's Fifth Amendment says eminent domain must be for "public use," but in this case the property seizure would benefit private, often out-of-state investors, according to the editorial. Read more. (Subscription required.)
ANALYSIS: IN ONE BUNDLE OF MORTGAGES, THE SUBPRIME CRISIS REVERBERATES
Hundreds of thousands of subprime borrowers are still struggling, and some of their mortgages ended up in another Goldman deal that was done at the same time that Goldman's Fabrice Tourre was working on deals that led to him being found liable for civil securities fraud, according to a New York Times analysis. In February 2007, just before everything fell apart, Goldman Sachs bundled thousands of subprime mortgages from across the country and sold them to investors. This bond became toxic as soon as it was completed. The mortgages slid into default at a speed that was staggering even for that era. Despite those losses, that bond still lives, and it has undoubtedly left its mark on ordinary borrowers. Much has changed over the last six years. Big banks like Goldman are reporting strong profits, and regulators are wrapping up cases stemming from Wall Street's recklessness. Home prices are on the rise, providing relief and encouragement for many homeowners. Indeed, subprime securities like the Goldman bond can now even be found in some mom-and-pop mutual funds -- which bought them at a discount of as much as half of their original face value. Subprime securities still pose a significant legal risk to the firms that packaged them, and they use up capital that could be deployed elsewhere in the economy. Read more.
SENATORS PUSH TO REVERSE SUPREME COURT RULING ON FARM BANKRUPTCIES
Sens. Al Franken (D-Minn.) and Chuck Grassley (R-Iowa) late last week called for a reversal of the 2012 Supreme Court decision in Hall v. United States, which the Senators say is making it harder for farm families to reorganize in the event of a bankruptcy, FarmFutures.com reported yesterday. The Hall v. United States decision reversed chapter 12 bankruptcy laws, clarified in 2005, that allowed farmers to use profits from the sale of farm assets first to pay off creditors and then pay their taxes on the asset profits to the Internal Revenue Service. However, the Court ruled in a 5-4 decision that farmers must pay taxes to the IRS at the beginning of the proceedings instead of after creditors are paid. According to Franken and Grassley, this has frequently left farmers without enough money to pay other creditors, requiring them to sell off their land and lose their farms. To address the issue, Franken and Grassley have introduced a bill titled the "Family Farmer Bankruptcy Tax Clarification Act of 2013" to nullify the court's decision and revert back to the chapter 12 bankruptcy provisions clarified in 2005, recognizing the importance of land to the farmers' livelihood. "There's no question what our intent was when we wrote the 2005 law. We simply need to ensure the plain language of the law says and does what we intended," Grassley said. Read more.
LATEST ABI PODCAST TAKES A CLOSER LOOK AT THE IMPACT OF THE AUTO INDUSTRY ON DETROIT'S CHAPTER 9 FILING
The latest ABI Podcast features ABI Executive Director Sam Gerdano speaking with Paul Ingrassia, Deputy Editor-in-Chief of Reuters News, about Detroit's chapter 9 filing and the city's long-standing dependence on the auto industry. Ingrassia, who covered Detroit and the auto industry for more than a decade for the Wall Street Journal and Dow Jones Newswires, discusses the auto industry aspect in Detroit's filing and more. Click here to listen to the podcast.
IN CASE YOU MISSED IT - abiLIVE WEBINAR DISCUSSING § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES RECORDING IS NOW AVAILABLE!
If you were not able to attend ABI's recent abiLIVE webinar examining § 1111(b), a recording of the program is now available for downloading! Utilizing a case study, ABI's panel of experts explored the issues surrounding a lender's decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel also walked attendees through the necessary mathematical analyses used to examine these issues. The 90-minute recording is available for the special price of $75 and can be purchased here.
abiLIVE WEBINAR NEXT TUESDAY: HOW WILL THE NEW U.S. TRUSTEE FEE GUIDELINES IMPACT YOU?
The new U.S. Trustee Fee Guidelines will affect all attorneys and firms who work on larger chapter 11 cases filed on or after Nov. 1. ABI's Ethics & Professional Compensation Committee will present a panel of experts, including Clifford J. White, the director of the U.S. Trustee Program, to discuss 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. Register today to hear government, attorney and academic perspectives speak on this important and timely topic.
ABI GOLF TOUR UNDERWAY; NEXT STOP IS THE SOUTHWEST BANKRUPTCY CONFERENCE NEXT WEEK
The 6th stop for the ABI Golf Tour is on Aug. 22 at the Incline Village Champion course, held in conjunction with ABI's Southwest Bankruptcy Conference. Final scoring to win the Great American Cup sponsored by Great American Group is based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. 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 Conference. There's no charge to register or participate in the Tour.
ASSOCIATES: ABI'S NUTS & BOLTS ONLINE PROGRAMS HELP YOU HONE YOUR SKILLS WHILE SAVING ON CLE!
Associates looking to sharpen their bankruptcy knowledge should take advantage of ABI's special offer of combining general, business or consumer Nuts & Bolts online programs. Each program features an outstanding faculty of judges and practitioners explaining the fundamentals of bankruptcy, offering procedures and strategies tailored for both consumer and business attorneys. Click here to get the CLE you need at a great low price!
NEW CASE SUMMARY ON VOLO: ROBERT G. WING V. BERNARD C. BUCHANAN, ET AL. (10TH CIR.)
Summarized by Brandon Bickle of GableGotwals
The Tenth Circuit reversed the summary judgment order and remanded the case. At issue was the applicable statute of limitations. The limitations period under Utah's Uniform Fraudulent Transfer Act is four years from the date of the transfer, or if later, one year after the transfer "was or could reasonably have been discovered by the claimant." The transfers occurred more than four years prior to the filing of the plaintiff's lawsuit.
There are more than 900 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: WHY USING STUDENT LOANS TO PAY OFF DEBTS IS A HORRIBLE IDEA
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post warned consumers that before paying off debts by taking out student loans, consumers should consider the wide range of consequences.
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
A class of claims should not be considered impaired for purposes of § 1129(a)(10) if the impairment results from the plan proponents' exercise of discretion (i.e., artificial impairment) and not driven by economic need. (In re Village at Camp Bowie I LP).
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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