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The financial industry meltdown illustrates the high cost of bad business ethics
By Lauren | September 16, 2008
It’s been a remarkable couple of days in the business world as two prestigious investment banks, Lehman Brothers Holdings, Inc. and Merrill Lynch & Co., became the latest casualties of the subprime mortgage mess. Lehman announced that it will file for bankruptcy; Merrill was more fortunate, and is being bought out by Bank of America. The insurance industry is taking it on the chin, too. America’s larget insurance company, American International Group, Inc. (popularly known as “AIG”), issued a lot of insurance on mortgage-backed securities. Now AIG is teetering on the brink of failure, and may – or may not – be rescued by an unusual decision on the part of state regulators to let the company borrow millions from its own subsidiaries as an interim measure to deal with the current crisis. If AIG fails, other credit insurers may very well follow.
Meanwhile, the Dow Jones Industrial Average fell over 500 points yesterday in its biggest plunge since 9/11. For average Americans, that means a hefty bite out of their 401(k) plans, IRAs and other personal investments. Big corporate and government pension plans also took a beating, which means we’ll probably hear in the not too distant future that at least a few of the employers who sponsor those plans have decided to cut future benefit promises. In other words, tomorrow’s workers will pay for today’s market losses.
And the crisis isn’t over yet. According to some analysts, we’re only about halfway through the rough and tumble (mostly tumble) effects of the subprime mortgage debacle. That means we still have many months of financial pain to endure. Commentators may call this just a “market correction,” but if you’re getting ready to retire or want to buy a home, you’ll probably call it a nightmare.
The pundits are sure to talk endlessly about what caused the subprime mortgage mess. To boil it down to its simplest terms, however, we’re in this pickle because the people who review mortgage applications got greedy and loaned money to folks who couldn’t afford to pay it back. They then played hot potato with the bad debt, repackaging and selling the loans to other people for a quick buck. Those people repackaged and sold the loans to someone else who repackaged and sold the loans, and so on, and so on. Some of those clever bankers and financiers made a lot of money for themselves in the short term, but the rest of us are going to pay a high price for their unethical decisions for a very long time.
Topics: Business Ethics, Social Ethics, ethics |