Jake Clawson Ethical Communication Assignment 2/13/2014 JPMorgan Chase, Bailouts, and Ethics “Too big to fail” is a theory that suggests some financial institutions are so large and so powerful that their failure would be disastrous to the local and global economy, and therefore must be assisted by the government when struggles arise. Supporters of this idea argue that there are some institutions are so important that they should be the recipients of beneficial financial and economic policies from government. On the other hand, opponents express that one of the main problems that may arise is moral hazard, where a firm that receives gains from these advantageous policies will seek to profit by it, purposely taking positions that are high-risk high-return, because they are able to leverage these risks based on their given policy. Critics see the theory as counter-productive, and that banks and financial institutions should be left to fail if their risk management is not effective. Is continually bailing out these institutions considered ethical? There are many facets that must be tak...
Wells Fargo account fraud scandal One of the most recent white-collar crimes involved Wells Fargo, a banking and financial services provider. In 2016, San Francisco-based bank Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts without permission of their customers. Opening about 1.5 million fraudulent deposit accounts and submitting 565,443 credit card applications allowed Wells Fargo employees to boost their sales targets and receive bonuses. Consequently, customers were wrongly charged fees for accounts they did not know existed. In this business crime scenario, Wells Fargo is involved in paying $185 million in fines and refunding $5 million to affected customers.
One year ago, on September 8, 2016 the Consumer Financial Protection Bureau(CFPB), the Los Angeles City Attorney and the Office of the Comptroller of the Currency (OCC) fined Wells Fargo Bank $185 million, alleging that more than 2 million bank accounts or credit cards were opened or applied for without customers' knowledge or permission between May 2011 and July 2015. This essay will discuss the Wells Fargo scandal by explaining how the event happened and describing how the organization approached handling a response to the crisis. This will be seen, firstly by describing the how the scandal happened, and what were the causes, secondly by discussing the reaction of the company in front of the situation, how they dealt with the crisis and then
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
In September 1998, the Federal Reserve of New York intervened to rescue Long-Term Capital Management (LTCM), a very prominent hedge fund on the brink of collapse. The Fed followed this course of action because it wanted to prevent any dire consequences that would affect world financial markets should the hedge fund be allowed to fail. The incident induced an open-ended extension of the Fed’s responsibilities without congressional authorization. Furthermore, the benefits gained through the U.S. Federal Reserve’s intervention in the rescue of LTCM may have been lower than anticipated. Although it did not provide any public money for the salvation operation, the costs, in terms of ‘moral hazard’ as well as the indirect implication of Crony Capitalism, are perhaps greater than those initially perceived.
The Lehman Brothers, an investment banking firm filed for bankruptcy in September of 2008 due to poor financial choices. The company made many bad decisions because of their greed and unethical decision to manipulate the books. The lack of success by the Lehman Brothers shows that it is imperative to be self-evident with financial reporting. The bankruptcy shows that they failed to use factual figures by disguising their actual financial position. The analysis of the Lehman Brothers will show the acts of unethical financial reporting and the effect it had on this financial banking firm.
...ttinger, could leave people liable to lose funds (2013). The definition of moral hazard is “any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go wrong” (Pettinger, 2013). Moral hazards used in the recession in the form of bailouts only gave firms, banks and other organizations more reason to take risk knowing they have nothing to lose. If anything comes from moral hazards using fiscal and monetary policies would be higher debts, which in one day create more jobs lost, more homelessness, poor education and more healthcare expenses. The Great Recession of 2008 in North America was an enormous economic downturn causing the real GDP to fall at a nearly six percent annual rate (Pettinger, 2013). In the end, the recession recovered because policymakers enacted the monetary and fiscal policies.
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
According to Milton Friedman’s view of individualism “what corporations have the obligation to do is make a profit within the framework of the legal system, nothing else” (Machman, 1994, pg. 57) is what position Wells Fargo took in this case. According to this theory Wells Fargo leadership was acting ethically because their goal was to make a profit which they did, and it was “bad employees” who were to blame and committed the fraud. The Utilitarianism theory by John Stuart Mill states that “utilitarianism is attempting to do the greatest good for the greatest number of people. “(Johnson, C, 2016, p. 4). According to this theory I believe Wells Fargo would be unethical because they didn’t do the greatest good for the greatest number of people whom were affected. In fact, they did the opposite by acting unethically to the greatest number of people which were their
Eight years ago, the world economy crashed. Jobs were lost, families misplaced, hundreds of thousands of people left shocked and confused as they watched the security of their world fall to pieces around them. In, “The Big Short,” a film directed by Adam McKay and based on the book written by Michael Lewis, viewers get an inside perspective on how the financial crisis of 2008 really happened. Viewers learn the truth about the unethical actions and irrational justifications made by those who unwittingly set the world up for failure. Two main ethically tied decisions are brought into question when watching the film: how could anyone conscionably make the decision to mislead investors by misrepresenting mortgage backed securities (MBS), and why
At the heart of the bailout outrage was a sense of injustice. Even before the bonus issue erupted, public support for the bailout was hesitant and conflicted. Americans were torn between the need to prevent an economic meltdown that would hurt everyone and their belief that funneling massive sums to failed banks and investment companies was deeply unfair. To avoid economic disaster, Congress and the public agreed. But morally speaking, it had felt all along like a kind of extortion. The two possible reasons the public thought the executives receiving the bonuses didn’t deserve them are — greed & failure.
A solution to the moral hazard problem lies within government supervision and regulation. In the article, Stern challenges the assertion that proposals that rely exclusively on government regulation will satisfy the problem of moral hazard, especially for TBTFs (Too Big to Fail banks). Stern states several factors to support such assertions:
...company workers being affected by the financial crisis. We don’t want to point fingers here only assess the ethical dilemmas that these companies face. Subjective human judgment opens up for the possibility of undesirable human biases and manipulation. However, with or without human judgment, financial models of credit risk are subject to manipulation, both legally and fraudulently.
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...
The movie 'Wall Street' is a representation of poor morals and dissapointing business ethics in the popular world of business. This movie shows the negative effects that bad business morals can have on society. The two main characters are Bud Fox played by Charlie Sheen and Gordon Gekko played by Michael Douglas. Bud Fox is a young stockbroker who comes from an honest working-class family but on the other hand, Gordon Gekko is a millionaire who Bud admires and wants to be associated with. Greed seems to be a huge theme of this movie. This movie portrays the unethical society we live in. It shows how money oriented society has become and that people will do almost anything to get ahead. Competitiveness has become such a widespread game all over the country, especially in big cities.
“This near-death experience for the global economy led to renewed regulatory focus on the largest banks that are deemed “too big to fail” because of their importance to the worldwide financial system.”