Businesses right to reorganize is questioned

The House Judiciary Subcomittee on Commercial and Administrative Law held a hearing on Chapter 11 of the Bankruptcy Code, and whether the 2005 amendments have pertinence in the face of today's impending business distress. Chairwoman Linda Sanchez (D-Calif.) opened the hearing with a comparison between the retail industry's recent increase in 'reorganizational' bankruptcy claims and the debate over the $700 billion bailout for Wall Street that President Bush has proposed.


The question Sanchez wanted answered is whether Chapter 11 works the way Congress intended it to, or if the Bankruptcy Abuse Prevention and Consumer Privacy Act is making it harder for businesses to reorganize, thus reverting to the straight liquidation in Chapter 7 of the Bankruptcy Code. Witness Lawrence Gottlieb of Cooley Godward Kronish LLP said that Chapter 11 has become, "nothing more than a vehicle through which secured lenders, whether they be banks, hedge funds, or private equity, sell the assets of a company through a quick sale process that provides very little, if any, opportunity for retailers to restructure their debt and rehabilitate their business".


Professor Barry Adler of the New York University School of Law said that "it is better to have failed firms be liquidated, because if they're dead economically, they're going to liquidate anyway. The assets can be redeployed to better uses, if the liquidation is quick, and creditors can receive a higher return than they would originally receive". The question remains of whether a failing business will better serve the economy if bailed out at the expense of taxpayers, or left to the hands of Adam Smith.

Paulson defends bailout plan to Congress

"All of us should be angry," said Treasury Secretary Henry Paulson at a hearing before the House Financial Services Committee. He said that the keys to this "disaster" were housing prices and borrowed money. He said that both corporations and homebuyers are guilty of bad financial maneuvers that allowed for this bailout to be needed.

Federal Reserve Chairman Ben Bernanke said that if we do not bail out these companies quickly, we would see increasing unemployment, higher numbers of foreclosures, and fewer available jobs. Referring to the cost of the bailout, Bernanke said that this bailout would cost "much less than 700 billion dollars," and he said that the cost to the taxpayers is smaller now than it could be later if the bailout is not done now.

Rep. Chris Ackerman (D-N.Y.) echoed the sentiments of many congressmen saying "I don't see [in Treasury Secretary Henry Paulson's proposal] any protection to stop us from having this problem again." Rep. Luis Gutierrez (D-Ill.) said he did not feel comfortable paying for this plan with taxpayer money while high ranking officials of these bankrupt institutions were "lining their pockets" along with their companies.

McCain campaign on bailout: 'Trust me' is not good enough

Campaign advisers said that Republican presidential nominee Sen. John McCain is in consultation with senate colleagues and the ongoing developments on Capitol Hill as the Congress negotiates with the administration on Wall Street bailout legislation. Campaign manager Rick Davis said that McCain is going to participate in this legislation and plans to vote on it, if and when it reaches the floor.

McCain has express some concerns with a plan that would allow the U.S. Treasury to purchase illiquid assets from major financial companies in order to inject liquidity into the financial system. The campaign said that McCain has called for "unprecedented transparency" for unprecedented power and also feels that there is potential for too much power to be concentrated on a single authority. McCain has called for sufficient oversight to accompany the legislation. "Simply trust me is not good enough," said Davis.

With 43 days to go until Election Day, McCain senior advisor, Steve Schmidt made his feelings about the media clear in a call...with the media. In the call, intended to roll out a new campaign commercial highlighting some of Barack Obama's associations in Chicago politics, Schmidt said that the ad was necessary because the media is under reporting some of Obama's controversial friendships. He zeroed his scope on the New York Times.

"Whatever the New York Times once was, it is today not by any standard, a journalistic organization It is a pro-Obama advocacy organization that every day attacks the McCain campaign, attacks Senator McCain, attacks Gov. Pain and excuses Senator Obama...Everything that is read in the New York Times that attacks this campaign should be evaluated from that perspective," he said.

Capitol Hill reacts to government bailouts

The Hill is still reeling from Department of Treasury and Federal Reserve market interventions in the hard hit financial section.

"Enough is enough...We've got to bailout the taxpayer from bailout mania," said Rep. Jeb Hensarling (R-Texas). Hensarling and other House Republicans spoke out against government intervention in the market, including the recent government assistance of Bear Sterns, AIG and the takeover of government sponsored enterprises Freddie Mac and Fannie Mae. Hensarling, along with Marsha Blackburn (R-Tenn.), Michelle Bachman (R-Minn.), Tom Price (R-Ga.), Scott Garrett (R-NJ), and Tom Feeney (R-Fl.)

"The government is the lender of last resort," said Price. He said that risk is an inherent part of the free market system. Price and Feeney emphasized their view that the government is socializing risk as profits are kept private. The recent moves to facilitate sales and give loans to struggling financial giants by the Treasury Department are expected to add to the long term debt to be absorbed by the tax payer. "Again we believe that any short term gain by bailing out one another financial institution is not worth the long term pain of the moral hazard of taking us...to a lost decade of economic growth," said Hensarling.

Following a press conference to highlight recipients of certain government assistance programs like the Children's Health Insurance Program and the Low Income Energy Assistance Program, Senator Harry Reid (D-Nev.) and House Majority Leader Steny Hoyer (D- Md.) addressed the bailout of American International Group.

Reid, the Senate majority leader, decried "secret meetings" between Congress and the administration to lay out government assistance measures. "I think it's time that there's more than one branch of government. The American people deserve some transparency." Reid said that he believed that the Senate could do something to stabilize the economy by passing a bill to fund infrastructure before the current session comes to an end.

Hoyer said that there would be hearings in both the Financial Services and Oversight committees. He said that Financial Services Chairman Barney Frank (D-Mass.) would look into the future of regulations and that Oversight Chairman Henry Waxman (D-Calif.) would investigate what happened to lead up to these government bailouts. Hoyer said that committee would answer the questions "What went wrong? Why did we not regulate? Why did we not have the referee on the field?"