The Federal Reserve continues its program of injecting money into the economy. This is accomplished in several ways. The first way referred to in the quotes below gets money to banks with the idea that the banks will then loan it out to customers. Of course, that may or may not be the result. That is, no one can make the customers borrow money if their mood has soured to the point that they do not want more debt.

Also, the banks themselves may be so concerned about the bank regulators and how they categorize loans, that they may have tightened up on lending to the point that whether they have the money to lend or not, no one can qualify for any new loans. Finally, the money meant to be the source of new loans may instead be covering losses on old loans. But nonetheless, the Fed has planned 3 more auctions of debt.

"The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.
…
Also Thursday, the Fed -- in a separate program -- auctioned $16.4 billion in safe Treasury securities to investment firms, another effort aimed at easing credit problems. That operation drew bids less than the $25 billion being made available, which could be viewed as a sign of some improvement in credit conditions.

In exchange for the 28-day loans of Treasury securities, bidding firms put up as collateral more risky investments, including certain shunned mortgage -backed securities and bonds backed by federally guaranteed student loans. This program began March 27."

Here is a link to the entire article:
http://biz.yahoo.com/ap/080529/fed_credit_crisis.html?.v=3

Michael

The FBI has been working with the Securities and Exchange Commission in investigating over 1,300 mortgage fraud cases and 19 corporate investigations. Some interesting statistics were released yesterday in an FBI report concerning fraud cases linked to the subprime lending crisis.

Year Cases Pursued Indictments Convictions Restitution Recovered

2007 1,204 321 206 $595.9 million $22 million

2006 818 263 204 $388.9 Million $1.4 million

Given today's housing market, it is a perfect opportunity for fraud. The most common types of cases are identity theft, misrepresentation of income or assets, forged documents, misrepresentation of occupancy, and inflated appraisals.

You can review the entire article at: http://www.washingtonpost.com/wp-dyn/content/article/2008/05/22/AR2008052203755_pf.html

JMM, PC, recently represented a trustee in a case involving allegations of a forged dead and inflated appraisal of real property. Our firm successfully recovered a significant amount to pay all the creditors in full with intestest.

Chandra

Vallejo, California filed for bankruptcy protection under Chapter 9 (available only to municipalities and a form of reorganization, not liquidation) last Friday in the Eastern District of California. The city has been struggling with personnel costs and low taxes from the housing market. The voluntary petition estimates between one to five thousand creditors, $500 million and $1 billion in assets, and $100 to $500 million in debt. The largest claim for $219,300,816 (which accounts for over half of the total) is for the city retirees.

As you might know, we have been following the potential bankruptcy filing for the city for several months now. The city has been negotiating with the unions for the past year concerning wage cuts to keep the city out of bankruptcy. The financial audits conducted for the city have shown that it would run out of money in its operating account by the end of June.

Vallejo is the largest city ever to file for bankruptcy protection in California; with over 120,000 residents. The most famous Chapter 9 filing was by Orange County, California filed on December 6, 1994. The county treasurer lost $1.7 billion of the investment pool on Wall Street securities. The county didn't emerge from the reorganization for 18 months.

Other California cities that have filed for bankruptcy under Chapter 9 are:

Coalinga in 2003 with a population of approximately 12,000;
Desert Hot Springs in 2001 with a population of approximately 17,000;
Dinuba in 2001 with a population of approximately 17,000; and
Calexico in 1995 with a population of approximately 19,000.

Vallejo is the birth city of several famous individuals, actor Raymond Burr and musicians Roy Rogers and E-40, just to name a few.

You can read an article discussing the filing at:
http://amlawdaily.typepad.com/amlawdaily/2008/05/vallejo-turns-t.html

Chandra