Banking Industry Meltdown Essay

Determine which moral philosophy (as discussed in chapter 6) is most applicable to an understanding of the banking industry meltdown Moral philosophy in business is hard to classify, especially in today’s economic times where there are government bailouts, loss of paying jobs, home foreclosures and the horrible real estate market. The banking industries near complete collapse can be closely linked to the mortgage crisis that has hit the United States but there are deeper issues that have lead to the banking industry meltdown. The banks acted with an egoism moral philosophy which has sometimes been described like a loan sharking operation, just legal. The banks pay very little interest to its depositing members for interest bearing accounts like 1% or even less than that while at the same time charging 15% to 35% on credit card balances. They do this because there is no limit placed on interest rates that a bank can charge by the federal government. The banks feel this is right or acceptable behavior in terms of their individual financial institutions maximizing their own interest. Due to these financial instruments put in place by the banks and not think about the possible consequences they presented if consumers defaulted on these loans. The downfall was never even examined by the banks or its investors, and it came to catch up with them in 2008-2009 with the economic downturn. No one cared to think ahead, thinking they had a fool proof plan that couldn’t fail because the insurance policy derivatives presented. Banks and investors carried themselves with Ego that displayed they couldn’t fail. However, as the case revealed in 2008-2009 the housing market tumbled due to consumers not being able to make payment on their variable rate mortgages leaving the real estate market overheated. Since banks and investors made decisions that seemed to maximize their own self-interest they acted in an egoism moral philosophy manner. Analyze the case study and discern if the â€Å"white collar† crimes committed differ in any  substantive manner from other more â€Å"blue collar† crimes White-collar crimes are mainly defined as illicit acts perpetuated by a person with a high and respectable social statu s in the course of his or her profession or occupation. This is basically related to the social idea relating the concept of white-collar jobs to professional fields In the modern criminology field, white-collar crimes is defined and identified based under two basis and reference namely by the type of offense and the type of offender. The first reference involves acts related to property issues, economic aspect, law violations and others are considered as white-collar crimes as these cases involve professional degree and culture. The second is based from the type of offender wherein the social class and personal stature of the criminal are considered. Some of the common manifestations of this form of crime are fraud, bribery, computer crime, forgery, insider trading embezzlement, and others. â€Å"Blue collar crimes are looked at in the more traditional manner as acts that are mostly offensive and violent in a physical nature such as theft, harassment, and murder. In this case derivatives were the main culprit that were used to commit the â€Å"white collar† crimes against its victims (stakeholders and customers). The crimes committed by the banks in my opinion were no different. Any crime is basically an illicit act that is illegal and forbidden by the law in which is punishable, â€Å"blue collar† or â€Å"white collar,† the crimes committed I feel are the same in any manner. Though the crimes were not of a physical nature they still caused harm to those who were affected by the crimes that were committed. For this reason I feel that the â€Å"white collar† crimes that were committed were no different in a substantive manner than â€Å"blue collar† crimes that are committed. Determine and discuss the role that corporate culture played in the banking industry scenario Corporate culture and social responsibility is good for business, as social, environmental, and ethical issues have been increasingly climbing up the list of priorities of business agendas and strategy. Culture makes every organization unique and bonds members of an organization together. The culture of the organization verifies what behaviors and ideas are acceptable and appropriate. Corporate culture is defined as a set of values, norms, and artifacts, including ways of solving problems that members (employees) of an organization share. (Ferrell, Fraedrich, & Ferrell 2011). The corporate culture could have  played a huge role in the banking industry scenario as ethics and social responsibility should be important to all businesses and business people. The banking industry had a decision to make and they chose to disregard their ethical responsibilities which helped contribute to the downfall of the banking industry in 2008-2009. If the banks had followed a more ethical corporate culture they would have been less likely to make the unethical decisions that they made. They should have adhered to the tradition and history of their respective financial institutions and considers their investors, stakeholders, and customers before making the decisions that they made. If they would have taken the time to do this they would have taken the time to further investigate and evaluate the possible ramifications of their actions and possibly look for alternatives that may have averted the banking industry meltdown that followed. Postulate how leaders within the banking industry could have used their influence to avert the industry meltdown A lack of business ethics is definitely partly to blame for the United States current financial woes, and it was the absence or complete disregard for them by the leaders in the banking industry that led to the banking industry meltdown. Self-regulation should not be underestimated, as from it you get a strong corporate culture that tells leaders what is right and wrong, leading to the consideration of not just themselves (the banking institution) but the investors, stakeholders, and customers. The egoism philosophy which I feel the banks adopted would have been replaced with more of a utilitarianism philosophy making decisions that would benefit the most persons involved. The leaders in the banking industry were just the opposite of what we are calling them â€Å"leaders,† because if they took the responsibility and truly led they could have used their stature to influence decisions that could have help avoid the banking industry meltdown. Follow the leader; is what I relate this particular situation to, as if banking industry leaders would have stood up and put their voice to doing the right ethical thing setting the standard for not only themselves and their bank but the others they could have adverted the banking meltdown. Follow the leader; is what I relate this particular situation to, as if banking industry leaders would have stood up and put their voice to doing the right ethical thing setting the standard for not only themselves and their bank(s), but the others they could have adverted the banking meltdown. The  leaders could have used the Sarbanes-Oxley Act to back their decision and should have taken a bigger stand. The Sarbanes-Oxley Act is an accounting overseeing measure to ensure efficient corporate governance and maintaining the confidence of investors. It also requires that the businesses to assume responsibility for transparency in financial reporting. If the leaders would have taken this stand they could have set a standard and influenced the banking industry to make better decisions. If the leaders within the banking industry would have used their influence they could have possibly avert the industry meltdown. I will not say that these actions will have averted the meltdown as no one can predict the future as anything could happen, all we can do is to rationally and ethically evaluate all possible scenarios, develop and implement plans to try and prevent meltdowns like the one in 2008-2009. Bibliography http://www.hrmreport.com/article/Business-ethics-is-inextricably-linked-to-the-current-financial-meltdown/ Thomas, Huw November 29, 2012 Principles for enhancing corporate governance, October 2010, ISBN 92-9131-844-2 (print); http://www.bis.org/publ/bcbs176.pdf Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2008). Business Ethics: Ethical Decision Making and Cases US: South-Western, Cengage Learning. Haig, M. (2005). http://www.frbsf.org/news/speeches/2009/0416.html, Conference on the State of the U.S. and World Economies—â€Å"Meeting the Challenges of the Financial Crisis† By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, April 16, 2009