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The problem to be investigated is ethical challenges and grey areas within business processes that are exploited by businesses for financial gain. Laddering, Layered investment strategy - Essay Example

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Goldman Sachs has used the layering strategy to expand its business and exponentially increase its profit by deceit. The layering strategy mainly refers to the business process whereby a firm floats a new company and buys 90% of its share from secondary market in order to inflate its market value…
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The problem to be investigated is ethical challenges and grey areas within business processes that are exploited by businesses for financial gain. Laddering, Layered investment strategy
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The problem to be investigated is ethical challenges and grey areas within business processes that are exploited by businesses for financial gain. Laddering, Layered investment strategy

Download file to see previous pages... Once the prices escalate, the shares are sold to make profits from the gullible public. Goldman has been using this strategy to make quick money. It is ethically wrong. Business ethics are mainly principles and values that guide business strategies and decision-making processes to promote responsible behavior. Kantian ethical theory is implicit in its universalism and proposes that one must act in a manner that one would expect others to act towards oneself (Johnson, 2008). Goldman Sachs had used underhand techniques to deliberately increase the price of shares and then float the same share into the market to profit. Hence, Goldman was highly unethical and exploited the trust of the public to gain profits. Laddering It is an agreement between the client and the firm whereby the client or buyer promises to buy the shares of IPO at a higher price above the initial one so that its market shares are guaranteed to increase. This is a scam between the underwriter for the IPO and the favored client to make money at the cost of general public. Goldman Sachs has been responsible for committing this crime with the deliberate intention of fraud. Not only has the company violated the trust and confidentiality of other clients but also its irresponsible and fraudulent behavior has resulted in the bankruptcy of the new firm whose IPO was floated. A prime example is eToys, which had gone bankrupt. Hosmer (1994) asserts that business decisions need to be constructed on the basis of economic considerations, ethical values and moral obligations to its various stakeholders. Goldman’s sole purpose was to make profit and benefit few clients thereby harming the interests of its other clients and public in general. Hence, its conduct and business practice was hugely unethical. CDO or collateralized debt obligations Collateralized debt obligations are financial instruments that are mortgage backed and, therefore, attractive to clients. The short sale and maintaining short subprime position considerably benefits the firm. In 2008, Goldman became a bank holding company. Though the company was brought under the regulation of Federal Reserve Bank, it also obtained easy access to funds from Federal Reserve at zero percent interest and no time limit. It started recommending CDO to its clients. The mortgage pools of CDOs were not good and were purposely chosen for their low value by the finance director, Paulson. The deal was structured by a trusted company that continued to question the validity of the mortgage pool. Goldman insured the CDOs for $11 million with AIG. The company has created false demands by buying it and then selling it in open market to make short position. When Goldman pulled out, the clients were left with $40 million of securities which had no worth. Goldman sold its insurance profits to hedge funds. Goldman’s culture was based on maximizing profit and money for themselves and their select few clients. Promising to make a person rich by forty was the critical philosophy that encouraged them to evolve innovative ways to manipulate market and cheat general public. The general culture of dishonesty and non-accountability towards their various stakeholders was an important ingredient of their work environment. Thus, values and ethics played no part in their decision-making processes. They only conformed to the legal ...Download file to see next pagesRead More
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