Banking Industry Meltdown: The Ethical and Financial Risks of Derivatives - Research Paper Example

Banking Industry Meltdown Number It is important to that moral philosophy and business ethics, though being distinctly unique, have special roles in the wellbeing of all corporate sectors and industries. This is to the effect that moral philosophy and business ethics are the points on which corporate sectors and industries rise and fall. The upholding of moral philosophy and business ethics has always injected honesty, higher ethical values and professionalism in corporate sectors and industries. Conversely, the disregarding of moral philosophy and business ethics has always led to the unraveling of corporate sectors and industries, as is exemplified by the American banking industry between 2000 and 2008. 1. Determining Which Moral Philosophy Is Most Applicable to an Understanding of the Banking Industry Meltdown and Explanation for My Rationale Moral philosophy is very important for a keener understanding of the banking industry’s meltdown. In itself, moral philosophy can be referred to as the study or matters that pertain to moral judgments or values that are placed on decisions concerning ethical issues and right and wrong. Although moral philosophy and business ethics are closely interrelated, yet they are different. This is because, the former refers to individual’s moral values and principles that determine and define what is moral and immoral or ethical and unethical, on the one hand. On the other hand, business ethics is based on decisions that are significant to a group or stakeholders of a business or fiscal entity when executing tasks to meet the objectives of the business organization. Moral philosophies are taken as guidelines to help determine the manner in which conflicts in human interests should be settled and for the optimization of mutual benefits of people who are coexisting in an organizational or family set-up. The same also serve as a source of guide for businesspersons during the formulation of business strategies and the resolving of conflicts arising from ethical issues. In this light, deontology, teleology, justice theories and virtue ethics are used as possible moral philosophical perspectives to be used (Kolb, 2010). Egoism and utilitarianism are all fit in teleology. A teleologist will consider an act as being acceptable or unacceptable if it elicits desired outcome such as career growth, wealth, utility, fame or pleasure. Most moral philosophies will consider relativism, economics, idealism and value orientation. Idealism compares the world’s viewpoint on ideas and ideals as products of the mind. There is no repudiating that there exists a positive idealistic thinking and correlation ethical decision making. Realism takes the viewpoint that the world and its realities exist outside our thoughts and perception (Loughrey, 2013). 2. Analyzing the Case Study and Discerning If the “White Collar” Crimes Committed Differ in Any Substantive Manner from Other More “Blue Collar” Crimes At first, it must be appreciated that the banking industry meltdown of 2008 was occasioned by the greedy banking systems and organizations. In this case, banks continued with unfettered and uncontrolled trading in derivatives in several ways. Another factor which attracted the banking industry meltdown of 2008 is the lack of transparency that discouraged the effecting of accountability measures and supervisory roles. It is because of the failure to ensure accountability that cases of price fixing, foreclosure abuses, money laundering, the manipulation of securities and tax evasion were successfully not extirpated (Altman, 2013). There is an aspect in which the banking industry meltdown of 2008 strikes some similarities between white and blue collar crimes. Aspects of blue collar crime manifest in the banking industry meltdown as they were fueled by passion. While blue collar crime is normally fueled by passions such as rage and revenge, the banking industry meltdown of 2008 was informed by passions such as greed. Again, like any other blue collar crime, the crimes that caused the banking industry meltdown led to loss of people’s property and theft crimes (Benedikter, 2011 and Koslowski, 2011). According to Riordan (2007) and Ferrell & Ferrell (2010), characteristics of white collar crime are more apparent than blue collar ones. Just like any other white collar crime, people of higher social status and upper level occupation, specifically, the banks committed these non-violent crimes tolerated accountability that cases of price fixing, foreclosure abuses, money laundering, the manipulation of securities and tax evasion. These are the white collar crimes that culminated into the banking industry meltdown of 2008 (Fried, 2012 and Hoffman, 2010). 3. Determining and Discussing the Role That Corporate Culture Played In Banking Industry Scenario Corporate culture fundamentally and extensively precipitated the banking industry scenario or the meltdown it brought about. This is because sound corporate culture should have been strong enough to deal with ethical and professional malpractices such as price fixing, the abuse of foreclosures, money laundering, tax evasion and using worthless securities to mislead clients. It must be noted that it is not that the United States banking industry was derelict of the corporate culture. Instead, because of the need to maximize profit in the banking industry and the housing sector, ethical and professional guidelines and standards were deliberately ignored, so as to catalyze the public’s penchant for securing housing loans (Rezaee, 2011 and Ferrell, Fraedrich & Ferrell, 2011). In respect to the above standpoint, had the corporate culture in the banking been observed, then the aforementioned acts of professional misconduct could have been stopped, discouraged and subjected to prosecution. It is less likely that these breaches of professional misconduct could have been exacted without the detection of the senior management officers in the banking industry. If the senior management and decision making organs in the banking industry were not complicit to the white collar crimes and unethical practices, then it follows that the acts would have been handled through: investigations and the exaction of correctional measures. The correctional measures could have been: investigation, censuring, warning, dismissal of employees who have partaken in the corrupt practices and stayed thereto and cooperating with the law enforcement agencies so as to ensure that the aforementioned white collar crimes are brought to legal prosecution (Thorne, McAlister, Ferrell & Ferrell, 2010). 4. Postulations on How Leaders within the Banking Industry Could Have Used Their Influence to Avert the Industry Meltdown As has been mentioned immediately above, there are measures that the corporate leaders in the banking industry could have taken in order to ward off the disaster that is the banking industry meltdown of 2008. Had the corporate leaders been serious about sticking to corporate culture, then such leaders should have: allowed for investigations, censuring, warning and dismissal of employees who have partaken in the corrupt practices and stayed thereto; and cooperated with the law enforcement agencies so as to ensure that the aforementioned white collar crimes are brought to legal prosecution. Instead, it is clear that the banking sector had been warned by forensic departments and auditing and accounting firms on the previously mentioned corporate malpractices. The fact that these leaders were privy to the corrupt and professional misconduct in the banking sector and abetted them meant that they were complicit to them. References Altman, E. I. (2013). Corporate Financial Distress: A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy. New York: John Wiley & Sons Benedikter, R. (2011). Social Banking and Social Finance: Answers to the Economic Crisis. California: Stanford University Press. Ferrell, O. C. & Ferrell, J. F. (2010). Business Ethics: Ethical Decision Making & Cases. London: Cengage Learning. Ferrell, O. C., Fraedrich, J. & Ferrell, J. F. (2011). Business Ethics: Ethical Decision Making & Cases. Boston/ London: South-Western Cengage Learning. Fried, J. (2012). Who Really Drove the Economy into A Ditch? New York: Agora Publishing. Hoffman, M. (2010). The Ethics of Accounting and Finance: Trust, Responsibility and Control. Westport: Greenwood Publishing Group, Inc. Kolb, R. (2010). Lessons from the Financial Crisis: Causes, Consequences and Our Economic Future. New Jersey: John Wiley & Sons. Koslowski, P. (2011). The Ethics of Banking: Conclusions from the Financial Crisis. Norwich: Springer. Loughrey, J. (2013). Directors’ Duties and Shareholder Litigation in the Wake of the Financial Crisis. Cheltenham: Edward Elgar Publishing Ltd. Rezaee, Z. (2011). Financial Services Firms: Governance Regulations, Valuations and Mergers. New York: John Wiley & Sons. Riordan, P. (2007). Values in Public Life: Aspects of Common Goods. Berlin: Lit Verlag. Thorne, M. D., McAlister, T. D., Ferrell, C. O. & Ferrell, L. (2010). Business and Society: A Strategic Approach to Social Responsibility and Ethics. Boston: South-Western Cengage Learning. Read More