Overdose: the next financial crisis - Essay Example

Moreover, moral code indicates that businesses have a larger role to play in the economy than just profits and losses, measured in terms of dollars and cents. A new business dimension which involves 1) economic aspects such as creating jobs to the labor force, contributing to the tax revenue of the government and supporting the wellbeing of the disadvantaged groups in the society 2) social aspects such as providing a safe working environment, health insurances, training and retirement benefits to the employees and prevent hiring child labor and 3) environmental aspects such as recycling resources and preventing wastage has been created by the ethical concerns.

However, a firm or a producer is known as an agent who is driven by the primary motivation of maximizing the profits. Profit maximizing production procedure may be not ethical in terms of the economic, social and environment concerns. Therefore, an ambiguous layer of knowledge is present in what is known as the ethical conduct in business. However, much deeper insight into business ethics reveals that ethics help businesses to achieve their profit goals in the long run. It is further described by using the benefits of applying moral conduct in business management. . Example, the subprime mortgage crisis faced by BNP Paribas in August 2007, caused approximately 1.

6billion euros loss. According to the financial experts the deflation of subprime loans or decreasing the cost of borrowing while increasing the return to investments which in turn increases the risk of bankruptcy caused the global banking system failures during this time period (Friedman, 2009). BNP Paribas SA Subprime Mortgage Crisis Ethical dilemma is created when an individual, a community or a firm is not in control of all the factors that influence the choices that they make. Example, there were bad macroeconomic policies practiced in the USA which triggered the subprime mortgage crisis in BNP Paribas in France.

Macroeconomic policies in the countries can destabilize the global financial system while the individual investment bankers’ decisions can have only an insignificant impact on the world financial markets. State banking laws which were practiced during 1930s in America restricted the activities of the commercial banks to specific geographic locations and heavily used Federal deposit insurance and Federal Reserve funding to protect the banking system against risk and uncertainty. This system was considerably stable and fairly profitable.

Towards the late 1960s depositors and investors believed the profitability of the above financial system as inadequate and hence shifted into “shadow banking system” which heavily utilized securitization and derivative instruments in place of real money. Development of the new “shadow banking system” decreased the importance of depositors to the commercial banks as a source of funds. In August 2007, BNP Paribas SA which is the largest bank in France froze three investment funds of