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Household Worth in U.S. Rose by $1.5 Trillion in Fourth Quarter; Retail Sales Fell in February

 
 

March 12, 2015

 
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  NEWS AND ANALYSIS

HOUSEHOLD WORTH IN U.S. ROSE BY $1.5 TRILLION IN FOURTH QUARTER; RETAIL SALES FELL IN FEBRUARY

Household wealth in the U.S. increased from October through December by the most in a year as stock prices advanced to an all-time high at the end of 2014, Bloomberg News reported today. Net worth for households and nonprofit groups rose by $1.5 trillion in the fourth quarter, or 1.9 percent from the previous three months, to $82.9 trillion, the Federal Reserve said today in its financial accounts report, previously known as the flow of funds survey. "The recovery is broadening its reach -- it's not just hitting the upper-level of income distribution but starting to help a broader segment of the population, and that's some good news," said Dana Saporta, a U.S. economist at Credit Suisse Securities USA in New York. At the same time, "credit is flowing much better now." The value of financial assets, including stocks and pension fund holdings, held by American households increased by $1.2 trillion in the fourth quarter, according to the Fed report. Household real estate assets climbed by $265.2 billion, Thursday's data show. Owners' equity as a share of total household real estate holdings rose to 54.5 percent last quarter from 54 percent in the previous three months. Read more.

Meanwhile, U.S. retail sales fell for the third consecutive month in February as a mix of bad weather and consumer caution outweighed an improving labor market and cheap gasoline prices, the Wall Street Journal reported today. Sales at retailers and restaurants decreased 0.6 percent last month to a seasonally adjusted $437 billion, the Commerce Department said Thursday. Retail sales fell 0.8 percent in January and 0.9 percent in December. Read more. (Subscription required.)

ANOTHER BLIGHT FOR DETROIT: PROPERTY TAXES

Detroit may seize up to 52,000 Detroit properties, a fifth of all occupied homes, around the city for unpaid taxes on March 31, Bloomberg News reported yesterday. Nearly 5,000 homeowners gathered at the city's Cobo Convention Center last month trying to negotiate payment arrangements for tax balances that are eclipsing the area's depressed property values. Detroit has emerged from the largest municipal bankruptcy in U.S. history with new leadership, a downtown restocked with young professionals and a public relations slogan: "America's Great Comeback City." However, Detroit has a high poverty rate, and an economy wrecked by crime, corruption and lost manufacturing jobs. It also has the highest property tax rates of any big city, and they are pegged to assessments that are out of whack with the 48 percent plunge in home values over the past decade. "Detroit is at risk of becoming two different cities, one thriving and one continuing to decline," said Alan Mallach, a senior fellow at the Washington, D.C.-based Center for Community Progress, whose research has focused on urban blight. "What the tax auction says is that tens of thousands of people are either unable or unwilling to hold onto their properties. And can a city be viable if its property owners aren't paying the taxes that the city needs to maintain itself?" Detroit's population has shrunk from 1.85 million -- almost the size of Los Angeles, in 1950 -- to less than 700,000 today. The city's landbank already owns about 20,000 homes, plus another roughly 40,000 vacant lots, many from previous tax foreclosures. The local government demolishes blighted houses at a pace of about 200 a week. Read more.

COMMENTARY: HOW TWO JUDGES HAVE CHANGED THE PUBLIC PENSION DEBATE

The billions of dollars in pension obligations faced by cities and states across the country have politicians from many of them calling for some type of reform, according to a commentary in yesterday's Deal Pipeline. A commission appointed by New Jersey Gov. Chris Christie wants to freeze the state's current pension plan, while in California, Gov. Jerry Brown has signed a bill that increases the retirement age, among other things. In Illinois, Gov. Bruce Rauner wants to eliminate overtime in the determination of pension benefits. But now rulings by judges in Michigan and California have sparked a debate about another way to deal with pension issues, namely municipalities filing for chapter 9 protection so that they can break contracts with retirees. Bankruptcy Judges Steven Rhodes (E.D. Mich.; Detroit) and, more recently, Judge Christopher Klein (E.D. Calif.; Sacramento) both arrived at similar conclusions while adjudicating the chapter 9 filings of the city of Detroit and the city of Stockton, respectively: Municipalities can't be stopped from changing or breaking contracts by state law, even if they involve agreements with their pensioners. Forty-eight states, all but Indiana and Texas, have specific protections for pension accruals. Seven states, including Michigan, put such language in their constitutions. For now, the two decisions have limited reach, and the process of filing for bankruptcy isn't easy. But officials of cash-strapped governments can be forgiven if they see the rulings as a lifeline, according to the commentary. The two judges, at least, weren't impressed by state protections of something that involves federal law, which governs bankruptcies. Read the full commentary.

In a related commentary in yesterday's Investor's Business Daily, the California Public Employee Retirement System (CalPERS) -- the largest U.S. pension fund, created by California state law and run by an arm of the state of California -- may seem like the champion of the working man, fighting for the rights of municipal employees and pensioners. But that perception may be undeserved, per the chapter 9 bankruptcy of Stockton, Calif., where CalPERS sought to shift to taxpayers (an even larger and more sympathetic party than CalPERS) the financial burden to support what some consider CalPERS's outrageous costs. Bankruptcy Judge Christopher Klein openly opined, "CalPERS has bullied its way about in this case with an iron fist, insisting that it and the municipal pensions it services are inviolable." The result of these recent events is positive for municipal bondholders because, with Stockton and Detroit, the judges have stated that municipal pension obligations can be restructured, like other unsecured debt of the municipality. In the current environment, where municipal distress, restructuring and bankruptcy are increasingly common, some of the onerous provisions included in pension servicing agreements are finally being recognized, according to the commentary, leading to some long-overdue pressure on pension programs. Read the full commentary.

ANALYSIS: CROSS-BORDER AVIATION DEALS TAKE OFF

International airlines are increasingly buying up small stakes in other carriers, aiming to find deeper cost savings, the Wall Street Journal reported today. The scope for full-blown, cross-border mergers is limited in the airline business, with laws often prohibiting them, so a small but growing group of airlines has sought more limited deals. Carriers from Abu Dhabi-based Etihad Airways to U.S.-based Delta Air Lines Inc. have sought cost savings and higher profits through minority stakes in overseas carriers. Caps on foreign airline ownership are almost as old as the industry itself. Foreigners can own no more than 25 percent of a U.S. carrier, based on a 1938 law. In the European Union, the limit is 49 percent. Mergers are allowed for European airlines based inside the EU, as in the 2004 Dutch-French tie-up that created Air France-KLM. Read more. (Subscription required.)

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PRE-ORDER NOW: ABI'S NEWEST PUBLICATION EXAMINES ISSUES SURROUNDING LITIGATION AND LIQUIDATION TRUSTS IN BANKRUPTCY

ABI's newest publication, A Practitioner's Guide to Liquidation and Litigation Trusts, tackles issues surrounding litigation and liquidation trusts established in an insolvent company's bankruptcy proceedings. Such cases as General Motors, ASARCO, Tronox, Enron and Bernard L. Madoff Investment Securities LLC have established these types of trusts as vehicles that can be separated from the insolvent company's business operations to administer assets that have uncertain recoveries or that may require significant time to handle (such as environmental claims). A Practitioner's Guide to Liquidation and Litigation Trusts is designed to give bankruptcy and other professionals an overview of how and when trusts can be used to handle significant large-scale litigation matters and the liquidation of other assets for the purpose of accumulating recoveries and distributing them across multiple claimants. The book offers guidance on the most common issues faced in establishing, managing, monitoring and ultimately concluding a liquidation trust or litigation trust. Convenient checklists, relevant case citations and references to bankruptcy-related issues, as well as recommended forms of trust agreements and suggested provisions for bankruptcy plans and disclosure statements, are also provided in this 300-page guide (which includes a separate thumbdrive containing more than 500 sample pages from liquidation and litigation cases).

A Practitioner's Guide to Liquidation and Litigation Trusts is currently available for pre-order (make sure to log in to receive the ABI member price of $85).

NEW CASE SUMMARY ON VOLO: BANCINSURE INC. V. HIGHLAND BANK (8TH CIR.)

Summarized by Lars Fuller of BakerHostetler

The Eighth Circuit affirmed the ruling of the U.S. District Court (D. Minn.) granting summary judgment in favor of an insurer for denying coverage to a claimant. The Eighth Circuit agreed that under the doctrine of proximate cause, as a matter of law, the claimant was unable to establish that the claimant's loss was "loss caused by forgery," i.e., a covered loss, because notwithstanding the guarantor's forgery, the claimant was unable to establish any factual reliance on the guaranty in extending a loan. The claimant did not obtain the right to pursue the guarantor; the claimant pursued other remedies for collection on unpaid debt, but did not pursue the guarantors.

There are more than 1,500 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: REPORTS OF PLASTIC CREDIT CARD EXTINCTION ARE GREATLY EXAGGERATED

A recent blog post states that while mobile wallets will undoubtedly become more popular with time, plastic cards won't be easily killed off.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!

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UPCOMING EVENTS:

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  CALENDAR OF EVENTS
 

2014

March
- ABI Live Consumer Webinar: "Student Loan Update"
March 18, 2015
- Bankruptcy Battleground West
March 24, 2015 | Los Angeles, Calif.

April
- Annual Spring Meeting
April 16-19, 2015 | Washington, D.C.

May
- Credit and Bankruptcy Symposium
May 7-8, 2015 | Uncasville, Conn.
- New York City Bankruptcy Conference
May 14, 2015 | New York, N.Y.
- Forty-Hour Bankruptcy Mediation Training
May 17-21, 2015 | New York, N.Y.
- Litigation Skills Symposium
May 19-22, 2015 | Chicago, Ill.

 

 

 


June
- Central States Bankruptcy Workshop
June 11-14, 2015 | Traverse City, Mich.
- Memphis Consumer Bankruptcy Conference
June 5, 2015 | Memphis, Tenn.

July
- Beijing Insolvency & Restructuring Symposium
July 13-14, 2015 | Beijing, China
- Southeast Bankruptcy Workshop
July 23-26, 2015 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
Aug. 6-8, 2015 | Hershey, Pa.

 

 
 
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