Ethic and Critical Thinking - Movie Review Example

Ethic and Critical Thinking “Inside Job” was a movie performed to impart knowledge on the genesis of the world financial crisis that was adversely affecting the world economy to the public. In the movie, information and facts were gathered by interviewing leading economists, government’s officials and Wall Street executives. The information gathered was going to be useful in getting concrete facts concerning the financial meltdown experienced globally. The film focused on unveiling the cause of the impending financial crisis. From the film, it was clearly established that the crisis resulted from ethical or unethical business practices in the business environment. The movie unconditionally showed that the financial crisis experienced globally was certainly caused by ethical practices that were perpetuated by financial services industry. The film further indicated that the immoral practices in the financial service industry were contributed by the general public, entrepreneurs, and government officials. This means that these groups participated in perpetuating these unprofessional activities in the face of economic meltdown in the world (Fergusson 46). From the film, it is also clear that the financial crisis experienced in the world was caused by the unethical practices in the business environment. The film was understandably irritating because financial institutions concentrated more on undertaking dubious business practices that had serious implications on the economy of the nation. The financial institutions at this time abandoned their responsibility of ensuring that the stakeholders were not exploited by greedy individuals and organizations. These greedy individuals and companies were guided by their individuals’ interests and greed that made them turn into unprofessional practices (Greenspan 98). The financial service industry was no longer interested in promoting strategies that would boost the standard of the economy via increasing the capital for other companies within and outside the industry. The increase in the market capital lowered the unemployment rate and consequently, boosted the country’s Gross Domestic Product (GDP). The industry had in the recent reduced capital for some of the firms, thus impacting negatively on the economy of the country. The government, through financial institutions gave capital to few selected companies thus favoring some companies. This created unequal financial implications to these companies. These companies, who were allocated capital, benefited few individuals thus compromising the economy of the nation. The discriminatory awarding of capital to few companies had negative implications to the economy of the country. This practice by investment banks was unethical since the policy on the increase of capital to firms needed to benefit all the firms in the business environment (Greenspan 98). In the past decades, the principal interest of the financial service industry has shifted where the industry no longer meet the interests of the shareholders in the industry. The shareholders interests were not; however, the concern of the corporate, but had shifted onto individuals thus leading to two aspects-boom and bust. The Boom Boom was the period when the economy of the country was experiencing positive growth. The boom aspect was mainly attributed to three factors, which comprise of, new mortgage structure individual incentives, and government deregulation policies. The boom aspect in the business environment presented a lot of challenges to the financial aspect. Boom, which was expected to bring economic growth, turned to the source of financial crises in the world. This period promoted some aspects of immoral practices where the companies and individuals took advantage by exploiting their clients. The unethical deals that were undertaken during this time will be discussed based on three aspects namely: individual incentives, government deregulation, and new mortgage mechanisms. Individual Incentives During the moment of economic boom, efficient firms paid massive remunerations to workforce, which in turn motivated employees to boost their profits. However, at the crisis time, the companies aimed at making profits at the expense of their consumers. This was unethical since the company needed to see the benefits to both employees and customers, but instead they focused only on the element of profit-making. During this time, employees from influential firms misused the corporate finances. This misuse of the corporate funds by these employees affected the economy negatively. For instance, during the time of the internet boom in United States, the companies focused on making more profits at the expense of consumer satisfaction. This was evident when financial institutions gave incentives to these firms, and at the same time, investment banks understood that the approach would fail. The stock analysts at this time were paid an enormous amount of finances by the companies to bring in voluminous sales. The stock analyst in this regard manipulated their own consumers into purchasing “junk” investments. This business dealing by the financial service industry was clearly unethical since it comprised the right of the customers of making independent and informed decisions (Levine 154). Later on, the investments banks in the derivative markets never provided information to the entrepreneurs concerning the uncertainties that were surrounding the CDOs. The investment banks in order to deceive the entrepreneurs, worked closely with rating agencies because the banks received immense profit from the sale of CDOs. The rating agencies knew they would not incur any liability, but would receive large incentives from the banks hence rating these firms highly. The agencies wanted to maintain loyalty to the investment banks and at the same time their competitiveness in the industry. These unethical practices affected the negatively impacted on the company’s customers. Ratings agencies such as Standard and Moody’s in the United States made billions of dollars from unethical business practices. Misappropriation of corporate finances was proved from the evidence that the Wall Street employees spend 5% of the corporate funds on entertainment. The act by investment banks was immoral since they use the money in perpetuating unethical practices such as prostitution and purchase of drugs (Levine 154). New Mortgage Structure The change in principles of requirement for mortgage contributed enormously in causing the financial meltdown experienced in the United States. It raised the chances of borrowers defaulting on their loans from financial institutions as the mortgage firms, and financial institutions lowered the requirements to become certified for mortgage, simply to boost their own profits. This was because, the proceeds from the mortgage depended on the number of the mortgages loans sold. The change in the qualifications needed in the mortgage industry compromised the industry thus this becomes unethical because the mortgage firm capitalizes on the aspect of profit-making at the expense of looking at the impending impact on the economy of the country (Levine 154). In addition, because of an increase in demand from entrepreneurs to buy these mortgage loans, leading mortgage firms were no longer had to be anxious if borrowers were able return the loan. The well established mortgage firms might easily sell these mortgages to financial investment companies who would then repackage them into Collateralized Debt Obligations (CDOs) and sell the new commodities to potential investors. Consequently, mortgage firms started giving out riskier loans, which included alternative A mortgages and was below the recommended mortgages (Fergusson 46). When the leading mortgage firms were distressed to find more loan borrowers in order that more mortgages can be sold, they reduced the requirement to meet the borrowing threshold, which the subprime borrower could take mortgage loan of up to 99.3 % of the worth of the house. Mortgage firms continued with such undertakings as these mortgage loans could simply be sold to financial institutions in the derivative market, which would ultimately be sold to other entrepreneurs. However, it was immoral for these mortgage firms to undertake such dealings, as it was understandable that these borrowers have incredibly high likelihood of defaulting on the mortgage loan. By giving mortgage to them, mortgage firms did not consider the future interests of their consumers. This unethical undertaking by the mortgage firms by lowering the standards for qualification for mortgages presented implication to the economy contributing to serious economic crisis in the United States (Levine 153). The firms had the role of ensuring that the customers’ future is safeguarded through abolishing unethical issues in business. This could have been done by discouraging any form of immoral practice in any business environment. These could have ensured that the needs of both the consumer and firms are taken into consideration. The new mortgage system embraced by investors and the government left out the traditional qualification on acquiring mortgages.. In addition, the insurance firms often undertook rigorous inspections before giving out mortgages to recuperate their investment. Minimizing the conditions needed in the mortgage industry let to increasing chances of weakening the economy and companies will lost their funds through such dealings thus impacting the country’s economy (Greenspan 98). Government Deregulation In times of economic boom, government deregulation policies permitted the financial institutions to gain incredible market control and power over the economy. The two notable deregulations that were approved by the Federal State were Gramm Leach Bliley Act and the Commodity Futures Modernization Act. The Gramm Leach Bliley, which was approved in 1999, permitted the financial institutions and insurance firms to merge. This deregulation led to the formation of Citigroup –which was a joint venture between Citicorp, a commercial bank, and Travelers Insurance. This merger was beneficial to the financial institutions since it allowed them to accumulate large capital that would enable them to carry their daily businesses successfully; however, this enlarged the risk of depositors losing their money as the financial institutions commit depositor’s money for risky strategies. The Future Modernization Act contributed to financial meltdown because it shielded any regulation from being implemented on financial derivatives. At first, economists had a belief that the financial derivatives would avert investments’ risks as the investment was comprised of diverse financial resources hence proposing that the financial derivatives should not be controlled (Fergusson 46). Nevertheless, this was not ethical true because the financial derivatives were not controlled, whereby the firms engaging with the sale of Credit Default Swaps (CDSs) did not have to maintain essential cash reserve while selling the products. In addition, anybody could buy CDSs against the loan, which essentially boosted the certainty for firms selling these derivatives. The Bust The economic bust was a situation that led to collapse of the economy hence the financial crisis that hit the world. The two factors that led to financial crisis during the time of economic bust was ignorance and unethical business practices (Fergusson 46). Unethical Business Practices Bonuses in the financial service industry led to the economic crisis witnessed in the country. The employees of the financial institutions were drawn into the industry because of high amounts of bonuses, which led to high risk by perpetuating unethical practices to accrue more revenue. In the 2007, for example, Goldman Sachs begun selling CDOs particularly were doomed to fail. During this moment, the Goldman Sachs was intentionally advertising junk loans, and selling them to their consumers, recognizing in the first instance that loans awarded to consumers were default. This practice enabled the companies to accrue immense profits they do not deserve at the expense of entrepreneurs and taxpayer. This unethical aspect in this practice benefited some individuals in the company at the expense of the majority and the same time negatively impacting on the world economy (Greenspan 98). Ignorance Ignorance among many companies contributed to the financial crisis that hit the country. Company’s’ ignorance on financial sector was partially caused by unethical practices such as greed that led to the financial service industry losing billions of dollars. In 2000s, the CDS market shifted from being an insurance firm to gambling firm. Later, insurance companies such as AIG finally collapsed because these firms were ignorant and did not have a cash reserve to pay its customers. This contributed to a financial crisis that affected the economy. Primarily, AIG issued enormous quantity of CDSs as it perceived that there was a small likelihood of these CDOs defaulting. Nevertheless, as the subprime mortgage predicament started to surface, the prospect of these CDOs defaulting rose. As AIG insured its assets, it was certainly a company that was not destined to collapse, but due to its ignorant undertakings, the company collapsed. The fall of AIG would lead to numerous firms in the United States not being able to undertake their usual operations, as would then be permitted to do so. This would eventually result in a considerably harsher financial predicament. The insurance firms, in turn, encountered many defaulters that complicated their financial status hence there collapse (Levine 154). Conclusion In most instances, it is tricky to ascertain if the company’s dealing were ethical or not. This is because the company’s main undertakings are focused on the profit making aspect and optimization the shareholders’ equity. For the companies, it is important to note that, using deceptive means to manipulate consumers and investors into entering dubious deals is unethical. In addition, it is clear from the film that the insurance firms and investments participated in unethical business undertakings are focused on blindfolding their own consumers. The rating agencies also contributed to financial crisis by promoting unethical practices. They provided faulty opinions that were not consistent with what the customers needed. These agencies received bribes from the investment banks, which was unethical practices by rating high majority of the CDOs. Finally, financial service industry and entrepreneurs as seen in the film, the Inside Job, made irrational, unethical, and uninformed financial decisions that led to severe economic crisis globally (Levine 154). Works Cited Bianco, Katalina M. "The Subprime Lending Crisis: Causes and Effects of the Mortgage Meltdown." Business.cch. Business.cch, 2008. Web. 6 Apr. 2012. . CBO. "Congressional Budget Office." CBO. CBO, 22 Dec. 2010. Web. 6 Apr. 2012. . Ferguson, Charles H., dir. Inside Job. Sony Pictures Classics, 2010. Film. Fox, Justin. "The Financial Crisis Blame Game." Time. Time, 31 Dec. 2008. Web. 6 Apr. 2012. . Greenspan, Alan. Alan Greenspan Admits Mistake with Deregulation. Digital image. BoreMe. BoreMe. Web. 6 Apr. 2012. . Levine, Ross. The Governance of Financial Regulation: Reform Lessons from the Recent Crisis. The Governance of Financial Regulation: Reform Lessons from the Recent Crisis. IMF, Mar. 2011. Web. 6 Apr. 2012. . NY Times. "Executive Pay." News. New York Times, 29 Feb. 2012. Web. 12 Apr. 2012. . Yargo, John. "The History of the Credit Default Swap." EHow. Demand Media, 16 June 2010. Web. 12 Apr. 2012. . Read More