BARNEY FRANK RESPONDS TO GOP'S CRITICISM OF DODD-FRANK
Retired congressman Barney Frank, former chairman of the U.S. House Financial Services Committee, returned to Washington yesterday to defend 2010's regulatory overhaul, the Dodd-Frank Act that bears his name, following a report released this week by House Republicans criticizing the law, Bloomberg News reported yesterday. The hearing split along partisan lines in support of and in opposition to the wide-ranging law, which was passed in response to the 2008 financial crisis. Frank largely defended the law while endorsing some changes. He said that the Volcker Rule, which limits risky trading by banks, could be limited to larger institutions. Asset managers, he said, shouldn't be designated as systemically important, which would subject them to additional oversight by the Federal Reserve. Republicans on the panel countered that the law created a regulatory burden that has stunted lending and job growth. "Thanks to Dodd-Frank, it is now harder for low- and moderate-income Americans to buy a home," said current Committee Chairman Jeb Hensarling (R-Texas). Frank replied that Republicans' calls for more lending run counter to their past complaints of too much lending to lower-income borrowers. The hearing follows a report, released July 21 by House Republicans on the four-year anniversary of the Dodd-Frank Act, that concluded that the law actually strengthened the perception that some banks are too big to be allowed by the government to fail. Frank dismissed this notion, however, stating that "[t]he Dodd-Frank Act is clear: Not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it." Click here to read the full article.
ANALYSIS: THE LINGERING, HIDDEN COSTS OF THE BANK BAILOUTS
The rescue of incumbent investors in the government bailout of the largest U.S. banks in the autumn of 2008 has been widely viewed as unfair for the way it applied different rules to different players. The use of the Troubled Asset Relief Program has been credited by the Federal Reserve and Treasury with preventing a financial collapse of the economy. The rescue, however, had a hidden cost for the economy that is difficult to quantify, but can be crippling, according to an analysis in yesterday's Wall Street Journal. New economic activity is hobbled if it is not freed from the burden of sharing its return with investors who bore risks that failed. The demand for new economic activity is enlarged when its return does not have to be shared with former claimants protected from the consequences of their risk-taking. This is the function of bankruptcy in an economic system organized on loss as well as profit principles of motivation, according to the analysis. Financial failure and the restructuring of assets and liabilities motivates new capital to flow directly into new enterprise activity at the cutting edge of technology — the source of new products, output and employment that in turn provide new growth and recovery. However, with only two balance-sheet crises in the U.S. in the past 80 years, 1929-33 and 2007-09, we have little experience against which to test alternative policies and economic responses. Click here to read the full analysis.
ANALYSIS: WILL DETROIT BE ABLE TO PAY ITS BILLS AFTER BANKRUPTCY?
Detroit is known by its most unwelcome attributes: Along with one of the highest murder and violent crime rates in the country, it currently is known as the most populous U.S. city to ever seek bankruptcy protection. But can it also enjoy the biggest recovery? According to an analysis in today's mlive.com, so much is still up in the air that it's not clear whether Detroit will be positioned to succeed a year from now. Does the city generate enough money to fix what ails Detroit if billions in debt are cut? Are the city's costs too high? Does it pay its workers too much? Are pensions too generous? Can the city endure a reduction in both spending and revenue and revive what is by most measures the most dysfunctional large city in America? At first blush, Detroit doesn't suffer from a revenue problem. It can count tax sources that most Michigan cities cannot (casino, utility and income taxes), and it gets the largest chunk of the state's revenue sharing. Its general fund (excluding money raised and spent by the water and sewerage department) generated nearly $1.7 billion in taxes and other revenues in 2011. At $2,346 generated per city resident, that's 42 percent higher than the median ($1,650) of the country's largest cities, according to a report last year by the Pew Charitable Trusts. Yet in documents filed with the bankruptcy court, Emergency Manager Kevyn Orr's experts have forecast that property tax revenues, which were $163.7 million in 2009, will fall below $100 million in 2017 and continue to fall until 2020. Utility taxes are also falling. Those (mostly downward) fluctuating revenue streams are what makes the city's fiscal future hard to predict. Click here to read the full analysis.
HISTORICALLY BLACK COLLEGES FACE UNCERTAIN FUTURE
For generations, historically black colleges and universities have played a key role in educating young African-Americans. However, facing often-steep declines in enrollment, these schools are struggling to survive, the Associated Press reported Tuesday. Over the last 20 years, five historically black colleges and universities — or HBCUs — have shut down, and about a dozen have dealt with accreditation issues. South Carolina State University, that state's only public historically black higher education institution, had its accreditation placed on probation last month after the school was cited for financial problems. Morris Brown College, a 133-year-old private institution in Atlanta, filed for bankruptcy in August 2012 and has received court approval to sell some of its property. Last year, North Carolina elected officials flirted with the idea of merging Elizabeth City State University, a public historically black college, with another institution after its enrollment had dropped by 900 students in three years. Historically black colleges were once the only option for most black students, who made up almost 100 percent of their enrollment in 1950. Now that black students have a much wider choice of schools, only 11 percent of African-American college students choose a historically black college or university. Click here to read the full analysis. (Free subscription required.)
GENERATION GAP HITTING GOLF INDUSTRY HARD
A drop in participation rates and disinterest among young people, particularly millennials, has sent both the retail and sporting ends of the golfing industry scrambling for a new business strategy, the Wall Street Journal reported yesterday. For the fifth year, overall participation in golf fell in 2014 as measured by the number of U.S. individuals who reported playing on a course at least once, according to Sports & Fitness Industry Association data. "It's slow, takes a long time to play; it's expensive," said Matt Powell, a SportsOneSource analyst. "As a sport, it doesn't reflect the kind of values millennials like — diversity, inclusion. Golf tends to not be those things." The drop-off in tee times has been taking a toll. On Wednesday, a bankruptcy judge approved the liquidation of Edwin Watts Golf Shops, a chain founded 46 years ago in Fort Walton Beach, Fla., that filed for chapter 11 bankruptcy protection in November. It blamed a decline in golf's popularity leading to slowing sales in the $5 billion U.S. golf-retail industry, as well as several "lackluster" product launches. Click here to read the full article.
NEW HOME SALES DECLINE IN JUNE
Sales of newly constructed homes fell by 8.1 percent (seasonally adjusted) in June compared to the prior month, and May's reported massive sales jump disintegrated due to revised numbers, Forbes reported today. Compared to June of last year, new home sales were down 11.5 percent, according to today's U.S. Commerce Department report. May's downwardly revised numbers — to an annualized rate of 442,000 from the initial 504,000 — mean that the reported 18.6 percent surge in new home sales was an overstatement. The housing recovery continues to be mixed: Prices continue to rise, helping underwater homeowners, but the pace of gains is slowing. Inventory is up, but we are still not back to the six-month supply that is considered a healthy market. Earlier this week, the National Association of Realtors released data showing that sales of existing (or previously owned) homes rose 2.6 percent in June. However, housing starts dropped by 9.3 percent that month. Housing economists point out that underlying economic factors — below-average growth in median household income, labor force participation, bank lending and household formation — may be stalling the housing recovery. Click here to read the full article.
NEW CASE SUMMARY ON VOLO: STUART V. MENDENHALL (IN RE MENDENHALL, 6TH CIR.)
Summarized by Kathleen DiSanto of Jennis & Bowen, P.L.
The Eleventh Circuit held that (1) the bankruptcy court did not abuse its discretion in interpreting its order granting a 60-day extension of the Rule 4007(c) deadline to file a complaint to determine the dischargeability of debt to mean that the extension ran from the date of the original deadline under Rule 4007(c); (2) the bankruptcy court properly denied Stan Stuart's untimely motion for extension of the Rule 4007(c) deadline because the bankruptcy court had no discretion to retroactively extend the deadline to file a complaint under § 523 of the Bankruptcy Code after it expired, as a bankruptcy court may only enlarge the time for filing a complaint to determine dischargeability if a motion for extension is filed before the time expires; and (3) the bankruptcy court's interpretation of its order did not violate Stan Stuart's constitutional rights.
There are more than 1,300 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: BANKS MIGHT NOT BE PREPARED FOR THE NEXT RECESSION
A recent blog post posits that the next downturn might pose different problems that the Federal Reserve's stress tests might not be designed to detect.
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