Abstract
The following chapter should give you an impression of current ethical problems in the economy.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Skillings was and is considered very intelligent, but arrogant as well. Just like Lay, he was charged with fraud, money laundering and conspiracy. The accusations proved difficult to prove however, since Skillings had given all instructions verbally. See Handelsblatt dated January 27/28/29 2006, p. 15.
- 2.
Mclean, Bethany (2001).
- 3.
See Spiegel 11/2009, pp. 43.
- 4.
This is another example to show that not all information is included in the market prices, otherwise long term there would be no short sellers, or speculators. The majority of market participants can be mistake, they are only human. The market can be outperformed through better information and analyses.
- 5.
- 6.
“Enron,” http://en.wikipedia.org/wiki/Kenneth_Lay dated October 8, 2006.
- 7.
See Schwarz, Gunter Christian/Holland, Björn (2002), p. 1662.
- 8.
See Handelsblatt dated July 11, 2005, p. 21.
- 9.
See “Arthur Andersen,” http://en.wikipedia.org/wiki/Arthur_Andersen, dated October 8, 2006.
- 10.
According to 3nd. Annual Board of Directors Study, Korn/Ferry International dated February 23, 2006, http://news.onvista.de/alle.html?ID_NEWS=20584380
- 11.
See Ledgerwood, Shaun/Taylor, Gary (2016).
- 12.
“… the Fannie Mae Corporation is easing the credit requirements on loans … The action … will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough… Fannie Mae… has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers whose incomes, credit ratings and savings are not good enough for conventional loans… Fannie Mae is taking on significantly more risk… the government subsidized corporation may run into trouble… prompting a government rescue… the move is intended in part to increase the number of… home owners who tend to have worse credit ratings…” September 30, 1999 New York Times.
- 13.
In 2000, warnings were issued as to the threat posed to the financial system due to the lack of regulation on Hedge Funds as counter-parties to derivative transactions. See Conrad, Christian/Stahl, Markus (2000).
- 14.
See Mayr, Brigitte (2007); Handelsblatt 23.10.08 and 10.1.08, p. 30; Süddeutsche Zeitung 17.11.08, p. 22, Neue Zuricher Zeitung 7.02.08; Zeit Online, 26/2008, p. 24, Der Spiegel, No. 47 (2008), p. 46–79 and Conrad, Christian A. (2010), p. 21.
- 15.
This income was exceeded by Goldman Sachs CEO Henry Paulson, who earned a bonus of $18.7 million along with realizing proceeds from the sale of $480 million in stock by exercising options issued prior to his becoming US secretary of the treasury. See Der Spiegel No. 8 (2009), p. 62.
- 16.
- 17.
See Dahrendorf, Ralf, (2009).
- 18.
See the film “Inside Job” of 2010 by Charles Ferguson (Sony Pictures) and Conrad, Christian, A./ Stahl, Markus (2002).
- 19.
In 1998 this hedge fund named Long Term Capital Management (LTCM) then lost the investors around 90% of the $4 billion invested, which threatened to trigger a chain reaction on the international finance markets. The issue here is not just the credit taken by LTCM, but also the derivative positions of LTCM as contracting party, with which other finance market actors had protected themselves. Only when the then US central bank president Alan Greenspan intervened personally and pulled together an emergency package of billions from several large banks could the capital market crisis be averted. See Conrad, Christian A. (2005).
- 20.
“What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so.” “We think that it would be a mistake” to more regulate the contracts. Greenspan in front of the Banking Committee in 2003. New York Times, 20.10.2008.
- 21.
The chief controller of the SEC later spoke at a conference when questioned about “the systematic elimination of personnel from the regulatory office, so that became impossible for the office to perform any regulation whatsoever.” Der Spiegel, No. 47 (2008), p. 78.
- 22.
Empirical studies show that the spot prices follow the future prices. See Deutsche Bundesbank (2006), pp. 59.
- 23.
For the discussion of the effects of food and commodity speculation see Conrad, Christian A. (2014).
- 24.
Governments find themselves internationally in a dilemma, since the best outcome for a single state is if all other sates regulate their financial market and it is therefore with its unregulated market the most attractive location for financial institutions (Free-rider position). The worst result for the individual state is if it regulates its financial market while the others do not. Since everyone is subject to this situation of insecurity, everyone decides to behave uncooperatively, which provides the worst results for everyone, national and international not regulated financial markets. Such a dilemma is called in the Public Choice Theory “prisoner’s dilemma”. For the expression “prisoner’s dilemma” see Brennan, G./ Buchanan, James (1985), p. 3.
- 25.
See Conrad, Christian A. (2014).
- 26.
See The Financial Times, November 25th 2008. https://www.ft.com/content/50007754-ca35-11dd-93e5-000077b07658
- 27.
- 28.
- 29.
- 30.
See Zorita, E. (2006).
- 31.
Handelsblatt dated 04/03/06, p. 11, translated into English.
- 32.
See Hermalin, Benjamin E./Weisbach, Michael p. (2007), pp. 1–26.
- 33.
Anyone who would like to see an example of this can take a look at the website http://timlambert.org/2003/09/0910/. Here the author of a statistical model proving that broad ownership of guns leads to less crime is accused of manipulation.
- 34.
“This paper uses an extended life-cycle model to analyse the impact of social security on the individual’s simultaneous decision about retirement and saving Economic evidence, using an estimated time series of “social security wealth,” indicates that social security depresses personal savings by 30–50 percent.” Feldstein, Martin (1974), p. 90.
- 35.
“We offer evidence that legalized abortion has contributed significantly to recent crime reductions” Donohue, John J./Levitt, Steven D. (2001), p. 379 see also Handelsblatt dated 04/30/07, p. 9.
- 36.
See Hayek, Friedrich August von (1974).
- 37.
“The method of calculation is based upon historic volatility and does not take into account irrational human behaviour, such as panic, … .” Conrad, Christian A. (2005), p. 398.
- 38.
See Conrad, Christian (2005) and Welt-Kompakt dated 08/22/06, p. 15.
- 39.
See Tversky, A., and D. Kahneman (1974).
- 40.
See Tversky, A., and D. Kahneman (1974), p. 1 and 125.
- 41.
See Khan, Ashraf (2018), p. 25.
- 42.
- 43.
Quoted from Capital, 18/2005, p. 54.
- 44.
See Wirtschaftswoche dated September, 01, 2005, p. 52–58 and Capital, No. 18, 2005, p. 54–56.
- 45.
See Dahrendorf, Ralf, (2009).
- 46.
See Ergenzinger, Rudolf/Krulis-Randa, Jan S. (2004), p. 4.
- 47.
See Noll, Bernd (2002), p. 168.
- 48.
- 49.
See Noll, Bernd (2002), p. 168.
- 50.
See Löhr, A. (1997), p. 198.
- 51.
See Ulrich, Peter (1993), pp. 1172.
- 52.
See Rheinische Post, 04/18/08 and http://de.statista.com/statistik/daten/studie/292/umfrage
- 53.
Walter Jachmann, Manager of Personnel Consultants Kienbaum, quoted from Handelsblatt dated October 20/21/22 2006, p. 1.
- 54.
Stefan Tilk, Member of Management at the Bertelsmann subsidiary Arvato Direct Services, quoted from Handelsblatt dated October 20/21/22 2006, p. 1, translated into English.
- 55.
See Handelsblatt dated October 20/21/22 2006, p. 1.
- 56.
See Ergenzinger, Rudolf/Krulis-Randa, Jan p. (2004), p. 4.
- 57.
See Brown, M. E./Treviño, L. K. (2006), p. 608.
- 58.
See Rheinische Post, 04/18/08 and http://de.statista.com/statistik/daten/studie/292/umfrage (01/22/2010).
- 59.
See Volk, Hartmut (2000), p. 57.
- 60.
See Volk, Hartmut (2000).
- 61.
See Sucharow, Labaton (2013).
- 62.
See Aronson, Elliot/Carlsmith, J. Merrill (1962), pp. 178–182.
- 63.
See Mazar, Nina/Amir, On/Ariely, Dan (2008), pp. 633–644.
- 64.
See Ariely, D. (2008), pp. 211 and Shu, Lisa L., Nina Mazar, Francesca Gino, Dan Ariely, and Max H. Bazerman. 2012.
- 65.
See Khan, Ashraf (2018), p. 10.
- 66.
Literature
Aronson, E. & Carlsmith, J. M. (1962). Performance expectancy as a determinant of actual performance. Journal of Abnormal and Social Psychology, 65(3), 178–182.
Brennan, G., & Buchanan, J. (1985). The reason of rules. Cambridge: Cambridge University Press.
Brown, M. E., & Treviño, L. K. (2006). Ethical leadership: A review and future directions. The Leadership Quarterly, 17(2006), 595–616.
Chediak, F., & Escudero, S. (2004). Ethics ratings: The case of five leading U.S. investment banks. In B. Ralph u.a. (Ed.), Competitiveness und Ethik (Herausforderungen an das Management, Schriftenreihe der Graduate School of Business Administration Bd. 11, pp. 77–87). Zurich: Springer.
Collin, D. (2006). Behaving badly. Indianapolis: Dog Ear Publishing.
Conrad, C. A. (2005). Kapitalallokation in der Irrational Exuberance – Erkenntnisse aus Theorie und Praxis. In Eller, Roland, u.a. (Ed.) (2005), Handbuch Asset Management. Stuttgart.
Conrad, C. A. (2010). Morality and economic crisis – Enron, subprime & Co. Hamburg: disserta Verlag.
Conrad, C. A. (2014). Commodity and food speculation, is there a need for regulation? A discussion of the international research. Applied Economics and Finance, 1(2, November), 58–64.
Conrad, C. A., & Stahl, M. (Eds.). (2000). Risikomanagement an den internationalen Finanzmärkten. Stuttgart: Schäffer-Poeschel.
Conrad, C. A., & Stahl, M. (2002). Parallels with the 1920s stock market boom and the monetary policy. Kredit und Kapital, Bd, 35(4), 533–549.
Dahrendorf, R. (2009). Die verlorene Ehre des Kaufmanns. In Tagesspiegel, vom 12.07.2009. http://www.tagesspiegel.de/wirtschaft/dahrendorf-essay-die-verlorene-ehre-deskaufmanns/1555814.html.
Deutsche Bundesbank. (2006). Finanzderivate und ihre Rückwirkung auf die Kassamärkte. Monatsbericht Juli 2006, pp. 55–68.
Donohue, J. J., & Levitt, S. D. (2001). The impact of legalized abortion on crime. The Quarterly Journal of Economics, CXVI (2, May), 379–420.
Ergenzinger, R., & Krulis-Randa, J. S. (2004). Anforderungen an das Management unter dem Aspekt von Competitiveness und Ethics in der Gegenwart. In B. Ralph u.a. (Ed.), Competitiveness und Ethik (Herausforderungen an das Management, Schriftenreihe der Graduate School of Business Administration Bd. 11, pp. 3–16). Zurich: Springer
Fedako, J. (2007, February 18). Correlating nonsense. http://antipositivist.blogspot.com
Feldstein, M. (1974). Social security, induced retirement an aggregate capital accumulation. The Journal of Political Economy, 82(September – October), 905–926.
Fox, J. (2009). The myth of the rational market, a history of risk, reward, and delusion on wall street. New York: HarperCollins.
Fox, L. (2006). Enron: The rise and fall. Hoboken: Wiley.
Gold, G., & Paul, F. (2007). A house of cards – From fantasy finance to global crash. London: Lupus Books.
Hayek, F. A. V. (1974). The Pretence of Knowledge, Lecture to the memory of Alfred Nobel, December 11, 1974. https://www.nobelprize.org/nobel_prizes/economic-sciences/lau- reates/1974/hayek-lecture.html (12/31/2017).
Hermalin, B. E., & Weisbach, M. S. (2007). Transparency and corporate governance (pp. 1–26). http://ssm.com/abstract=958628
Khan, A. (2018). A behavioral approach to financial supervision, regulation, and central banking, IMF working paper, No. WP/18/178.
Ledgerwood, S., & Gary, T. (2016). Enron’s California schemes haunt regulators 15 years later. Risk.net. https://www.risk.net/commodities/energy/2441392/enrons-california-schemeshaunt-regulators-15-years-later, dated 14th of January 2016 (12/29/2017).
Löhr, A. (1997). Die moralische Urteilskraft von Wirtschaftsstudenten: Bemerkungen zum empirischen Forschungsstand. In G. Blickle (Ed.), Ethik in Organisationen: Konzepte, Befunde, Praxisbeispiele (pp. 185–208). Göttingen: Verl. für Angewandte Psychologie. ISBN 3801710556.
Markham, J. W. (2006). A financial history of modern U.S. corporate scandals from Enron to reform. Armonk: Sharpe.
Mazar, N., Amir, O., & Ariely, D. (2008). The dishonesty of honest people: A theory of self-concept maintenance. Journal of Marketing Research, 45(6), 633–644. Available at SSRN: https://ssrn.com/abstract=979648.
Mclean, B. (2001). Why Enron went bust. In Fortune. December 24, 2001, pp. 53–58.
Mocan, N., & Erdal, T. (2006). Ugly criminals. NBER working paper no. 12019, Issued in February 2006. http://www.nber.org/papers/w12019.
Muolo, Paul/Padilla, Matthew (2008), Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis, Hoboken, NJ 2008.
Noll, B. (2002). Wirtschafts- und Unternehmensethik in der Marktwirtschaft. Stuttgart: Kohlhammer Verlag.
Ogger, G. (2001). Der Börsenschwindel. Munich: Bertelsmann.
Schwarz, G. C., & Holland, B. (2002). Enron, WorldCom … und die Corporate-Governance-Diskussion. In Zeitschrift für Wirtschaftsrecht, 23. Jg., 13. September 2002, Heft 37, pp. 1661–1672.
Shiller, R. (2007). The subprime solution: How today’s global financial crisis happened, and what to do about it. Princeton: Princeton University Press.
Sucharow, L. (2013, July). Wall street in crisis: A perfect storm looming. Labaton Sucharow’s, U.S. financial services industry survey. http://www.secwhistlebloweradvocate.com (28.10.2013).
Taleb, N. N. (2001). Fooled by randomness. London: Penguin.
Taleb, N. N. (2007). The black swan; The impact of the highly improbable. London: Penguin.
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and Biases. Science, 185, 1124–31.
Ulrich, P. (1993). Unternehmerethos. In Enderle, u.a. (Ed.), Lexikon der Wirtschaftsethik (pp. 1165–1175). Freiburg: Herder.
Volk, H. (2000). Verunsicherte Mitarbeiter werden schneller krank. In Frankfurter Allgemeine Zeitung vom 18.09.2000 (Nr. 217, p. 37).
Zorita, E. (2006). Interactive comment on “on the verification of climate reconstructions”. (G. Bürger, & U. Cubach, Eds.). https://www.clim-past-discuss.net/2/S153/2006/cpd-2-S153-2006.pdf
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2022 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Conrad, C.A. (2022). Ethical Problems of the Economy: Enron, Subprime & Co. – From Crisis to Crisis. In: Business Ethics - A Philosophical and Behavioral Approach. Springer, Cham. https://doi.org/10.1007/978-3-030-98843-2_4
Download citation
DOI: https://doi.org/10.1007/978-3-030-98843-2_4
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-98842-5
Online ISBN: 978-3-030-98843-2
eBook Packages: Religion and PhilosophyPhilosophy and Religion (R0)