Free Essay

Business Ethics and Economic Collapse

In: Business and Management

Submitted By jsmith93
Words 3312
Pages 14

Final Paper
James Smith
Hodges University
GEB/PAD 6376
Dr. Forrer
Week Due: 14
Due: 08/14/2011
Submitted: 08/10/2011

INTRODUCTION (Part 1) Why has the unemployment rate been above 12 percent for the last several years? Why have so many prior successful businesses closed in the last four years? Why have so many major corporations and publicly traded companies filed for bankruptcy? Why did a house that used to cost $200,000.00 just sell for $40,000.00? Why are foreclosures at the highest rate in US history? Maybe the question to ask is what has caused all of this? There are so many questions to be answered when it comes to the economic conditions in the United States. How did it get into the current condition? What were the signs of slipping into the crisis (economic indicators)? Whose actions were responsible? Was the responsible party also guilty of unethical behavior (big issue) or was it accidental. How long will it take for the economy to get back to being productive? In the past, America has been a very productive, successful country. There have been other recessions and a depression that have affected the U.S. but for some reason this current crisis was started by a completely different chain of events. What was the chain of events that triggered this current catastrophe? There are so many questions that need to be answered for the people of America and this student is now on a mission to give the United States and the world an explanation about the crisis and possible solutions to getting out of the crises. After this catastrophe started in the United States, the rest of the countries in the world suffered the same fate. This is because the United States is a world economic leader and most other country’s successes and failures are dependent upon decisions made in the U.S. economic realm. This paper will explain all of the questions asked previously, look at economic trends and provide input of how to get back to a growing economy. Lastly, it will also explain how America slipped into the current crisis as it pertains to business ethics. If America knew the reason why the economy is in the condition it is currently in, there would be a lot more attention concerning this subject. The problem is that most Americans are uninformed about the true meaning of why current economic conditions are so bad. This research will be an eye opener concerning the current crisis and the business ethics (or lack of) that surround it.

LITERATURE REVIEW AND VARIABLES (Part 2) There is a lot of past study on the issue of current economic collapse in the United States (2007 to 2011). America started to see the signs of what was to become a recession in late 2007. According to Michael Clements (2011), these signs were decrease in tax revenue, decrease in building permits (commercial and residential), increase in unemployment, and a decrease in property value (p.208). To better understand and find truth behind what has happened from an economic stand point, it is best to investigate prior research and then build theories on what has already been looked at and/or eliminated. The following theories are possible causes of the economic meltdown that have already been looked at by prior researchers. Some researchers blame only one of the variables listed below while other researchers blame a combination of several on the list. This researcher has his own thoughts on the cause of the recession which is stated under the housing default cause but the root of the problem will not be revealed until the part three of the paper.

OIL PRODUCTION CAUSES As stated previously, it is important in research to know what has already been discovered by prior researchers just as it is important to know what has been discovered when each individual’s research has been completed. According to James Hamilton (2005), oil shocks were one of the possible causes in the last recession that started in 2007(p.1). It is interesting to learn about the causes and effects of fluctuating oil prices in 2007 and 2008 and how it triggered oil price shocks. These shocks were primarily caused by actual disruptions of physical oil supply. This caused oil supply to fluctuate and increase in a radical way which led to a strong demand in a stagnating world production. The causes of the shocks, in this recession were different from the causes of oil shocks in the last recession but the affects were the same. The affects of it were a recessed economy and stagnation. All though not all recessions in the United States have had oil production as a contributor, this recession did appear to be effected in a small way by oil productions. James Hamilton seems to think that this was a major contributor and the main cause for the last recession. This student can see the authors point in the article but the big picture shows that the oil had little to do with the latest economic meltdown. It could be part of what led to the recession but if it was, it was a very small part. It is good that economists looked at other causes in the recession besides the obvious causes like banks and housing default. It does produce a larger picture of other contributing factors that totaled the recession. As stated previously, oil did not play a part in every recession but every recession had a catalyst which formed a recession.

2007 RECESSION-VS-GREAT DEPRESSION OF 1929 The last recession has been compared to the crash of 1929 by economists. The reason is that this last recession had a greater impact on the U.S. and world economy than any other recession since the great depression. Were any of the causes of the last recession and “Crash of 1929” the same? According to Robert Hall (2011), there is little that can be learned from the Great Depression that should have stopped the last recession (p.431). In other words the depression era had a very low interest rate with low inflation which means that the nominal interest rate would be closer to zero. This caused the real interest rate to reach high levels. In the last recession of 2007 the low inflation resulted in an only slightly negative real rate when employment called for a low real rate because of declines in demand. It would seem that the causes of the “Great Depression” and the last recession were completely different. The people in the depression era were conservative in spending habits. According to Bill Streeter (2011), the difference in the people from the depression and the people from the 2007 recession is day and night when it comes to spending habits (p.12). Lending practices were also a lot more controlled and conservative back then. Could this be one of the causes of the 2007 recession? There will be more to come on this subject later.

UNEMPLOYMENT CAUSES Could unemployment be the cause of the current economic crisis or could unemployment the affect of the crises? According to Palgrave (2009), recessions always see a fall in gross domestic product (GDP) and are always characterized by rising unemployment (p.3). This researcher shows unemployment as an effect of a recession and never the cause for it. GDP is the total of goods and services produced in the United States over the period of a year. So not only is unemployment an effect of a recession but the decrease in goods and serviced produced also goes hand in hand with unemployment which makes perfect sense. The less goods and services being produced the less people are needed to produce a good or perform a service.

HOUSING MARKET AND DEFAULT CAUSES The most common cause of blame for the 2007 recession is the housing market. What happened that caused such a terrible recession. According to Bruce Yandle (2010), there has never been a mass default on real estate in the United States like the mass default that started in 2007 and is still going on (p.341). The banks would sell houses and the people who bought them would later realize that the payments were not able to be met and the house would eventually go back to the bank. It is one thing if this happens very rarely but when this becomes the normal transaction of a bank there is money being lent out and not any money coming back in. From a finance point of view there would be zero statement of cash flows and this is the beginning of a great recession. A bank makes money on interest off of loans but when the customer’s principle payments are not even being made then the banks start to have great difficulty. This raises interest rates and also makes it almost impossible for almost everybody to get a loan from the bank. The bank then sits in a stagnation state and consumer’s business’s and home buyer’s stop borrowing money. Since there is no money to borrow, houses stop being built, commercial building’s stop being built, roads stop getting repaired, small businesses stop growing, and lastly people get paranoid and stop spending money. It is a chain reaction process that has now led to a full blown recession after 2 consecutive periods. This is what has been researched so far into the 2007 recession. The question that is not being asked is what caused such a high default rate in real estate? When this question has been researched and answered then the root cause of the current recession will be answered. This student will research and attempt to find the answer to this in this research.

THE ISSUE (Part 3) The main issue being researched is why America went through such a terrible recession, why America is still recovering from a catastrophic financial crisis and how these events pertain to business ethics and corporate social responsibility. “Business ethics” deals with management making the right decisions within a company or organization to benefit stakeholders (stakeholder model) and operating from a legal (above board) standpoint. According to Aditya Jain (2011), corporate social responsibility is a comprehensive concept that deals with the promotion of responsible business practices closely linked to the strategy of enterprises (p.619). As stated earlier, prior research shows that the total current financial crisis started with the high default rate in the housing loan market. This is the place to start but what is behind this curtain? The high lending default is the plant but every plant has a root. What is the root problem which caused such a high default rate in the lending market? While digging and getting to the root problem the first issue that should be observed is “no proof of income”. According to James Garrett (2011), most of the mortgage loans issued between 2001 and 2006 were subprime mortgages and were given to unqualified borrowers that did not have the means to pay the loans back (p.1). Why would any bank want to issue a loan to a customer that did not have the means to pay the loan back to the bank? The answer is actually very simple but before it can be answered, a couple of other facts should be known. Prior to this era of subprime mortgages, the democratic side of the U.S. government created new legislation that gave permission for the banks to ease lending practices and make easy for everybody to own a house. After new legislation passed, this gave the green light for the banks to make trillions of dollars but not in an ethical way. Almost everybody who came to the bank for a loan was automatically approved (qualified or not). Again, why would a bank do this? The answer is because the bank that issued the loan would not be responsible for the loan in the case that the loan defaulted. As soon as the high risk loan was made to the customer, the bank would take the loan and sell it to a bigger bank or investment firm. These high risk subprime loans were referred to as credit default swaps. The same loans were sold anywhere from 30 to 60 different times to different banks. This turned 3 trillion dollars worth of debt into 60 trillion dollars worth of debt because each time these swaps were sold there was nothing backing the loan. This banking practice went on in most small banks between 2001 and 2006. Economists and financial analysts starting seeing the signs of a recession in late 2006 and by this time the large lending banks in America had around 60 trillion dollars in bad loans. According to Eric Reguly (2011), this 60 trillion in debt was the major contributor to the last recession and current economic condition in America (p.1). There were two democratic politicians that were in charge of the banking committees. Chris Dodd and Barney Frank were the two politicians in charge. These two men were warned several times by auditors and other politicians that bank fraud was being committed in the main lending banks (Fannie Mae and Freddie Mac) through the new relaxed lending practices. Both of these men ignored the warnings. The probable reason for these 2 men not changing lending legislation or launching an investigation into the matter was likely due to the fact these men were being paid very well to leave the situation alone and it is likely that these men already knew what was going on. Currently, neither politician has ever charged with a crime for letting this fraud continue. Eventually, new legislation was put into place to stop the relaxed lending practices. The banks were now overly consumed with bad debt so the U.S. Government decided to bail out the banks. The government then provided billions of dollars to the banks so the economy would not go into a collapse. The government should have put stipulations on the money (i.e. - a certain % would have to be used for loans every year). The opposite happened. Banks held onto the money and would not lend it out to private individuals or businesses. Since almost zero loans were being made, business growth ceased to exist, building stopped (residential and commercial), and the entire economic system followed suite and recessed. Getting to the point, America’s recession and current economic condition was caused by a few selfish bankers, businessmen, and politicians who turned these lending institutions into their own personal piggy banks and didn’t care about the larger picture (America’s economy).

Conclusion (Final Thoughts and Solution) (Part 4) Unethical business practice can have so many affects at so many levels. It can give a small business a bad reputation, put a large corporation out of business, land unethically minded people in jail or prison and even bring an entire nation and world economy to its knees. It is plain to see that the banks (that were selling these high risk credit default swaps) were not acting ethically. This whole concept started with a few shady businessmen and a few greedy politicians who were trying to get rich quickly. The practice of selling these swaps continued for too long (due to changed legislation) and started a recession before the average American could see what was going on. It finally led to a world-wide recession. America is still recovering from this and it is only improving a small amount at a time. Looking at past recessions, it took an equal amount of time to get into a recession as it took to get out of a recession (not including economic downturns with major variables like World War II). It was approximately three and a half years into the current recession until any real turnaround began. Because history usually repeats itself, it is this student’s opinion that it will be a total of around 7 years from beginning to end. Time, proper (ethical) steps, and letting the economy balance back out are the only long term remedies for America to get back to a normal economy. For example, banks are slowly starting to see a more balanced economic state and slowly starting to lend money. This means that businesses will start to open and hopefully unemployment rates will start to decline. It will continue to be a long time before all of the defaults have completed the foreclosure process and are resold. In order for the banks to speed up the recovery phase, the houses will have to be sold at highly discounted rates (creating quick sales). This creates an extremely large revenue loss to the banks but selling these vacant houses at a lesser price and then creating new loans including harsher lending practices is the first step in the recovery process for the U.S. banking. This practice in banking will also help the economy out of the current slump because money is once again being circulated which means the economy will once again experience production. In fact, according to David Dejong (2000), total factor productivity shocks are responsible for both starting and ending recessions (p.311). The banks selling the defaults and more money being available in lending are a few necessary steps that must be taken in order for productivity shocks to begin. This should eventually bring an end to the recession. The point of this research had 2 parts, the first was to see how America got into the recession and how it will be able to get out of it, the second was to see how business ethics are tied to the current chain of events. Getting into it was caused by unethical behavior in business but getting out of it will require time and ethical lending and business practices to be followed. Unethical business landed America and the rest of world into a recession/economic downturn and the only remedy is time and the reversal of the original problem which would be ethical business practices. It is plain to see the importance of ethical behavior and the major impact of unethical behavior in business. References
- Hamilton, J. (2009). Brookings papers on economic activity. Oil shock of 2007/2008. Washington: Spring 2009 Volume 210, Issue1; p. 215. Retrieved June, 2011, from the Proquest database
- Hall, R. (2011). The American economic review. The Long Slump. Nashville: April 2011. Volume 101, Issue 2; pg. 431. Retrieved June, 2011, from the Proquest database
- Streeke, B. (2011).ABA Banking Journal. American Banking Association. New York: 2010. Volume 103, Issue 1; Page 12. Retrieved June, 2011, from the Proquest database
- Palgrove, K. (2009). Economic and labor market review. GDP and unemployment: recessions compared. Basingstoke: November 2009. Volume 3, Issue 11; p. 3. Retrieved June, 2011, from the Proquest database
- Yandle, B. (2010). The independent review. Oakland: Winter 2010. Volume 14, Issue 3; p. 341. Retrieved March, 2011, from the Proquest database
- Garrett, J. (2011). About. Causes of Economic Recession. Retrieved July, 2011, from:
- Reguly, E. (2011). About. The Silver Bear Café (Truth shall set you free). Retrieved July, 2011, from:
- Dejong, D (2000). The Journal of Applied Econometrics. Keynesian impulses versus Solow residuals. Chichester: May/June 2000. Volume 15, Issue 3; Page 311. Retrieved July, 2011, from the proquest database

- Jain, A. (2011). The Journal of Business Ethics. Corporate Social Responsibility and Psychosocial Management in Europe. Dordrecht: July 2011. Volume 101, Issue 4; Page 619. Retrieved July, 2011, from the proquest database

- Clements, M. (2011). Internal Journal of Forecasting. Combining Probability Forecasts. Amsterdam: April-June 2011. Volume 27, Issue 2; Page 208. Retrieved July, 2011, from the proquest database

Similar Documents

Premium Essay

Accounting Theory

...the price of his or her company's stock. Due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative estimates of future earnings. And this phenomenon of accounting scandal exist in contemporary society. The integrity of the accounting profession and the credibility of financial information provided by businesses have been undermined by scandals. Accounting and business education should pay more attention to the ethical to prevent accounting scandals. And they should not be focused on the teaching of accounting techniques. Neoliberal ideology is a political movement beginning in the 1960s that blends traditional liberal concerns for social justice with an emphasis on economic growth. And it is similar to globalization. Globalization includes three elements that are difficult decreasing, quick response to alterations, and multilateral trade liberalization. And accounting professional contains individual professional judgment and professional self-regulation. Globalisation brings many benefits but also a number of problems, for instance, low price labour used by multinationals that Increasing wages for highly-skilled workers and reducing wages for less-skilled workers obviously leads to greater inequality. Neoliberalism has also been unable to address......

Words: 3366 - Pages: 14

Premium Essay

Abc Learning

...acquisitions of competitors both locally and internationally. The company experienced a significant drop in their share price in 2008. Trading in the company shares was suspended in early 2008, closely followed by the company going into receivership in November of 2008. This essay will examine ABC Learning and assess the impact of the company’s corporate social responsibility policy or lack thereof and how this contributed to their spectacular collapse. Particular attention will be concentrating on the ethical internal running of the company’s corporate structure and executive leadership, focussing in particular on Eddy Groves’ poor decision making, creative accounting and resulting organisational culture. Dahlberg & Moss (2005) claim that ethics is a practical matter which involves thinking about every day actions and decisions either individually or collectively and then responding with respect for all concerned. When values underpin our responses and choices, ethics is at work. In some instances our decision making can be hindered because there can be different solutions or responses to a situation. Each of which may seem appropriate. We call these situations ethical dilemmas, and they may require considerable negotiations by all concerned to achieve an ethical outcome. [pic] Figure 1 - Kohlberg's Simplified Model Using Kohlberg’s theory (figure 1) to understand Groves’ behaviour, illustrates that he operated at the self...

Words: 3409 - Pages: 14

Premium Essay


... Group No: 3 Ahmed Musfar (M00502049) Bikas Shrestha (M00504031) Crispen Rodrigues (M00511976) Sameer Dhulekar (M0050750) Shanon Jaywardane (M00504738) Report Word count: 1328 Assignment: Group Course Work Subject: Ethics, CSR and Governance Prof: Dr. Andrea Werner Module: Management Perspective (MGT4814) Report: The Case Study Primark (Rana Plaza, Bangladesh) Assignment: Group Course Work Subject: Ethics, CSR and Governance Prof: Dr. Andrea Werner Module: Management Perspective (MGT4814) Report: The Case Study Primark (Rana Plaza, Bangladesh) Thesis Statement An Ethics and CSR responsibilities for the organization using a case study of Primark Contents Thesis Statement 1 Contents 2 Abstract 3 Introduction 3 Analysis 4 Business Ethics 4 CSR 5 Conclusion 7 References 8 Disclaimer: 10 Abstract This report discusses corporate social responsibilities and business ethics in the case of the Rana Plaza collapse. In April 24, 2013 the Rana Plaza factory in Savar district of suburb Dhaka, Bangladesh collapsed, where death tolls reached 1129. Those were garment workers for outsourced operations from well-known Western high street fashion brands. One of the factories buried in the collapse was a supplier of Primark. The incident unveiled debate on duties in supply chain responsibilities, outsourcing and offshoring operations. The article first analyses Primark policies and practices, on ethical and CSR frameworks, leading......

Words: 1900 - Pages: 8

Premium Essay

Business Research Ethics Paper

...Business Research Ethics Paper Wayne Bell University of Phoenix RES/351 Business Research Robert Caldwell July 24, 2015 The Goldman Sachs Case When we think of the word ethics, we think of rules and regulations to keep us honest or to know the difference between right and wrong. Another way of defining ‘ethics’ focuses on the disciplines that study standards of conduct, such as philosophy, theology, law, psychology, or sociology” (Resnik, 2011). Considered by many economists to be the worst financial crisis since the Great Depression, the financial crisis of 2007 was primarily due to the collapse of the housing industries subprime mortgage market. Residential mortgage-backed securities are commonly issued bonds that are backed by thousands of residential real estate mortgages.  The Goldman Sachs case was comprised of subprime mortgages. Most business organization possess a mission statement, a code of ethics or rules to follow to be able to limit the ethical issues that may arise within the Institution, Goldman Sachs did not have any of these. In exploring ethical behavior in the banking and financial institutions whose sole existent is to increase profits through the sale of consumer loans. In 2005, the banking industry started issuing subprime mortgage loans to consumers regardless of their income qualification. “The collapse in prices precipitated the collapse in banking profits, prompting a......

Words: 808 - Pages: 4

Premium Essay


...RUNNINGHEAD: ETHICS PAPER 1 Ethics Paper Lynda Katzen MGT/496 August 20, 2014 Gary Solomon ETHICS PAPER 2 INTRODUCTION This paper is about the role of ethics and social responsibility in developing a strategic plan while considering stakeholder needs and agendas. Included in this paper will be one example of a corporation overstepping the ethical boundaries for stakeholder programs, and what types of preventative measures could be taken to avoid this type of situation. ETHICS AND SOCIAL RESPONSIBILITY There are couple important issues of ethics and general responsibility in the strategic outlining process. According to webster dictionary, the definition of ethics is an area of study that deals with ideas about good and bad behavior and dealing with what is morally right and wrong ("Merriam-Webster", nd). The stakeholders of any corporation are not just investors, they have the power to influence the financial impact of a corporation. Ethical responsibilities are responsibilities that are governed by a moral code of conduct and are composed of beliefs that are generally held by the owners and the stakeholders of the corporation. The stakeholders also have a social responsibility...

Words: 613 - Pages: 3

Premium Essay


...The Rise and Collapse of Enron: Financial Innovation, Errors and Lessons Elisa S. Moncarz* Raúl Moncarz* Alejandra Cabello** Benjamin Moncarz*** Abstract Recent collapses of high profile business failures like Enron, Worldcom, Parmlat, and Tyco has been a subject of great debate among regulators, investors, government and academics in the recent past. Enron’s case was the greatest failure in the history of American capitalism and had a major impact on financial markets by causing significant losses to investors. Enron was a company ranked by Fortune as the most innovative company in the United States; it exemplified the transition from the production to the knowledge economy. Many lessons can we learn from its collapse. In this paper we present an analysis of the factors that contributed to Enron’s rise and failure, underlying the role that energy deregulation and manipulation of financial statements played on Enron’s demise. We summarize some lessons that can be learned in order to prevent another Enron and restore confidence in the financial markets, as well as in the accounting and auditing professions. Keywords: Enron, Corporate Ethics, Corporate Bankruptcy, Creative Accounting. Introduction T he rise and fall of high profile businesses like Enron, WorldCom, Parmlat and Tyco has been a subject of great debate and research among regulators, investors, government and academics in the recent years. Enron, for one, was the greatest......

Words: 7654 - Pages: 31

Free Essay

Learning Team Reflection Week 6 Mgt/521

...Learning Team Reflection MGT/521 September 14, 2015 Sandra Griffin Learning Team Reflection Stephanie Ledford - Introduction Henry Lehman, a German immigrant, founded a small grocery store in Montgomery, Alabama in 1844. Then in 1850 along with his two brothers they founded Lehman Brothers. Lehman Brothers started as a general merchandising business and evolved into a commodities broker (Investopdeia Staff, 2009). The American Civil War would prove to be an early challenge, followed by the Great Depression in the early part of the 20th Century. The swift development of railroads across the United States was an advantage the Lehman Brothers were able to utilize and led the company to serve as financial advisors and underwriters for the railroad companies. In 1920, Robert Lehman became a partner and moved into a leadership role. He centered his leadership role on the belief that consumption was the key versus production. Because of this firm belief, Lehman Brothers prospered with financing for airline and motion picture companies. The age of electric in the 1950’s, capital market growth in the 1960’s, the rise of international business in the 1970’s, and the focus of mergers and acquisitions in the 1980’s helped Lehman Brothers grow as a company. From the outside, it appeared that Lehman Brothers was performing well as a company. The bubble burst for the company in 2008 when the subprime mortgage lending crises hit the United States. Lehman Brothers filed bankruptcy on......

Words: 1481 - Pages: 6

Premium Essay

What Is Busines Ethics

...What is Business Ethics Troy Jaskolka MGT/216 July 26, 2010 William Carroll What is Business Ethics In today’s business culture, ethics is a trait highly publicized by not only the media but also by business professionals. According to “BNET Business Dictionary” business ethics is a system of moral principles applied in the commercial world. Business ethics provide guidelines for acceptable behavior by organizations in both their strategy formulation and day-to-day operations. Business ethics is also known as morality in business. This definition constitutes a trait that should be acceptable business acumen. Today, business ethics are portrayed as skewed and self serving. Because of such scandals as Bernie Madoff, Enron and the Arthur Anderson scandal, millions of people have come to the conclusion that businesses have pushed aside these ethics and welcomed the bottom line as their only source of morality. With such scandals taking over print media, television and radio, it is hard for one not to develop mistrust. Consumer confidence issues are a category of business ethics that affect not only the community but also the well being of the company. In order for a company to sustain in both the community and business world, sales must incrementally adjust to the growth of the company. A drop in sales because of mistrust issues can result in declining stock performance, layoffs, and eventually company closings. Consumer confidence......

Words: 689 - Pages: 3

Premium Essay

Hih Collapse

...light of the collapse of Health International Holdings (HIH). The HIH collapse warranted a Royal Commission investigation and also recorded the biggest corporate collapse in Australia's history. Corporate failures of similar magnitude such as Enron and Parmalat have occurred elsewhere and sparked large scale investigation and media scrutiny. In all of these corporate failures, the level or absence of disclosure has had a lot to do with the unexpectedness of the collapse. This paper analyses the HIH collapse within a Foucaldian framework to demonstrate the need for accountants and auditors to work together so as to avoid criticism of the profession arising from unexpected corporate failures in the future. INTRODUCTION The purpose of this paper is to analyse the collapse of HIH and the role of its auditor, Andersen, within a Foucauldian framework encompassing archeology and genealogy of power and knowledge. The mythical Jedi force is used as a metaphor for power attained by the accounting profession through its claim to superior knowledge and skill to be applied in the public interest. Accordingly, the force includes professional ethics. The dark side is used as a metaphor for the collapse of HIH because accounting standards and practices, the accounting profession's power base, were used to conceal impending collapse resulting in the escalation of losses to policy holders, creditors and the general public. Regulatory responses to the Royal Commission into the collapse of......

Words: 7735 - Pages: 31

Free Essay

Business Research Ethics

...Running head: BUSINESS RESEARCH ETHICS 1 Business Research Ethics RES 351 February 28, 2013 BUSINESS RESEARCH ETHICS 2 Business Research Ethics Before the debt crisis of 2008 exploded, one of the two American banks that backed a large portion of United States mortgages was fined in 2006 because of improper accounting practices. Ethics are a set of standards derived by individual or company ideals of what is right and wrong. Looking back, it should have been clear the poor ethics of this bank would contribute to the economic disaster that would follow. A report conducted by the Office of Federal Housing Enterprise Oversight (OFHEO) from 1998 to 2004 discovered that Fannie Mae’s senior management deliberately influenced improper accounting by swaying internal auditors resulting in undeserved large bonuses. This was accomplished without advising any stockholder or other interested parties; the rest of the world. During this time, Fannie Mae reported unfettered profit growth and reaching publicized earnings targets per share for each quarter. "The image of Fannie Mae as one of the lowest-risk and 'best in class' institutions was a façade" (Fannie mae: Unethical, 2006). During this investigation, Fannie Mae evaded the OFHEO further adding to their harsh fine levied by them and the Securities and Exchange Commission. Fannie Mae’s mismanagement, manipulation of earnings, and unhindered growth culminated in $10.6 billion in losses, “well over a billion dollars in......

Words: 1200 - Pages: 5

Premium Essay

Subprime Loans

...Abstract This paper investigates the unethical practices of mortgage brokers, spurred on by an overzealous government, that have resulted in the collapse of the housing market and the subsequent decline of the American economy. It also reviews the proper role of subprime mortgages in the market as well as an analysis of the systemic effects of the subprime mortgage market on the global economy.   Introduction The problem to be investigated is how the subprime loan market influenced the market collapse of 2008. The unethical practices of mortgage brokers, spurred on by an overzealous government, resulted in the collapse of the housing market and the subsequent decline of the American economy. This in turn affected worldwide markets and has led to instability throughout the world as countries scramble to shore up their economies with loans and bailouts. Ethics of Subprime Mortgage Brokers While the ethics of subprime mortgage brokers can certainly be questioned, they cannot take the brunt of the blame for the crisis that befell the economy beginning in 2007-2008. Economist Lawrence White attributes the financial collapse of 2008 with the political effort to expand home ownership to those people who were not qualified under traditional market constraints (Yandle, 2010, p.346). Nevertheless, the attractiveness of the subprime loan market to brokers cannot be denied as the significant growth of that market between the years of 1994 and 2008 was accompanied by an......

Words: 1842 - Pages: 8

Premium Essay


...Strategic Management Process Paper MGT/498 March 10, 2014 Abstract: This paper explains the role of ethics and social responsibility when developing a strategic plan, and includes considering stakeholder needs and agendas during this process. This paper uses an example of a company overstepping ethical boundaries for stakeholder agendas, and what types of preventative measures could be taken to avoid this type of situation. Essay: Success is a common goal of almost all businesses in society today. Success does not come over night and with that being said it is important for management teams to develop a strategic plan in order to grow and set the benchmark for other companies in the industry. While every company should have a strategic plan in order to grow; this plan should be developed and executed with ethics and a great social responsibility. In order to determine the future direction of a company, it is necessary to understand the company’s current position and the possible roads that it can take in order achieve its goals. For this reason a strategic plan is essential for the growth of a company. Every successful business has a plan and knows where it is heading in the future. A financial services business is no different. Taking the time periodically to review the company's past performance can help predict the future performance of the company. With having a prediction of the future gives the company...

Words: 844 - Pages: 4

Premium Essay

Corporate Governance

...Question No. | Answer | 1 | a. Well-developed equity market & dispersed ownership | 2 | c. Voluntary practices | 3 | a. Advertising | 4 | a. Monetary Policy | 5 | c. That portion of bank’s total cash reserves which they are statutorily required to hold with the RBI. | 6 | b. The Greenbury Committee, 1995 | 7 | b. Bank | 8 | d. Harshad Mehta scam, 1992 | 9 | b. Diffused Debt | 10 | a. Director | 11 | b. De Facto | 12 | b. Independent auditors | 13 | a. Ganguly Group | 14 | c. Bribery | 15 | c. The Pluralistic Model | 16 | a. The National Environment Policy, 2004 | 17 | b. Dhanuka Committee | 18 | a. It lays down the framework for creating long-term trust between companies & the external provides of capital | 19 | d. He has to ensure that his work involves exercise of judgment. | 20 | b. Stewardship Theory | Section B: Short Notes | Question | Answer | 11(continued)1(continued) | Clause 49The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement between a company and the Stock Exchanges on which it is listed. The Listing Agreement is identical for all Indian Stock Exchanges, including the NSE and BSE. This clause is a recent addition to the Listing Agreement and was inserted as late as 2000 consequent to the recommendations of the Kumar Mangalam Birla Committee on CG constituted by SEBI in 1999. Clause 49, when it was first added, was intended to introduce some basic CG practices in Indian companies and......

Words: 4860 - Pages: 20

Free Essay

The Vatican Bank: Conforming to Caritas in Veritate?

...John Razel A. Mapaye BSA –IV Accounting Synthesis Case Name: “The Vatican Bank: Conforming to Caritas in Veritate?" By Richard Hudson Facts: The Institute for Religious Works (IOR), commonly known as the Vatican Bank is one of the most secretive and controversial financial institutions in the world. Since the inception of the modern Bank in 1943, the Vatican Bank has faced a series of scandals relating to its role in the Second World War, accusations of money laundering and its role in the collapse of Banco Ambrosiano in 1982. However, what makes these scandals and accusations particularly interesting is that the Vatican Bank operates within the Catholic Church, an organization with its own tradition of financial ethics developed over multiple centuries. Pope Benedict XVI’s encyclical, Caritas in Veritate represents the most recent expression of Catholic thought relating to financial ethics. This article considers whether these scandals directly contradict the ethical stance of the encyclical and whether this in turn undermines the Vatican Bank’s ethical standing. The Vatican Bank: What is it and how does it work? The name ‘Vatican Bank’ is a somewhat misleading name as it implies the Vatican Bank is heavily integrated into the Holy See (the microstate consisting of Vatican City). In fact, the Vatican Bank is a privately held bank, rather than a state-owned bank, and therefore its assets are not directly connected to the Holy See. Despite the Vatican......

Words: 2837 - Pages: 12

Premium Essay

Enron Ethics Case Study

...paper is to analyze how and why the Enron Scandal took place, how the energy giant suddenly collapsed and eventually filed for bankruptcy. I. Special Purpose Entities Enron created partnerships within their own organization which led to them creating new financial instruments, called SPE’s which was used to falsify the accounting. Enron used SPE’s such as LJM Cayman LP, LJM2 Co-Investment LP, and Raptor vehicles, which is designed in part to hedge an Enron investment in a bankrupt broadband company Rhythm NetConnections, to “increase leverage and ROA without having to report debt on its balance sheet” (Journal of Accountancy, 2002). Enron entered into a series of transactions with these partnerships controlled by Fastow that served no economic purpose other than to manipulate reported profits. Under his leadership, Enron used these partnerships to ‘park’ troubled assets that were falling in value. These assets included overseas energy facilities, broadband operation (Rhythms), and stocks in companies that had been spun off to the public. They also engaged in...

Words: 1936 - Pages: 8