Banking Industry Meltdown
Banking Industry Meltdown: The Ethical and Financial Risks of Derivatives
Steven Young
Strayer University
Dr. Mary Tranquillo
Business Ethics: Ethical Decision Making and Cases
November 29, 2012
Determine which moral philosophy (as discussed in chapter 6) is most applicable to an understanding of the banking industry meltdown Moral philosophy in business is hard to classify, especially in today’s economic times where there are government bailouts, loss of paying jobs, home foreclosures and the horrible real estate market. The banking industries near complete collapse can be closely linked to the mortgage crisis that has hit the United States but there are deeper issues that have lead to the banking industry meltdown. The banks acted with an egoism moral philosophy which has sometimes been described like a loan sharking operation, just legal. The banks pay very little interest to its depositing members for interest bearing accounts like 1% or even less than that while at the same time charging 15% to 35% on credit card balances. They do this because there is no limit placed on interest rates that a bank can charge by the federal government. The banks feel this is right or acceptable behavior in terms of their individual financial institutions maximizing their own interest. Due to these financial instruments put in place by the banks and not think about the possible consequences they presented if consumers defaulted on these loans. The downfall was never even examined by the banks or its investors, and it came to catch up with them in 2008-2009 with the economic downturn. No one cared to think ahead, thinking they had a fool proof plan that couldn’t fail because the insurance policy derivatives presented. Banks and investors carried themselves with Ego that displayed they couldn’t fail. However, as the case revealed in 2008-2009 the housing market tumbled due to consumers not being able to make payment on their variable rate mortgages leaving the
Steven Young
Strayer University
Dr. Mary Tranquillo
Business Ethics: Ethical Decision Making and Cases
November 29, 2012
Determine which moral philosophy (as discussed in chapter 6) is most applicable to an understanding of the banking industry meltdown Moral philosophy in business is hard to classify, especially in today’s economic times where there are government bailouts, loss of paying jobs, home foreclosures and the horrible real estate market. The banking industries near complete collapse can be closely linked to the mortgage crisis that has hit the United States but there are deeper issues that have lead to the banking industry meltdown. The banks acted with an egoism moral philosophy which has sometimes been described like a loan sharking operation, just legal. The banks pay very little interest to its depositing members for interest bearing accounts like 1% or even less than that while at the same time charging 15% to 35% on credit card balances. They do this because there is no limit placed on interest rates that a bank can charge by the federal government. The banks feel this is right or acceptable behavior in terms of their individual financial institutions maximizing their own interest. Due to these financial instruments put in place by the banks and not think about the possible consequences they presented if consumers defaulted on these loans. The downfall was never even examined by the banks or its investors, and it came to catch up with them in 2008-2009 with the economic downturn. No one cared to think ahead, thinking they had a fool proof plan that couldn’t fail because the insurance policy derivatives presented. Banks and investors carried themselves with Ego that displayed they couldn’t fail. However, as the case revealed in 2008-2009 the housing market tumbled due to consumers not being able to make payment on their variable rate mortgages leaving the
Bibliography: http://www.hrmreport.com/article/Business-ethics-is-inextricably-linked-to-the-current-financial-meltdown/ Thomas, Huw November 29, 2012 Principles for enhancing corporate governance, October 2010, ISBN 92-9131-844-2 (print); http://www.bis.org/publ/bcbs176.pdf Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2008). Business Ethics: Ethical Decision Making and Cases US: South-Western, Cengage Learning. Haig, M. (2005). http://www.frbsf.org/news/speeches/2009/0416.html, Conference on the State of the U.S. and World Economies—“Meeting the Challenges of the Financial Crisis” By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, April 16, 2009