Venezuela is Like... PDVSA's Alter Ego, and Vice Versa?

posted by Mark Weidemaier

And so it begins. As Anna notes, Venezuela is in dire straits, yet its stubborn insistence on paying bondholders puts it in the running for "world's slowest train wreck." When the wheels finally leave the tracks, expect a free-for-all in which competing claimants (bondholders, arbitration claimants, etc.) fight to recover as much as possible, both from the government and from state-owned oil company PDVSA. The major players will include creditors holding billions of dollars in arbitration awards against Venezuela. These creditors, unlike those holding government or PDVSA bonds, need not fear a debt restructuring. They will, however, have to find attachable assets that can be seized to satisfy their claims.

Enter Canadian mining company Crystallex, which has been trying to enforce a $1.2 billion arbitration award against Venezuela, so far without success. A few days ago, it tried a new tack--one with broader implications for any restructuring of Venezuela's or PDVSA's debt. Crystallex asked a federal court in Delaware to attach the shares of PDV Holding, Inc., a Delaware company that is the ultimate U.S. parent of CITGO petroleum. PDV Holding is owned by PDVSA, which, in turn, is owned by Venezuela.

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Guess Who's Supporting Predatory Lending?

posted by Adam Levitin

Guess who’s sponsoring legislation to facilitate predatory lending? It’s not just the usual suspects from the GOP, but it looks like a number of centrist “New Democrats” are signing up to help predatory financial institutions evade consumer protections. 

Yup, you heard me right: Democrats. Ten years after the financial crisis, it seems like we’ve gone back to the mistakes of the Clinton years when centrist Democrats rode the financial deregulatory bandwagon. What I’m talking about is the McHenry-Meeks Madden “fix” bill, the “Protecting Consumers’ Access to Credit Act of 2017”. The bill effectively preempts state usury laws for non-bank finance companies like payday lenders in the name of ensuring access to credit, even if on extremely onerous terms.

Right now there's only one Democratic co-sponsor, but others seem to be preparing to join in. They shouldn't, and if they do sign onto this bill, it should only be in exchange for some solid consumer protections to substitute for the preempted state usury laws. This bill should be seen as a test of whether New Democrats "get it" about financial regulation. I'm hoping that they do. If not, perhaps its time to find some new Democrats.   

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CFPB Politics Update

posted by Adam Levitin

Time for a CFPB politics update:  FSOC veto, Congressional Review Act override of the arbitration rulemaking, Director succession line, and contempt of Congress all discussed below the break.

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More on Personal Debt and Multilevel Marketing Companies

posted by Pamela Foohey

Last year, I posted about John Oliver's segment on Last Week Tonight dissecting multilevel marketing (MLM) companies (aka pyramid schemes), and proposed a link between personal debt, bankruptcy, and MLM companies. Prominent MLM companies include Amway, Herbalife, the relatively new Rodan + Fields, and the even newer (to me, at least) LuLaRoe, through which women sell brightly-colored stretchy women's and kids' clothing. Indeed, posts about LuLaRoe--complete with mom and daughter wearing matching leggings--increasingly are overshadowing posts about Rodan + Fields in my Facebook feed. Since 2010, the MLM industry has grown 30%. LuLaRoe apparently adds 150 retailers a day (a figure unconfirmed by LuLaRoe). This all makes the MLM industry ripe for budget-crushing debt -- and for more news stories about that debts' effects on people's lives.

Quartz recently published such a piece, aptly titled: Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis. Although the piece is far from a rigorous study of the financial pitfalls of joining a MLM, it is an interesting and entertaining read. It uses LuLaRoe to highlight the reality of MLMs: lots of self-empowerment language and lots of debt. According to an FTC study cited in the piece, 99% of people who join MLMs lose money.

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Venezuela Is Like ... (Part II)

posted by Anna Gelpern

Last time on Super-Sad Updates, I speculated (i) that the Venezuelan people could be in for more suffering and bondholders for more coupon payments (see Romania), (ii) that Venezuela’s complex debt stock was prone to shell games and inter-creditor conflicts, which could delay a workout (see Puerto Rico), and (iii) that a bet on PDVSA bonds over sovereign bonds today required too many assumptions to hold my shrinking attention span (but see Turkmenistan … or not). Now I try to imagine what might happen if the government did decide to restructure. It brings back memories of …

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Venezuela Is Like ... (Part I)

posted by Anna Gelpern

Market and civil society observers have taken Venezuelan debt restructuring as a certainty for more than two years, putting it in contention for the world’s slowest train wreck and quite possibly the messiest. Designs abound, but even after last weekend’s vote followed by new U.S. sanctions, too many variables remain too far up in the air to start laying the yellow brick pavers quite yet.

Depending on where you sit and how long you stare, Venezuela can present as some, none, or all of many past sovereign debt crises. The tour that starts below with broad-brush analogies is not exhaustive, but still plenty depressing.

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Trump's Bank Regulators: More Swamp Creatures

posted by Alan White

Following his appointment of Steven Mnuchin as Treasury Secretary, the President has nominated Joseph Otting, former CEO of OneWest Bank, to be the chief federal bank regulator as head of the Office of the Comptroller of the Currency. The OCC is theMnuchinprotest bank cop for the nation's largest banks. The OCC determines whether banks are taking too many risks with depositor and taxpayer money, and is charged with preventing failures of banks that are too big too fail, in other words, with preventing the next financial crisis.

OneWest Bank was founded by Treasury Secretary Mnuchin in 2009  primarily to acquire, and foreclose, thousands of troubled mortgage loans made by the failed subprime lender IndyMac. Otting served as CEO of OneWest from 2010 until 2015. The President's two leading bank regulators made considerable fortunes by running this very unusual bank, relying on some big-time government funding.

IndyMac had specialized in "nonprime" mortgages, including no-doc interest-only loans and other toxic products, that failed massively in the foreclosure crisis. IndyMac was the first large federally-regulated bank to fail and be bailed out by the FDIC in 2008.

The California Reinvestment Coalition determined from several Freedom of Information Act requests that the FDIC will pay OneWest $2.4 billion for foreclosure losses on the IndyMac loans. Housing counselors in California identified OneWest as one of the most ruthless and difficult banks to deal with in trying to negotiate foreclosure alternatives on behalf of homeowners. In 2011 OneWest signed a consent decree with the federal banking agencies, neither admitting nor denying the agency's findings that OneWest had routinely falsified court documents in foreclosure cases, the practice known as robosigning. In his Senate confirmation hearing last week, Otting insisted that the regulators' findings of OneWest misconduct were a "false narrative." False or not, OneWest foreclosures, and its deal with the FDIC, do seem to have proven very profitable. Bloomberg estimates that Mnuchin made $200 million from the sale of OneWest in 2015, and Otting earned about $25 million in compensation and severance in his final year at OneWest.

OneWest was acquired by CIT group, one of the few banks that did not repay the taxpayers for their 2008 TARP bailout--the bank filed bankruptcy in 2009, stiffing the taxpayers for $2.3 billion. The bankruptcy reorganization and the shedding of CIT's debt allowed CIT to return to profitability and eventually fund its purchase of OneWest from Mnuchin and his partners.

photo credit Walt Mancin Pasadena Star-News

Come Talk to the ABI Consumer Bankruptcy Commission at NABT

posted by Bob Lawless

As careful Credit Slips readers will remember, I was inflicted on the American Bankruptcy Institute's Commission on Consumer Bankruptcy as the Commission's reporter. Things are off to a roaring start. Taking the suggestions of many different stakeholders in the consumer bankruptcy system, the Commission has developed a list of topics and assigned them to different committees. In turn, the committees have broken down into working groups to study the issues.

The Commission and its committees already have had two successful public meetings, hearing from persons at the annual meeting for the National Association of Consumer Bankruptcy Attorneys (NACBA) in Orlando, Florida, and from persons at the annual seminar for the National Association of Chapter 13 Trustees (NACTT) in Seattle, Washington. The Commission web site has videos and, where available, written statements from both the NACBA meeting and the NACTT meeting.

The next public meeting is for the Commission's Committee on Chapter 7, which will occur on September 15 at the annual meeting for the National Association of Bankruptcy Trustees in New Orleans, Louisiana. Come talk to us. Subject to time availability, we hope to allow participants to make statements of about five minutes each. Written statements are very welcome and encouraged. Further details appear in the call for participation on the Commission web site. For full consideration, requests to participate must be received by September 6.

Commentary on the CFPB Arbitration Rule

posted by Bob Lawless

A few weeks ago, Adam did a great post about the CFPB's new arbitration rule, analyzing whether we would get a veto from the Financial Stability Oversight Council (FSOC). My own, much more modest effort, explaining the arbitration rule for our local NPR station (WILL) appeared this morning. With all the daily nonsense out of Washington, this story is falling through the cracks.

Gilbert Index Q&A

posted by Bob Lawless

The Gilbert Index blog was kind enough to feature Credit Slips in a Q&A. For those of you who are interested in how Credit Slips came about, check it out.

An Explanation for the Low Bankruptcy Rates: Debt

posted by Bob Lawless

Yesterday, I noted the U.S. bankruptcy filing rate of 2.38 per 1,000 persons is at historic lows. The next question is always why. In this post, I am going to try to walk through an explanation in four graphs. The upshot is that consumer debt is low but rising. As I like to say, it takes years of study to come to the conclusion that people file bankruptcy because they are in debt. This is not to say that other factors are not contributors -- unemployment, general economic conditions -- but the primary macroeconomic driver of bankruptcy filings is the amount of debt on household balance sheets.

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