Wallison and Skeel (2010) discuss the possible consequences of Chris Dodd’s financial regulation bill for the major nonbank financial institutions in the article The Dodd Bill: Bailouts Forever. The authors compare the possible bankruptcy of a bank to the failure of another giant financial institution and come to the conclusion that using money with the purpose of reduction of the lending risks will result in further development of large firms. Having analyzed the lessons provided by Lehman bankruptcy, the professors conclude that the bill institutionalizes the too big to fail rule.
The article The Dodd Bill: Bailouts Forever refers to the basic accounting equation. Comparing the possible consequences of bank or nonbank financial institutions, the authors of the article took into consideration different assets of these institutions, and consequently their liabilities differ as well. This fact demonstrates the overall character of the basic equation, proving one more time that assets are represented by liabilities combined with the owners’ equity. Lehman Brothers bankruptcy was an important event in the economic life of the country and the lessons, which it provided will be analyzed for a long time from different sides. The amount of interest of the owners is on stake and is immensely influenced by the consequences of the institution failure. That is why it is up to the owners and creditors to choose the way out from the situation and to decide whether the creditors are ready to take most of the losses or it is possible to use the chance of bailing-out provided by Dodd’s bill. In other words, this financial regulation bill is aimed at supporting the large financial firms and providing them with new opportunities for successful competition.
Comparing the consequences of a bank or nonbank institution failure the main accounting equation may be referred to for better understanding of the cause and effect relations.
Beckerman (2010) illuminates the news concerning the dividends from PharmaNet Development Group in the article Dividend Recaps: More Effective than a Placebo. Reviewing different opinions as to this company profitability, the author entitles the article taking into consideration the kind of activity of the company. The ethical aspect is implied as well due to the attempts to rate the potential revenue of the company which researches the oncology problems.
Though dividends lead to decrease in the balance, they are a very important factor in the course of rating the company position in its niche. Being not an expense the dividends can not be included into the net income, this fact results in reflecting them in a statement of retained earnings. The transactions of dividend recapitalization may be a way out for certain organizations due to the history of their previous development and the plans for the further development. Altering the capital structure of the corporation, the shareholders decide to pay out the dividends, but this solution is reasonable only on the condition that the corporation has little debt and is expected to be profitable in the nearest future. That is why the news of dividend recaps is a good sign on the condition that the people making decisions managed to predict all the possible consequences of this serious move. Dividends recaps are connected with running certain risk, but still remain an attractive way of returning funds to the investors.
The dividends recaps transactions are a serious step, requiring a thorough analysis of all the possible consequences, but on the other hand they may be beneficial making the shareholders flexible in distributing the gains.
Reference List
Beckerman, J. (2010) Dividend Recaps: More Effective than a Placebo. The Wall Street Journal.
Wallison, P.J., Skeel, D. (2010) The Dodd Bill: Bailouts Forever. The Wall Street Journal.