Critical Evaluation (Essay Sample)

Too-Big-to-Fail as Poison Pill
If for instance a corporate board issues a preferred stock to it current shareholders, if a single stockholder accumulates more than 10% of the firms common stock the old stockholders will be allowed to redeem his or her preferred shares for let say ten shares of the new common stock for each old share of preferred stock. The new stockholder is barred from participating in the new stock by the old preferred stock. The pill actually dilutes the activist shareholder’s common stock therefore poisoning its incentive to be active. It would then have ten percent of the common stock and be ready for action operationally, but, anticipating that remaining stockholder would dilute her 10% holding, the activist shies away from buying up the target firm’s stock. In other different variation, the poison has the target making a large payment to a supplier, if control shifts inside the firm. If it happens that the subsidy lowers the financial firm is financing cost, then the activist who is confident that it can fix the target firm’s business must also swallow the poison of the target firm losing that funding subsidy.
"Lending at the 12 regional Home Loan Banks rose 30 percent to $492 billion between March of 2013 and December 2013, largely the outcome of advances made to JPMorgan, Bank of America Corporaton, Wells Fargo and Citigroup and Co. (WFC) according to a report released today by the Federal Housing Finance Agency Office of the Inspector General.
The concentration of Home Loan Bank lending in four large institutions could present safety and soundness risks, the report said. The auditors questioned whether lenders created to support housing finance should be providing funds so banks can meet standards set under the international Basel III accord”
Glass-Steagall is the indispensable first step to global economic recovery. This will consequently halt the onset of hyperinflation, thus remove government commitment from bailing out toxic debts, too-big-to-fail banks, and force a separation of the commercial banking functions from investment banking functions, thus cleaning up the country’s banking system to make way a real, long-term investment.
There are now two bills in each house calling for the restoration of President Roosevelt's 1933 Glass-Steagall law. H. R. 129 & its Senate companion bill S. 985, was introduced by Rep. Marcy Kaptur and Senator Tom Harkin respectively, was the most recent, S. 1282, known as the "21st Century Glass-Steagall Act," was led by Senator Elizabeth Warren, whose companion House bill- H.R. 3711 was introduced on 11 December 2013
Too-Big-to-Fail as Breakup Protection
If a certain financial institution decides that one or more of it businesses does not fit well with the firms
‘s overall strategic plans and that keeping it in the firm is holding the stock price of the firm down. It only solution is to sell it, or spin it off. The institution would then plan to retire the debt that it has originally used to finance the misfit. The board would hold on to the misfit firm is the decreased funding cost due to the too-big to fail subsidy make up for the shortfall resulting from the degraded operation.
The board may realize that the subsidy and lowered cost of funding have this negative operational impact. They may also realize that when they seek to sell the misfit, the investment bankers come back to the board with low bids from firms that are not too-big-to fail. The bids might be low because the stockholder lack access to the same cheap and subsidized funding that the too- big-to fail firm enjoys.
"The financial crisis revealed how closely connected many of the world's largest financial institutions are through a web of credit guarantees short-term loans and other financial contracts. These particular connections pose systemic risk in that the failure of one large, complex financial institution can easily bring down others and threaten the broader financial system. As the latest financial crisis slowly developed, doubts about the ability of individual financial firms to repay their loans or meet other contractual obligations caused a widespread pullback in lending as banks and other financial firms sought to protect themselves by moving their funds into safe assets, like Cash reserves and U.S. Treasury securities. The bankruptcy of Lehman Brothers, a med-sized investment bank, reinforced these fears in September 2008; the bank's collapse intensified the rush for, liquid assets, safe while increasing pressures on money market mutual funds, commercial paper market and other segments of the financial system that depend on a continuous flow of credit.”
Too-Big-to-Fail as Stymieing- Managerial Divisional Buyout
In most cases, firms may divest divisions and subsidiaries that have come to fit poorly with the rest of the firms businesses. M...