Credit Crisis

October 2009

NERA Insights

The ongoing credit crisis, described by former Federal Reserve Chairman Alan Greenspan as a “once in a lifetime tsunami,” is affecting markets and economies around the globe. NERA has created this area as a central repository of our current thinking on issues and developments relating to the crisis, including but not limited to litigation connected to all aspects of the crisis, bankruptcy and restructuring concerns, financial risk management issues, and the various regulatory and agency responses to the crisis. We invite you to check back often, as we will continue to update this section as events warrant.

Litigation

Enforcement

Financial Advisory

Bankruptcy and Restructuring

 


 

Litigation

Examples of disputes that have already arisen include allegations of predatory lending, misrepresentation and omissions related to the valuation of the loans and the profits from selling or servicing them, suitability of investments, breach of contract related to loan servicing, and fraudulent conveyance issues. Litigation stemming from the crisis began in areas related to subprime lending, such as suits against issuers and lenders of mortgage-back securities, as well as ratings agencies, bond insurers, and asset management companies, but the range of litigation has expanded to include the commercial paper market, the leveraged buyout industry, and auction-rate securities, to name a few examples. As the write-downs continue to accumulate, additional types of lawsuits are expected.

Analysis of the Credit Crisis

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Subprime Lending

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Case Summaries:

Auction Rate Securities

Securities Class Actions

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Complex Commercial Disputes

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Enforcement

In recent years the SEC has imposed unprecedented penalties in its enforcement actions. NERA has developed a proprietary database of settlements in SEC enforcement actions by reviewing every litigation release and administrative proceeding document published from July 31, 2002 through March 31, 2009.

SEC Enforcement, Madoff & Ponzi Schemes

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Financial Advisory

For financial and non-financial firms alike, there is heightened interest in the role that effectively managing risk plays in aligning their strategic plans and capabilities with shareholder value. In response to the deepening credit crisis, companies that seek to remain viable and retain shareholder and employee trust must find new methods, best practices, and market solutions in order to meet the challenges of the increasingly changing risk landscape. Areas of focus for these efforts include compensation and benefits, credit risk, energy risk, insurance, integrated risk assessment, litigation risk, and cash flow risk.

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Accounting Issues and FAS 157

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Valuing Complex Financial Instruments

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Bankruptcy and Restructuring

Key concerns for entities affected by the credit crisis include analysis of market factors and what was reasonably known at the time of a transaction, determining fair market values of loan portfolio and other assets, conducting econometric analysis of defaults, assessing solvency and capital adequacy, examining fraudulent conveyance issues, performing deepening insolvency analysis, and forecasting what a company's future cash flows are likely to be, or what they would have been at an earlier point in time.

Complex Valuation Services

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