Last year, when House Republicans pushed the government to the point of default by threatening to block raising the debt limit, there was a lot of frantic talk about using the Constitution as an escape hatch. Because the 14th Amendment prohibits any action that raises doubt about the public debt, the theory went, President Obama could declare the ceiling unconstitutional and simply ignore the House's threat. The idea was endorsed by Bill Clinton and several economic scholars, but it never really caught on among elected Democrats. President Obama expressed skepticism about it, and Democratic leaders decided not to push it. But now that Speaker John Boehner is promising a rerun of the whole fiasco within the next year, the Constitutional option is starting to have a little more appeal, according to a commentary in today's New York Times DealBlog. House Democratic Leader Nancy Pelosi yesterday urged the president to use the 14th Amendment to protect the nation's credit from another extortion attempt. "You cannot put the country through the uncertainty" again, she said. Pelosi's statement is an encouraging sign that Democrats may take a very different approach when Boehner reloads later this year or early next year, whenever the current debt limit is reached. Led by Mr. Obama at his most naïve, according to the commentary, the Democratic reaction to last year's extortion was to negotiate, to seek a grand bargain that inevitably disintegrated when Republicans refused to raise taxes on the rich. What they got instead was a brutal sequester of military and domestic spendingan outcome loathed by virtually everyone in Washingtonthat threatens to derail the economy when it is implemented next January. If other Democrats begin pushing the idea that the debt limit is unconstitutional, according to the commentary, it might stiffen the president's spine to use the option, particularly now that Republicans have stated they will never again raise the limit without getting huge spending cuts in return. Click here to read the full commentary.
COMMENTARY: CONGRESS NEEDS TO CRACK DOWN ON DEBIT CARDS ON CAMPUS
Given the history of shady dealings between banks and colleges, Congress needs to take a hard look at the increasingly common practice of schools contracting with banks to disburse financial aid dollars to students, according to a commentary in Tuesday's New York Times. In 2008, Congress finally barred student lenders from offering schools kickbacks to steer student business their way. The next year, it required credit card companies marketing to young peopleand often paying schools or alumni associations for accessto ensure that applicants had the means to pay before issuing cards. Debit cards have received less federal oversight. In addition, according to a study by the United States Public Interest Research Group Education Fund, an advocacy organization, nearly 900 colleges and universities have card relationships with banks or other financial institutions, some of which manage student aid disbursements by turning student IDs into debit cards. Lawmakers are now pressing for answers about these practices. Citing the study, Sen. Richard Durbin (D-Ill.), along with Sen. Jack Reed (D-R.I.) and Rep. Peter Welch (D-Vt.), sent letters to 15 financial institutions asking each to provide information on campus card fees. Durbin and Rep. George Miller (D-Calif.) have also asked the inspector general of the Department of Education to determine whether the arrangements hurt students or violate federal regulations, and criticized the banks for what they described as "aggressive and misleading marketing" to students and for charging hidden fees that could lead students to quickly deplete their aid accounts. The study says that some of the banking arrangements might well benefit students, but it decries a lack of transparency in the contracts between colleges and the banks. If the colleges can't or won't protect students, according to the commentary, the regulators and Congress will have to, once again, step in. Click here to read the full commentary.
WEAK JOB MARKET WEIGHS ON U.S. ECONOMY, SHOWS LITTLE SIGN OF IMPROVING
The sluggish job market is weighing on the U.S. economy three years after the Great Recession ended, and it doesn't look to be getting much better any time soon, the Associated Press reported today. A measure of the number of people applying for unemployment benefits over the past month is at a six-month high, the government said today. The increase suggests that layoffs are rising and that June will be another tepid month for hiring. Sales of previously occupied homes fell in May, and manufacturing activity in the Philadelphia region contracted for the second straight month in June. The gloomy economic data echoed a more pessimistic outlook from the Federal Reserve Wednesday, and stocks fell sharply after the reports were released. "It appears the slow-growth expansion will be slower," said John Silvia, chief economist at Wells Fargo Securities. The bad news comes a day after the Fed downgraded its outlook for growth and took another step to try and jolt the economy. Click here to read the full article.
CLAIMS FOR U.S. JOBLESS BENEFITS DECLINE SLIGHTLY
The number of Americans filing new claims for unemployment benefits was little changed last week, according to government data on Thursday, suggesting that the labor market is still struggling, Reuters reported today. Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 387,000, the Labor Department said. The prior week's figure was revised up to 389,000 from the previously reported 386,000. The four-week moving average for new claims, considered a better measure of labor market trends, increased 3,500 to 386,250the highest level since early December. "This confirms the weak labor market we have," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, N.C. Much of the recent weakness in the labor market has been caused by a decline in hiring, rather than increased layoffs. Click here to read the full article.
WEBINAR NEXT WEEK WILL EXAMINE SUPREME COURT'S RULING IN THE RADLAX CASE
Having already examined the oral argument in a previous ABI media teleconference, panelists will reconvene for an ABI and West LegalEd Center webinar on June 26 to discuss the Supreme Court's ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank. CLE credit will be available for the webinar, which will be held from 2:00-3:30 p.m. ET.
Experts on the program include:
• Adam A. Lewis of Morrison Foerster, lead counsel for Amalgamated Bank before the Court.
• David Neff of Perkins Coie LLP (Chicago), the counsel of record for petitioner RadLAX Gateway Hotel LLC and participant in the argument.
• Jason S. Brookner of Andrews Kurth LLP (New York), whose article was cited in the brief for the respondent.
• Prof. Charles Tabb, the Alice Curtis Campbell Professor of Law at the University of Illinois College of Law, who recently published a paper titled "Credit Bidding, Security, and the Obsolescence of Chapter 11."
ABI Resident Scholar David Epstein will be the moderator for the webinar.
The webinar costs $115 and purchase provides online access for 180 days. If you are purchasing a live webcast, you will receive complimentary access to the on-demand version for 180 days once it becomes available. Click here for more information.
LATEST CASE SUMMARY ON VOLO: HALO WIRELESS INC. V. ALENCO COMMUNICATIONS INC. (IN RE HALO WIRELESS) (5TH CIR.)
Summarized by Kevin M. Baum of Katten Muchin Rosenman LLP
Affirming the bankruptcy court, the Fifth Circuit held that the governmental police or regulatory power exception to the automatic stay provided in § 362(b)(4) of the Bankruptcy Code applied to numerous pending proceedings that private telephone companies (the "Private Plaintiffs") had brought against Halo Wireless Inc. (the "debtor") in various state public utility commissions (the "PUC Proceedings"). The two main issues on appeal were whether (1) the PUC Proceedings were being "continued by" a governmental unit, and (2) those proceedings were in furtherance of the states' police and regulatory powers. The Fifth Circuit found that "the PUC [Proceedings] [met] the first requirement of the exception to the automatic stay, because they [were] being continued by governmental units" as part of a state regulatory proceeding, without regard to who initially filed the complaint. As to the second issue, the Fifth Circuit found that the PUC Proceedings were in furtherance of the states' police and regulatory powers under both (1) the pecuniary interest test, which asks whether the government primarily seeks to protect a pecuniary governmental interest in the debtor's property, as opposed to protecting the public safety and health, and (2) the public policy test, which asks whether the government is effectuating public policy rather than adjudicating private rights.
More than 500 appellate opinions are summarized on Volo typically 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: FUTURE BRIGHT FOR COMMUNITY BANKS
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post takes a positive look at the future of community banks, citing consumer concerns over big banks' risky practices and increased regulation.
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 The full-payment rule in section 1325's "hanging paragraph" for new car PMSIs should be repealed to level the playing field between car lenders and other partially and fully unsecured creditors.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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ABI'S Webinar to Discuss the Supreme Court's Forthcoming Ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank
June 26, 2012 Register Today!