Facebook IPO Proves More Transparency Needed for Investors, but Will Twitter Listen?

In light of its growing popularity as a social media tool with more than 200 million active users, [i]Twitter announced in September of 2013 that it was ready to launch an Initial Public Offering (IPO). Twitter, which has never turned a profit in its seven years in existence, had originally set a price range of $17 to $20 per share for the IPO.[ii] Despite these earlier projections, Twitter announced in a tweet on November 6, 2013 that it priced its stock at $26 per share due to high initial demand for its IPO. [iii]

 Twitter’s stock market debut is also “likely to be scrutinized [from the beginning] since Facebook went public in May 2012 and promptly flopped.” [iv] Given this enhanced level of investor interest, Twitter decided it would avail itself of the fast track IPO process which is part of the Jumpstart Our Business Startups Act (JOBS Act). … Read the rest

Shadow banking: Help is on the Way

 

Despite being recognized as a primary culprit of the financial crisis, shadow banking has continued to flourish. According to the Financial Stability Board (FSB), shadow banking has grown since the onset of the crisis from $62 trillion in 2007 to $67 trillion[i]. Fortunately, the FSB plans to release regulatory recommendations by the end of the year. This article will summarize the risks inherent with shadow banking, the effects of the Dodd-Frank Act, and possible reforms designed to mitigate these risks and any inadequacies of Dodd-Frank.


Shadow banking refers to largely unregulated bank-like activities performed outside of the traditional banking sector by non-bank financial institutions (NBFI). NBFI include: hedge funds, investment banks, money market funds, and other devices that aggregate and hold financial assets. Banks engage in financial intermediation between savers and lenders by using deposits to finance long-term assets, including loans and mortgages. This conversion of short-term Read the rest

Take Your Business Elsewhere: Why the Federal Corporate Income Tax is Destroying our Economy

The national debt of the United States now exceeds $16 trillion. Current estimates suggest that the present year’s deficit will amount to approximately $1.1 trillion, a negligible improvement upon 2011’s $1.3 trillion deficit. The present unemployment rate is one of the highest of the past sixty years, with approximately eight percent of Americans unable to find work. Unless significant changes are made in both federal income and expenditure, the economic livelihood of future generations is bleak.

Searching high and low for a remedy to our nation’s economic woes, many politicians and businessmen have set their sights on the federal corporate income tax. Hoping to simultaneously create jobs and stimulate our economy, individuals from across party lines, including Barack Obama and Mitt Romney, have suggested that we lessen the federal taxation of corporate profits. A small group, though, including individuals such as Gary Johnson and Ron Paul, are of the
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Bluebird: Walmart Wants To Be Your “Every Day Low Price” Bank.

 

Frustrated with your bank’s surprise fees and minute interest rates? Shop at Walmart? You may find a solution to your woes in an unusual but convenient location: on the “Every Day Low Price” stores’ shelves. Bluebird, the child of a Walmart and American Express partnership, will offer a prepaid, easy-to-refill, low fee debit account and card that aims to attract disgruntled bank customers and millions of “underbanked” households. The product is poised to change the banking industry (to the dismay of banks) by offering traditional banking services from a non-bank, but consumer activists have voiced concern over the legitimacy of Walmart’s foray into banking and the potential for abuse in the relatively unregulated area of prepaid card accounts.

 

In its quest to be America’s neighborhood “everything” store, Walmart has taken aim at the personal banking industry. The “underbanked” market, populated by “customers who use few, if any, Read the rest

Pretextual Wiretapping: Raj Rajaratnam and Perfect Hedge

            What do Raj Rajaratnam and a mafioso have in common? While that might be a loaded question, to direct the discussion, both have received similar treatment from the Federal Bureau of Investigation (FBI). Rajaratnam’s recent conviction for securities fraud by way of insider trading came about through the use of evidence obtained by wiretapping. Wiretapping is a common technique used by the FBI to help build cases against members of organized crime under the Racketeer Influenced and Organized Crime Act (RICO). Referred to by the FBI as operation “Perfect Hedge,” the United States has begun to use wiretapping to prosecute insider trading. Just last year, a federal judge upheld the use of wiretapping against Rajaratnam. Even though insider trading is not a crime that can support a wiretapping application, Rajaratnam’s motion to suppress the evidence obtained from his wiretap was denied. The case of Raj Read the rest

Too Big to Fail v. Too Small to Survive

By: Daniel Scheeringa

The Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) has issued its final report, and the TARP program is projected to cost much less than forecast.  Unfortunately, TARP didn’t solve the original problem of “too big to fail”.  The problem is worse today, and the legislative solution may make things even worse.   

Moral hazard is when rational actors take bigger risks than they otherwise would, in the knowledge that someone else will bear the risk.  Although there were previous examples of the moral hazard of bailouts[1], the greatest illustration of this concept came in 2008.  As the financial crisis broke, 18 large investment banks received $208 billion in TARP money to save them from insolvency after they made risky bets on CDO’s.  As the report states, in the case of AIG, the guarantee was extended not only to AIG itself but to its Read the rest

Dodd-Frank Credit Rating Agency Reform in the Crosshairs

By: Daniel Scheeringa

In the aftermath of the financial crisis, Congress passed the Dodd-Frank Financial Reform Act, which sought to prevent its repeat.  Yet the new House Republican majority is taking aim at a key provision of the law, which sought to give investors more accurate information by holding credit rating agencies legally liable for giving high ratings to low quality mortgage-backed bonds.  While there are other ways to ensure accurate credit ratings than enhanced liability, congressional Republicans are removing an imperfect protection without replacing it with anything better.

The financial crisis of 2008 provided enough blame to go around for almost everyone involved; big banks, mortgage lenders, government, and even homeowners.  But a great deal of responsibility for the crisis is allotted to the credit rating agencies (“CRA’s”), most famously Moody’s, S&P, and Fitch.  The CRA’s gave mostly favorable credit ratings to mortgage backed Collateralized Debt Obligations (CDO’s) which Read the rest

The Cayman Islands and the John Grisham Effect: Yes, Everything Changed

Introduction

            In May 2009 American President Barack Obama spoke of how an address in the Cayman Islands housed 12,000 companies. Alluding to the possibility of illegal activity, he noted that this location was either the biggest building in the world or “the largest tax scam in the world.” This image of Offshore Financial Centers (OFCs) as havens for wrongdoing is generally held throughout the world.   Recent data indicates that the Cayman Islands holds over 670 billion American Dollars in banking assets from international investors.

            Because of such statistics, these small islands are considered a global villain, a haven for illegal capital. According to the OECD Harmful Tax Competition: An Emerging Global Issue (1998 Tax Report) jurisdictions that (a) imposes no or only nominal taxes, (b) lacks policy of effective exchange information, (c) lacks transparency and (d) has no requirement of “substantial activity” is Read the rest

Provena Covenant Medical Center v. Department of Revenue: The Decision That May End Charitable Exemptions for Nonprofit Hospitals

  I.  Introduction  

The recent decision by the Illinois Supreme Court regarding tax exemption for hospitals is troubling for the already volatile and uncertain future of many hospitals that are facing increasing difficulties in the current economic market.  The Illinois Supreme Court held that Provena Medical Center in Urbana does not provide enough charity care to qualify for the tax exemption provided for hospitals that care for uninsured and poor patients without generating a profit or collecting fees.[1]  The decision has generated significant criticism for relying on old precedent, failing to take into account current economic conditions, and for failing to provide clear guidelines for nonprofit hospitals that want to qualify for tax exemption in Illinois.[2]  The implications of this decision while not precisely known can have wide ranging consequences for hospital financing and access to healthcare for low income and uninsured Read the rest

Hospitals in Distress: How the Economy has Affected Financing of Health Care

I.  Introduction

In the current financial crisis borrowers are finding it increasingly more difficult to access capital for their investments.  This is affecting one of the most important industries in our society, heath care.  Hospitals are a vital part of the health care industry and they are facing especially hard times in today’s economy.  It is not a surprise to many people that hospitals are facing financial difficulties.  Hospitals have consistently faced financial difficulties even in a good economy.  However, the current credit crisis is affecting hospitals more than any other organization because of the high levels of uninsured seeking health care services, low reimbursement rates from Medicaid and Medicare, and staff shortages.[1]  Now more than ever before hospitals are facing increasing debt and are unable to gain more capital or refinancing their existing loans because it is more difficult to obtain Read the rest