Justice Department Files Statement of Interest in New Asbestos Trust Proposal

The Department of Justice today filed a Statement of Interest in In re Kaiser Gypsum Co. in the U.S. Bankruptcy Court for the Western District of North Carolina. In the case, Kaiser Gypsum Company and Hanson Permanente Cement Inc. propose the establishment of a new asbestos trust under 11 U.S.C. § 524(g), a section of the Bankruptcy Code that provides the framework for responding to the unique issues associated with asbestos liability. “In recent years, alarming evidence has emerged of fraud and mismanagement inside asbestos trusts,” said Acting Associate Attorney General Jesse Panuccio. “Asbestos victims should feel certain that they will receive compensation when they are promised it, but fraudulent claims and mismanagement call that promise into question. In addition, the U.S. and all who depend on Medicare are harmed when Medicare is not reimbursed for treatment costs that have been paid by trust funds. With today’s Statement of Interest, the Department sends a clear message that we will not tolerate fraudulent conduct that cheats asbestos victims and the U.S." Since 1994, more than 60 such trusts have been established by chapter 11 debtors with asbestos-related liabilities. According to the Government Accountability Office, asbestos bankruptcy trusts paid $17.5 billion from 1988 through 2011, and more recent studies estimate higher amounts. Read DOJ's Statement of Interest.

Commentary: Decade After Repos Hastened Lehman’s Fall, the Coast Isn’t Clear

Though the collapse of Lehman Brothers Holdings Inc. showed how crucial short-term funding markets are to the financial system, potential dangers still loom in those markets ten years later, according to a Bloomberg News commentary. There’s no doubt that the Federal Reserve has slashed risk in the repurchase-agreement industry by prodding participants and working with global regulators to strengthen the banking sector, according to the editorial. The events of 2008 showed why the efforts were needed: Panic in repos, which grease the wheels of debt-trading and are a key tool for overnight financing, helped speed up the demise of Lehman and Bear Stearns Cos. in the span of six months. The threat of cascading failures has now diminished after clearing banks stopped extending intraday credit to repo dealers, which at the height of the crisis left them exposed to as much as $1 trillion worth of funding. The market is also more transparent and smaller in scale. Yet a key systemic risk still worries Fed and industry observers: The potential that a party may abruptly dump repo collateral in a so-called fire sale should another large firm go under. And there are new wrinkles to worry about: The regulatory burdens on banks have reduced activity and left only one firm in the business of clearing deals. “There have been a lot of things done that have added to the industry’s safety and soundness,” said Murray Pozmanter, head of clearing agency services at the Depository Trust & Clearing Corp., which settles the bulk of debt-trading. “But there’s definitely still a lot to do and I’d say we are mid-journey.” Read the full commentary.
*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.

Be sure to tap into the American Enterprise's "Conference on the 10th Anniversary of the 2008 Financial Crisis" tomorrow. House Financial Services Committee Chair Jeb Hensarling (R-Texas) will be providing the keynote remarks. Watch the conference online tomorrow via this link.

During the 2018 Annual Spring Meeting, ABI hosted a "Too Big To Fail: 10 Years Later" Symposium, which featured thought leaders from academia and the bench, as well as representatives from U.S. and European governmental agencies and private organizations. Panels took a look back at the aftermath of the 2007-08 financial crisis, and evaluated the regulatory and market efforts since made to improve the resolution process for large financial firms. To view the materials from the Symposium, please click below: 

- Resolution of Systemically Important Financial Institutions (SIFIs).

- Safe-Harbored Financial Contracts.

- Symposium Faculty.

Florence Could Mean $170 Billion of Property Damage, CoreLogic Says

As Hurricane Florence bears down on the southeastern U.S., an estimate from real estate data provider CoreLogic said that nearly 759,000 homes are in the storm’s path, and a worst-case rebuilding scenario could cost more than $170 billion, MarketWatch.com reported. CoreLogic calculated the reconstruction cost value, which is the total expense of completely rebuilding a property in case of 100 percent destruction, for 12 metro areas in the Carolinas and Virginia.

Puerto Rico Looks to Boost Economy Through Crypto, Cannabis, and Other Small, Transformational Businesses

As Puerto Rico struggles to rebuild an economy battered by the September 2017 storm and a decade-long recession, Governor Ricardo Rosselló is putting government resources behind financial technology, medical marijuana and movie production, among other propositions, Bloomberg Businessweek reported. His initiatives resemble a venture capital portfolio in which many small bets are placed on risky but potentially transformational businesses in hopes of chancing upon the next Facebook or Google. “We want to put some of our biggest bets in some of these areas and direct incentives toward what has the greatest return,” Rosselló said in an interview on Aug. 17 in San Juan. An influx of federal aid is expected to buoy growth to 4 percent this year, but projections by the governor’s office show it falling off sharply thereafter. That’s why Rosselló is scrambling to create new lures for investors. In July, he joined timeshare mogul Keith St. Clair at a ground-breaking ceremony for a $70 million film studio.

CFPB Acting Director Mulvaney Concerned About the 'Moral' Consequences of Failing to Pay Back Student Loans

Mick Mulvaney, acting director of the Consumer Financial Protection Bureau, said yesterday that he's worried about the impact that rising student loan debt could have on the U.S., CNBC.com reported. Mulvaney, also President Donald Trump's budget chief, added that there appears to be a "disconnect" among many college students when it comes to the "making of a loan" and "repaying of a loan." According to data from the Federal Reserve Bank of New York, outstanding education debt in the U.S. has tripled over the last decade and now exceeds $1.5 trillion. "If we teach an entire generation of people that the first major loan they take out, they don't have to pay back, I'm worried about the long-term impact of that," added Mulvaney. Seth Frotman, the CFPB's former top student loan official, accused Mulvaney in an August resignation letter of favoring "powerful financial companies" over consumers. Frotman said that Mulvaney's team suppressed the publication of a report drawing attention to questionable fees charged on college students' bank accounts.

Local Governments Look to Buy Dying Malls Loans

Local governments across the U.S. are taking over dying shopping malls, the Wall Street Journal reported yesterday. These municipalities, concerned that vacated retail centers will blight the landscape and drag down surrounding property values, have been buying up malls they fear are being starved of capital by the private sector. Governments often rely on land banks to fund the purchases. These government-backed or quasi-public entities are usually used to acquire derelict homes and lots through tax foreclosures when it is clear that no private investment is forthcoming. “As we recovered from the recession, the market has reabsorbed some properties but not in the smaller communities that never recovered,” said Frank Alexander, co-founder and senior adviser of the Center for Community Progress, which promotes land banks. “In those places, we’re getting more questions about how to deal with abandoned shopping centers.” Real estate analysts say that tabulating the number of takeovers is difficult, in part because government buyers aren’t always easily identifiable. Yet a number of analysts believe this is a small but growing trend in cities with failing malls. (Subscription required.)

Notice to All ABI Members

UNITE HERE Local 11 is a labor union based in southern California. They represent more than 20,000 workers in the hotel and restaurant industry. The union has been attempting to organize employees at the Terranea Resort, site of ABI’s 2019 Winter Leadership Conference (WLC). The union has repeatedly contacted ABI leadership, including members of the board and committee leaders, to urge ABI to cancel or move the WLC. ABI has no plans to move or cancel the event, which would result in substantial legal exposure. If you are contacted by phone or email by representatives of the union, ABI encourages you to ignore rather than engage or respond. ABI regrets this development and will continue to closely follow events at the property. This has no effect on the ABI’s 2018 WLC, set for Scottsdale, Ariz., this December.

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