FEDS FIND RACIAL HOSTILITY, DISCRIMINATION TO BE RAMPANT INSIDE CFPB
America's newest federal agency, charged with regulating financial institutions to prevent another hostile economic downturn, is reportedly having trouble regulating hostilities and discrimination among its own employees, the Washington Times reported yesterday. Evidence gathered by congressional investigators, internal agency documents and Washington Times interviews with workers discloses scores of cases of U.S. Consumer Financial Protection Bureau employees seeking protection from racially offensive, sexist or discriminatory behavior, including: (1) a naturalized U.S. citizen with more than a decade of service with the U.S. government was called an "f'ing foreigner" by management; (2) a department was internally dubbed "the Plantation" because of the number of African Americans working in it — all supervised by white managers — without any obvious promotional track or way to get transferred; (3) white employees were twice as likely as minorities to get the most favorable personnel ratings in employee reviews; and (4) managers intimidated and retaliated against employees for voicing complaints or offering an alternative point of view — from denying vacation requests to hiring unqualified friends to supervise jobs and then asking subordinates to train them. The CFPB acknowledges its employees' complaints about a hostile working environment and says it is working with the National Treasury Employees Union — which represents CFPB employees — to settle worker protests and iron out new performance reviews, which are at the heart of many of the protests. However, current CFBP employees say that more work needs to be done. Click here to read the full article.
SEC TIGHTENS RULES ON CREDIT RATING AGENCIES, ASSET-BACKED SECURITIES
The Securities and Exchange Commission yesterday approved final rules cracking down on credit rating agencies and asset-backed securities — two areas that SEC Chairwoman Mary Jo White said were "at the center of the financial crisis," according to an article in yesterday's ThinkAdvisor. In her opening remarks at the SEC open meeting at the agency's Washington headquarters, White said that the final rules in the "two closely related areas" give investors "powerful new tools" for independently evaluating the quality of asset-backed securities and credit ratings. "ABS issuers and rating agencies will be held accountable under significant new rules governing their activities," said White, adding that the issuance of "flawed credit ratings by certain credit rating agencies was a key contributor to the financial crisis." Since 2011, SEC staffers have annually examined each of the nationally recognized statistical rating organizations (NRSROs) registered with the SEC, as required by the Dodd-Frank Act. "While the reports from these reviews have catalogued a number of improvements, they have also identified concerns that persist, including ones related to the management of conflicts of interest, internal supervisory controls, and post-employment activities of former staff of NRSROs," White said. Click here to read the full article.
EXECUTIVES TO BE HELD MORE RESPONSIBLE FOR GOING-CONCERN DISCLOSURES
Corporate managers will have to make more uniform disclosures when there is substantial doubt about their business's ability to survive, the Financial Accounting Standards Board said yesterday, according to a Wall Street Journal blog yesterday. The FASB updated U.S. accounting rules, effective by the end of 2016, to define management's responsibility for evaluating whether their business will be able to continue operating as a "going concern" and to make relevant disclosures in financial statement footnotes. Previously, there were no specific rules under U.S. Generally Accepted Accounting Principles, and disclosures were largely up to auditors. Investors, however, have grown frustrated with the lack of going-concern opinions during the financial crisis; such missing opinions, they believe, failed to warn them of impending bankruptcies. The FASB first issued a proposal at the peak of the financial crisis in 2008, but debate and revisions delayed the final standard, which didn't go up for a vote until May. Supporters of the changes have argued that corporate managers have better information about a company's ability to continue financing their operations than auditors do. Click here to read the full article.
ANALYSIS: MORTGAGE CRISIS IS ABOUT TO FLARE UP AGAIN
We are nearly eight years removed from the beginnings of the foreclosure crisis, and since it began, more than five million homes have been lost. So it would be natural to believe that the crisis has receded. Statistics point in that direction. Financial analyst CoreLogic reports that the national foreclosure rate fell to 1.7 percent in June, down from 2.5 percent a year ago. But these numbers are likely to reverse next year, with foreclosures spiking again, according to an analysis in the New Republic Sunday. A series of temporary relief measures and legacy issues from the crisis will begin to bite in 2015, causing home repossessions that could present economic headwinds. In other words, the foreclosure crisis was never solved; it was deferred. The problem comes from many different angles. Home equity lines of credit will start to feature increased payments, as borrowers must pay back principal instead of just the interest. In addition, the relief offered by the government's Home Affordable Modification Program (HAMP), which provided temporary interest rate easing to borrowers, will start running out, and interest rates will start rising about 1 percent each year. Analysts also believe that the foreclosure backlog, mostly in states that require a court ruling to foreclose, will finally unclog in the coming years, which might already be happening. Despite the mostly rosy statistics, foreclosure activity did rise 2 percent from June to July after months of reductions, a potentially troubling omen of things to come. Click here to read the full analysis.
POOR CITIES CAN GET HIGH CREDIT RATINGS
Detroit's bankruptcy case cast a cloud of doubt over other U.S. cities with large populations of poor residents, but a surprising number of them are in relatively good financial shape, the Wall Street Journal reported yesterday. In a new report, Moody's Investors Service found that 27 of the 50 poorest large cities are rated relatively high in their ability to pay back debts and manage their long-term needs. "Poverty is something that we get asked about a lot," said Moody's Thomas Compton, an analyst and co-author of the report. "What we found is that contrary to what a lot of people may think, just because there is a high poverty rate it doesn't mean that you're going to have low credit quality." Poverty can lead to paltry tax revenues and an increased need for municipal services, making debt repayment a challenge. But the cities with high poverty rates and relatively high credit ratings — Provo, Utah, and Dayton, Ohio, among them — have achieved some combination of a large and diverse tax base, strong finances, stable government and controlled costs, according to Moody's. Cities with a lot of poor people also may have a lot of rich people, and other entities may chip in to pay for the kind of costly social services associated with the poor. But although many cities manage high poverty rates effectively, Moody's noted that poverty does remain a challenge to local governments. Click here to read the full article (subscription required).
COMMENTARY: HOW WOULD THE FED RAISE RATES?
While central bankers at the Jackson Hole symposium on Friday heard a lot of talk from Federal Reserve Chair Janet Yellen about the labor market, over which central bankers have proved to have only limited influence, they heard very little about global asset inflation, over which they could have a lot of influence. Yet the Fed does not appear to be inclined to exercise such influence, according to a Wall Street Journal commentary Tuesday. Yellen said that the time is not yet right to raise short-term interest rates, which would end six years of a near-zero policy and restore something more closely resembling financial normality. Given the risks of a resulting stock market crash or political uproar, it may not happen even next year unless some crisis, internal or external to the Fed, forces Yellen's hand. Meanwhile, savers and investors will continue to be denied a proper return on their investments and multibillion-dollar pension funds will flirt with insolvency, according to the commentary. A question mostly unasked at Jackson Hole is a crucial part of today's when-will-it-happen guessing game: Exactly how will the Fed go about draining liquidity if a burst of inflation urgently presented that necessity?
Click here to read the full commentary (subscription required).
WHY PACER REMOVED ACCESS TO CASE ARCHIVES OF FIVE COURTS
PACER is most often the first stop for downloading public court records, which has led some freedom-of-information advocates to criticize the electronic service — and try to create some public archives outside of it. However, on Aug. 10, the database announced the removal of access to certain case files — and not just a handful, but entire categories of documents coming from five courts, according to a Washington Post blog Tuesday. The move affects archived files in Second, Seventh, Eleventh and Federal Circuit Courts of Appeals, as well as the U.S. Bankruptcy Court for the Central District of California. Charles Hall, a spokesperson for the Administrative Office of the U.S. Courts, said that the change was made in preparation for an overhaul of the PACER architecture, including the implementation of the next generation of the Judiciary's Case Management and Electronic Case Files System. However, as a result of the changes, the locally developed legacy case-management systems of some courts are no longer compatible with PACER, according to Hall, although he added that the dockets and documents no longer available through the system could still be obtained directly from the relevant court, and that "all open cases, as well as any new filings, will continue to be available on PACER." But that also means that it is much harder for the public to access historical records — and the lack of forewarning left some legal and technical experts reeling.
Click here to read the full article.
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NEW CASE SUMMARY ON VOLO: MERUELO V. REORGANIZED MERUELO MADDUX PROP. INC. (IN RE MERUELO MADDUX PROP. INC.; 9TH CIR.)
Summarized by Elie Herman
The Bankruptcy Appellate Panel vacated the order of the bankruptcy court for abuse of discretion in applying the "reasonableness" standard under § 502(b)(4) to a post-petition claim for administrative expense based on an unpaid severance and unpaid bonus, rather than the "actual and necessary" standard set forth in § 503(b)(1), and the BAP remanded for application of the proper standard.
There are more than 1,400 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: HOW THE MOMENTIVE RULING HAS SHAKEN UP DEBT MARKETS
A recent post discusses Tuesday's ruling in the Momentive Performance Materials Inc. case, and how it has rattled the distressed-investing world.
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.
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