A survey released on Thursday by the National League of Cities showed that America's cities are projecting a sixth straight year of revenue declines in 2012, although more financial officers feel that their municipalities are now better able to meet their fiscal needs, the Wall Street Journal reported on Friday. The survey, which included responses from 324 cities, also found that reserves are expected to fall as cities use the extra cash to weather the economic downturn. If projections hold, cities would have drawn down their reserves by nearly 50 percent since 2007. Employee and retiree health care costs and pensions were identified as having the largest negative impact on city finances, and looking ahead, underfunded pension and health care liabilities will persist as a challenge. Urban economies will also face declining or slow growth in future property taxes, given that the real estate market continues to sputter. Read more. (Subscription required.)
COMMENTARY: DESPITE LOW FED RATES, BANK BOND YIELDS ON MORTGAGE RATES CONTINUE TO INCREASE
While a 30-year mortgage with 2.8 percent interest could already exist, something in the banking system is holding it back, even though few experts agree on what that "something" is, according to a commentary today in the New York Times DealBook blog. Right now, borrowers are paying around 3.55 percent for a 30-year fixed rate mortgage that qualifies for a government guarantee of repayment. That's down from 4.1 percent a year ago, and 5.06 percent three years ago. Mortgage rates have declined as the Federal Reserve has bought trillions of dollars of bonds, a policy that aims to stimulate the economy. Last week, the Fed said that it would make new purchases, focusing on bonds backed by mortgages. While banks make mortgages, they have sold most of them into the bond market since the 2008 crisis, attaching a government guarantee of repayment in the process. The metric effectively encapsulates the size of the gain that banks make on those sales. In September 2011, banks were making mortgages with an interest rate of 4.1 percent. They were then selling those mortgages into the market via bonds that were trading with an interest rate, or yield, of 3.36 percent, according to a Bloomberg index. Bond yields have fallen a lot more than the mortgage rates banks are charging borrowers. Banks are not fully passing on the low rates in the bond market to borrowers, according to the commentary, but are instead taking bigger gains, thereby increasing the size of their cut. Read the full commentary.
REPORT: FED RESEARCHERS SAY CONSUMER DOUBT WORSENED UNEMPLOYMENT
A Federal Reserve study said that the U.S. unemployment rate would be around 7 percent instead of the current 8 to 9 percent if not for the current level of doubt among consumers about economic issues including fiscal policy, Bloomberg News reported today. "Uncertainty has pushed up the U.S. unemployment rate by between one and two percentage points since the start of the financial crisis in 2008," Sylvain Leduc and Zheng Liu, research advisers at the San Francisco Fed, wrote in a paper released today. The Federal Open Market Committee on Sept. 13 announced that it will hold interest rates at near zero until at least mid-2015 and purchase $40 billion a month in mortgage debt until the labor market improves. The unemployment rate has exceeded 8 percent for 43 months, Labor Department figures showed Sept. 7. Consumers' doubts about the economy may have put a greater drag on the economy over the past few years, compared to previous recessions, because policymakers had never run out of room to lower the federal funds rate until 2008, Leduc and Liu said. Doubt played "essentially no role" during the 1981-82 recession and its subsequent recovery, when the Fed’s benchmark interest rate was much higher, the authors’ analysis showed. Read more.
COMMENTARY: “TREASURY” MOTORS
The Obama Administration is refusing GM's stock buyback because the automaker's shares are trading at around $24 – no mere tumble from the November 2010 IPO price of $33. Selling at that point would mean that the government would lose $15 billion, according to a Wall Street Journal editorial today. GM executives are requesting that Treasury offload at least some of its 500 million shares, or 26.5 percent of the company. The company is anxious to shed its “Government Motors” stigma as well as compensation ceilings that make it difficult to recruit talent. However, GM's share price needs to hit $53 for the U.S. to break even. Read more. (Subscription required.)
ABI MEMBERS WELCOME TO ATTEND ACB'S FREE HALF-DAY "BANKRUPTCY: BACK TO THE FUTURE" PROGRAM IN SEPTEMBER
The American College of Bankruptcy invites you to attend a free half-day program on Sept. 28 in Chicago for a discussion of many of the challenging topics facing current bankruptcy and reorganization professionals. Topics to be addressed include recent decisions of the U.S. Supreme Court and Court of Appeals, important work of the Advisory Committee on Bankruptcy Rules, and developments in the field of bankruptcy ethics. The nation’s leading judges, academics and bankruptcy professionals are among the speakers for the program. While there is no cost to attend, seating is limited, so early reservation is suggested. For more information and to register, please click here.
LATEST CASE SUMMARY ON VOLO: FDIC V. AMTRUST FINANCIAL CORP. (IN RE AM TRUST FINANCIAL CORP.; 6TH CIR.)
Summarized by Tony Bisconti of Bienert, Miller & Katzman
In affirming the district court, the Sixth Circuit Court of Appeals found that language in a stipulated cease-and-desist order requiring a parent corporation to "ensure" that its subsidiary, a bank, maintain certain ratios was ambiguous, and it was also ambiguous with respect to the entity it supposedly obligated (whether it was the parent, the board of the parent or the subsidiary). The Sixth Circuit further found that based on a totality of the evidence considered, the district court did not commit error in determining that the cease-and-desist order was not intended to be a commitment of the parent corporation to maintain the capital of the subsidiary bank entitling the FDIC to payment under 11 U.S.C. §365(o).
There are more than 600 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: NINTH CIRCUIT HOLDS THAT NON-DISCHARGEABILITY ACTIONS ARE NOT SUBJECT TO ARBITRATION
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines a recent ruling by the Ninth Circuit Court of Appeals rejecting two creditors' creative contention that the debtor’s debt to them should be denied a discharge under §523 for fraud in connection with a contract containing an arbitration clause resolved through arbitration proceedings. In Matter of Eber, 2012 WL 2690744 (9th Cir. 2012), the creditors and the debtor entered into an agreement relating to the construction and operation of the debtor’s beauty salon in Las Vegas. The agreement required that all disputes arising under the agreement would be arbitrated in New York. After disputes arose, the creditors commenced an arbitration proceeding against the debtor asserting claims for breach of contract, fraud and breach of fiduciary duty.
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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