Ethics and Economics Assignment Example | Topics and Well Written Essays - 1000 words

Ethics and Economics - Assignment Example Though there were several reasons for the occurrence of the incident the root cause would be the escalating greed among the people who are in power. The top executives of the investments banks and other financial institutions had repeatedly promised that the companies were stable financially (Fox, 2009). The main problems that the United States faced was the decline in the standard of the financial health, liquidity crunch and also the increasing amount of leverage in forms of home loan mortgage, the collateralized form of debt obligations, the freeze in the credit markets as well as the credit default swaps. On the 15th September 2009, Lehman Brothers reported their situation of bankruptcy to the US regulatory and compliance officials. The consequences of this were the immediate collapse of the investor confidence in the stock markets and the collapse of the securities market. This had its effect on the investors of the entire world and thus the financial condition of the entire wor ld worsened. Background of the Event The collapse of the Lehman Brothers started with the repeal of the Glass-Steagall Act in the legislature in Washington D.C. The legislation arrested the unhealthy rivalry among the investment banker and the commercial banks of the United States. The act also enabled each of the sectors of the industry to focus on their activities (Sloan and Boyd, 2008). When the Act was implemented in the US economy, the Lehman Brothers became leading player in the field of housing market. The US housing market bubble followed this incident between the years 2006 and 2008 and the company earned a lot of profit from the housing mortgage business. The stock prices of the company also showed an upward trend and had a record market capitalization figure. However, the burst of the housing market bubble was waiting. March 2007 witnessed a sudden decline in the stock markets and the defaults on the mortgage lending rose exceptionally high. A large number of hedge funds experienced loss due to the event. The company took various steps relating to investments in mortgage backed assets which were not conducive to the company as well as the investors. It did not bring into public notice the wrong steps that it took and the bleak circumstances it was heading towards. The calculatingly company made manipulation in its financial statements made false claims to the public. The accounting software that the company had been using could misrepresent the actual data and manipulate the procedure of accounting and it took place in legal terms and so it did not face any compliance problem. This continued till September 2008 when the company announced its financial distress because internally the fundamentals of the company had been destroyed completely. These series of incidents led to the Financial Crisis that the entire world witnessed. Ethical Issues behind the Collapse of the Lehman Brothers The collapse of the Lehman Brothers occurred due to a plethora of e thical issues on part of the top executives of the company. From the video it is clear that there were unethical moves on part of the executives who had led to the incident (Romereports, 2009). Michel Camdessus, the former MD of the IMF, claims that extreme greed of the top executives of the company for money has led to such an unfortunate incident. It was the result of the wrong steps that a number of people took. However, there are mainly three aspects to it. First of all, the CEO of Lehman Brothers, Richard Fuld, had repeatedly lied about the activities of the company. He believed in the business model in which aggressive leverage of the securities had to be undertaken which exposed the business to a lot of risks. The CEO should have adopted an alternative