House Approves Family Farmer Relief Act of 2019 (H.R. 2336)

The U.S. House of Representatives today passed the Family Farmer Relief Act of 2019 (H.R. 2336). ABI testified in June in support of the bipartisan and bicameral bill, and it is also supported by the American College of Bankruptcy, the American Farm Bureau and the American Farmers Union. Rep. Antonio Delgado (D-N.Y.) introduced the bill on April 18, 2019. The current debt limit for chapter 12 filings is $4.3 million. H.R. 2336 would raise this limit to $10 million. Farm size has increased substantially since 1986; meanwhile, net farm income has declined since 2013. “For more than 30 years, chapter 12 has provided a durable tool to deal with the cyclical economic challenges faced in American agriculture, roiled by fluctuating land values, swings in commodity prices, weather calamities and adverse trade policies made by government,” said ABI Executive Director Samuel J. Gerdano. “Chapter 12 has not only assisted family farmers in their efforts to successfully reorganize debts in bankruptcy court, it has perhaps more significantly provided a framework that encouraged stakeholders to reach agreement on debt restructuring outside the expense of the formal bankruptcy process.” In a letter to the House Judiciary Committee, the American Bankers Association (ABA) had urged that Congress proceed with caution on approving the increase, emphasizing the importance of having ready capital available to farmers at low interest rates. The ABA also cited the 2018 Farm Bill as having greatly strengthened the farm economy since its passage. A bipartisan companion bill is pending in the Senate.

Commentary*: I’m a Private Equity Investor. Here’s Why We Need to Rein In Private Equity

If you look at our economy from 30,000 feet, it’s easy to believe President Donald Trump’s boasts that we’re living in boom times. But if you get closer to the ground, where too many good jobs are being replaced by precarious ones, where large-scale employers waver at the brink of going under, and where the faux boom’s profits are overwhelmingly going to the wealthy, you can see a practice escalating across the economy, a practice that has already had disastrous effects on workers generally and with the potential to take down hundreds of thousands more jobs and put investors and consumers alike in jeopardy, according to a commentary in Fortune. That practice is the unchecked and reckless overuse of heavy burdens of debt, and then of bankruptcy laws, by some private-equity (PE) firms and hedge funds to the overwhelming detriment of employees and retirees. That’s why we all need to pay attention to a new bill introduced this week by Sen. Elizabeth Warren and other members of Congress that would curtail the threat financial predators pose and remove the incentives for them to further harm our economy, according to the commentary. It would also eliminate a tax abuse that Trump even campaigned he would eliminate — namely, the so-called carried-interest loophole. Though the existence of private-equity firms and hedge funds is taken for granted today, the PE boom really took off in the mid-1980s. Before Gordon Gekko and his maxim that “greed is good,” things worked differently. Private-equity investors had a specialization then that they focused on, says the commentary, and when they invested, they invested for the long term.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Commentary*: Elizabeth Warren's Private-Equity Proposal Encourages Abuses

Sen. Elizabeth Warren’s “Stop Wall Street Looting Act of 2019” is designed to curtail abuses by private equity funds. Most of the resulting commentary has focused on whether private equity is good or bad, or whether the Act would be effective. However you feel about those things, a more important point is the Act seems designed to encourage the abuses it decries, according to a Bloomberg commentary. In a typical PE deal, a fund combines the equity capital from its investors with a lot of borrowed money to buy a public company and take it private. The fund may sell some of the company’s non-core assets and restructure what’s left to create a company that in five or 10 years can be sold back to the public markets. The fund’s main reward is a percentage, often 20 percent, of the total collected from sales minus the initial equity investment. It also collects management fees from investors in the fund as well as for services provided to the company it controls. One of Warren’s main complaints is that PE firms initially sell too much of an acquired firm, leaving the surviving entity smaller and less viable. So she proposes a 100 percent tax on the fees that PE funds collect from the companies they control. It’s possible that in response, a PE fund would merely bill its investors, who are the ultimate payers in either case, but either way it creates a strong incentive for PE funds to sell more assets, and keep fewer. The PE fund will prefer to sell businesses and assets rather than incur the costs of managing them, if it cannot charge to recoup those costs. Moreover, money from sales is not confiscated. This makes any struggling company — especially one with hard-to-predict pension, litigation or regulatory problems — radioactive, according to the commentary. (Subscription required.)



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Op-Ed*: Puerto Rico’s Political Meltdown

Puerto Rico Governor Ricardo Rosselló announced late Wednesday that he’ll resign, effective Aug. 2, amid widespread protests and a text-message imbroglio. The question is whether it even matters given the general corruption of the island’s political class, according to an op-ed in the Wall Street Journal. The immediate cause for the protests was a 900-page report by the Center for Investigative Journalism last week publishing messages between Mr. Rosselló and his aides that denigrate female politicians, gays, fat people and Puerto Ricans in general. Also fueling the revolt are federal corruption charges two weeks ago against former members of his administration. The economy has been in a downward spiral since 2006, and more than 500,000 have fled. For decades high taxes and inflexible labor laws have depressed investment and incentives to work. Politicians awarded public workers even more generous compensation financed by tax hikes and government debt. By 2016 the commonwealth had amassed $74 billion in debt — more than 100% of gross national income — plus nearly $50 billion in pension obligations. Yet Mr. Rosselló has fought and flouted reform. The oversight board has slashed spending, but the governor has sued to block the board’s labor and fiscal reforms, and the First Circuit Court of Appeals heard arguments this week over its authority. The truth is that bondholders will be scalped under the board’s restructuring plan to preserve public services and retiree pensions. But the debt reductions must be paired with government reforms or nothing will change, according to the op-ed.



*The views expressed in this op-ed are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Op-Ed*: Everyone Claims They’re Worried About Global Finance, but Only One Side Has a Plan

Global finance has become a popular target from both the left and, more recently, the right, particularly the nationalist right. Renationalizing finance is a pressing task for any transformative government. But so far, only the left has any tangible plans on how finance can be brought down to earth and tamed toward more humane ends, according to a New York Times op-ed. Spin a globe, and you’ll see a colorful mosaic of states snug in their national borders. But the world of finance has long ceased to work this way. There are nearly 200 sovereign countries, but globally only a few dozen banks matter. We don’t live in a world of islands but inside what has been described as a “matrix of interlocking corporate balance sheets.” Financial institutions operate across territories with little respect for borders, wreaking havoc on the ability of countries to plan for a sustainable future. Despite recent criticism from some nationalist conservatives, the right has largely ignored the problem, according to the op-ed. President Trump tapped Goldman Sachs heavily to staff his cabinet and plans no walls for the movement of money over borders. The systematic defunding of the IRS means that even routine audits are becoming rare, let alone the investigation of taxable income held offshore. Rather than extend tax surveillance outward, the 2017 Trump tax plan slashed the corporate tax at home. Even when the problems are acknowledged by the right, the details are foggy and more time is spent targeting the “cosmopolitan elite” than offering effective, concrete solutions. By contrast, on the left, ideas are crackling. Elizabeth Warren recently announced her “economic patriotism” agenda, with financial reform at its heart. Other proposals from what The Guardian called the “new left economics” target venerable institutions of financial management. And central banks — long seen as bastions of economic orthodoxy — are being called upon to help avert an environmental catastrophe, as climate change poses imminent risks to financial stability that need to be factored in to central bank models, according to the op-ed.



*The views expressed in this op-ed are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Study Finds Just 54% of U.S. Student Loan Borrowers Make Consistent Payments

Just 54 percent of U.S. student-loan borrowers are making consistent payments, instead alternating between months of larger payments or no payment at all, according to a study from the JPMorgan Chase Institute that underscores the burden of educational expenses for millions of Americans, Crains Cleveland reported. Among borrowers who started making payments, as many as 59 percent might be making no payment at any given time, the institute said in a report released Wednesday in Washington, D.C. The payment status changes reflect income swings and show that families are less consistent paying student loans than those for cars and homes. Student-loan balances outstanding have more than doubled in the past decade to about $1.5 trillion, held by almost a fifth of the population, Federal Reserve Bank of New York data show. Though the typical family paid 5.5 percent of take-home income toward student loans in months where a payment was made, the financial burden weighs the most on young and low-income households, according to the report by institute President Diana Farrell, a former economic adviser to President Barack Obama, and fellow researchers Fiona Greig and Erica Deadman. The institute found that one in four borrowers under 25 spends 16.8 percent or more of take-home pay on student loans, while households making $50,000 or less spent 14.7 percent or more.

Analysis: Is the Future of Banking All Bitcoin and Blockchain?

At the beginning of July, news broke of Deutsche Bank staff being sent home as 18,000 job cuts began unraveling. Taking a look at what is happening in the world of banking that has led to job cuts, and concerns for the traditional way of doing things in finance, posits a question: Just how far are we from a future predicated on Bitcoin and blockchain in banking? Beyond the high-rise glass structures in the city center, there are signs of a new way of managing and controlling your money on a day-to-day basis: challenger banks, according to an analysis in Forbes. Challenger banks are defined as small, recently created retail banks that compete directly with the longer-established banks in the country, sometimes by specializing in areas underserved by the “big four” banks. These banks, also called App-banks, are usually highly customer focused and made to be as user-friendly and as easy to operate on a day-to-day basis as they can. In comparison with traditional banks, challenger banks try and play to general user frustrations from the big institutional banks. Indeed, the banking legacy and way of doing things has become so stagnant that the wants of the banks and the needs of the customers almost do not line up anymore — especially on a day-to-day basis, according to the analysis. Challenger banks could be the fresh start customers have been wanting, but, in comparison, cryptocurrencies and blockchain could be an entirely fresh system.

U.S. Retail Sales Ease Fears over Economy; Rate Cut Still Seen

U.S. retail sales increased more than expected in June, pointing to strong consumer spending, which could help to blunt some of the drag on the economy from weak business investment, Reuters reported. The report from the Commerce Department on Tuesday did not change market expectations that the Federal Reserve will cut interest rates this month for the first time in a decade. But coming on the heels of solid employment growth in June and a pick-up in underlying inflation, the signs of strong consumer spending further reduced the possibility of the U.S. central bank cutting rates by 50 basis points at its July 30-31 policy meeting, as markets had initially anticipated. Fed Chairman Jerome Powell last week told lawmakers the central bank would “act as appropriate” to protect the economy against risks stoked by a trade war between the U.S. and China, as well as slowing global growth. Retail sales increased 0.4 percent last month as households stepped up purchases of motor vehicles and a variety of other goods, including furniture and building materials. Data for May was revised slightly down to show retail sales gaining 0.4 percent instead of rising 0.5 percent as previously reported. Economists polled by Reuters had forecast retail sales edging up 0.1 percent in June. Compared to June of last year, retail sales advanced 3.4 percent.

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