House of Cards Essay
Since the 2000 it has been noticeable by many incidents of U. S. corporate corruption, insider schemes and ethical violations. The scandals reinforced many people’s distrust of large corporations. Business ethics is the behavior that a business sticks to in its daily communication with the world. The ethics of a particular business can be diverse.
They apply not only to how the business interacts with the world at large, but also to their one-on-one dealings with a single customer.In the article “A Framework for Thinking Ethically” ethics is define as the standards of behavior that tell us how human should act in the many situations in which they find themselves-as friends, parents, children, citizens, businesspeople, teachers, professionals, and so on. Furthermore conflict of interest is describe as a situation that has the potential to undermine the neutrality of a person because of the possibility of a clash between the person’s self interest and professional interest or public interest. Also it is explained as a situation in which you cannot do your job fairly because you will be affected by the decision you make.The two people I chose to explain the conflict of interest are Cynthia Simmons’s mortgage broker and Ann Ruthledge, securities rater at Moody’s.
In the first case, Cynthia Simons craved for a better life for her family. A mortgage broker from her church found the family a house in an upscale neighborhood. She thought she had found her dream house. Cynthia Simons says her broker “grossly exaggerated her income and without her knowledge arranged two mortgages… one a loan for her down payment, the other an adjustable rate mortgage on the home”.Now, Simons still has the house, but can no longer keep up with her mortgage payments.
In this case the conflict of interest is very clear. The agent and the assistant had lied on the loan application, grossly exaggerating her income without her knowledge. “Lenders were more than happy to put thousands of people like Simons in homes with those so called liar loans. ” Brokers were pleased to have a numerous new mortgages to package up and sell to investors around the world.
They didn’t acknowledge the situation of the buyers; the only goal was to sell mortgages to as many people they could.The only worry was getting investors to buy those mortgage-backed securities and get them stamped with a seal of approval. The commands of the brokers were to sell as many mortgage as possible and many of them did anything and everything to have that extra bonus. The second case is Ann Ruthledge, which rated securities for Moody’s. During the boom, when home prices increased and virtually no borrowers failed to pay their obligation, she says “the riskier Triple-B rated securities made from mortgages looked as good as the safe Triple-A’s. In addition Rutledge: “Eventually the market gets smart and says, let’s lower the requirements for Triple-A. ” The credit rating agencies had an impulse to award a security the best possible ratings. That’s because the agencies were paid for their evaluation by the banks that issued the securities.
Moody’s says it “properly manages the potential for conflicts of interest and has added new safeguards that further address those conflicts. ” Because of the competition, the ratings were distortion but even though the investors trusted them.The right approach is base on dignity, have a right to be treated as ends and not merely as means to other ends. The list of moral rights including the rights to make one’s own choices about what kind of life to lead, to be told the truth, not to be injured, to a degree of privacy, and so on-is widely debated.
In the case of Simmons is evidently that there is no ethical standard- right approach because since the beginning the mortgage broker had lied on the loan application, exaggerating her income and had arranged two mortgages without her knowledge.The mortgage broker’s obligation was to inform and explain the fact of the mortgage to his client. As well clarify every detail of the process so there would be a transparency in the business transaction. In the case of Ann Ruthledge, the agency weren’t acting honestly and classifying correctly the investment.
They were more concern on doing as much business they could. In the documentary she says “ If you just follow the rules without following the spirit of the rules it’s not difficult to do.If you were a rating agency analyst, you could cheat at every point along the way. ” They were not concern at all with the wealth fair of the people who had invested, but how to maintain and increase their business against the competition. The Fairness or Justice approach is based on ethical actions treat all human beings equally or if unequally, then fairly based on some standard that is defensible. We pay people more based on their harder work or the greater amount that they contribute to an organization, and say that is fair.In the case of Simon’s there is no fairness or justice approach because she wasn’t treated equally. Instead the mortgage broker took advantage of a desperate woman who wanted to get out of a dangerous place to a better located home.
They benefit from her desperation and lack of knowledge of mortgage and sold her two loans without her awareness. Now Simons still has the house, but can no longer keep up with her mortgage payments. If from the beginning, the mortgage broker had spoken with honesty and with the right facts, many of these tragedies wouldn’t have happened.In the case of Ann Ruthledge she bring up: “The problem is, if you are the only person who knows how these standards work… if investors aren’t paying attention and investment banks are only comparing what they can get if they go to you versus the next ratings agency, nobody’s paying attention. ” The result of that fiasco was a massive failure to precisely judge the risks of mortgage-backed securities, not using a fair system.
This process led to the collapse of the housing market. They were not reporting the right rating to specific instruments, like the CDO’s.Ruthledge mentions that Triple B-rated securities from mortgages looked as good as the safe triple A’s. The agencies had a distress that if they didn’t give a desired rating to a security, they would lose the business of the investment bank that had hired them to rate a new issue of securities.
Furthermore as they tried to keep business they were dishonest to the customers. The Common good approach is based the interlocking relationships of society are the basis of ethical reasoning and that respect and compassion for all others-especially the vulnerable-are requirements of such reasoning; welfare of everyone.In the case of Simon, there is no common good approach, at all. The mortgage broker wasn’t trying to connect and help her make a wise decision on a mortgage loan. Instead they were corrupted and took advantage of Simon’s as other people as well. In addition to this the agent didn’t had any compassion for this family or any family at all. First these mortgage brokers entered a church advocating God’s word and saw the Simon’s family as a target to sell the loan. They saw a vulnerable family in need of a safe home and sold them the mortgage.
In the case of Ann Ruthledge, the rating company wasn’t preoccupied for the welfare of the citizens.In addition they were only worried about their business and how to take advantage of the situation of the economy’s boom. Also, she protects the reputation of Moody’s rating and generalizes and says: “All the ratings agencies use their methodologies to stamp hundreds of billions of dollars’ worth of CDOs with AAA ratings. Few investors seemed to look beyond that rating. Because if they had, they would have discovered a complex security whose components didn’t add up. Even Alan Greenspan, the nation’s top economist, was befuddled by the CDO’s.
” No one wanted to acquire the responsibility of this chaos.During the 2000-2008 many companies like Enron and WorldCom fell into bankruptcy, denying their workers of jobs and devastating the life savings of employees and investors. The scandals toughened many people’s distrust of large corporations. This sensitive disbelieves led to new, federal rules and regulations like the Sarbanes-Oxley Act of 2002 put into place to guarantee greater corporate accountability. Yet corporations are not alone in falling short of ethical conduct. Ethical business practices consist of assuring that the maximum legal and moral standards are observed with the people in your business community.This takes account of the most important person in your business, your customer.
That’s why is very important to use an ethical framework to make business decisions because with this elements we can avoid dishonesty and increase awareness of ethic and good decision making. I think that the crisis of 2008 could have been avoided if each person had followed high ethical standards because there would have been a transparency of information and clarity of the ratings of the instruments. Everything would have been clear and investors would have been informed of the facts.
