Ethics and Derivatives
Ethical and Financial Risks of Derivatives
This paper examines the ethical and financial risks of derivatives. The paper discusses moral philosophies, how white collar crime differs from blue collar crime, and reviews the role of corporate culture and banking industry leaders in the banking industry meltdown that contributed to the worst recession in U.S. history.
The moral philosophy most applicable to understanding the banking industry meltdown is teleology. Teleological ethics holds that an action is right or wrong in terms of the consequences that result from it. From the perspective of the banking industry, this consequentialist approach defines their ethics in terms of whether an act produces a desired result. Given that their desired results were the advancement of self-interest and the accumulation of wealth, any action that produced these results would be considered ethical.
The single-minded pursuit of profit to the disregard of all other considerations, including risk to stakeholder value, is deeply ingrained in the corporate cultures of the financial industry. As the case study indicates, derivatives have had a long history of troubled transactions. In spite of this record, managers and traders were never compensated in a way that penalized them for fraudulent or deceptive practices; instead they were rewarded based on short-term results. The fact that those results were obtained as a consequence of manipulation and excessive risk-taking did not constitute a moral problem for many within the banking industry. Their egoist philosophy allowed them to take advantage of market opportunities without considering any consequences beyond maximizing their own self-interest.
White collar crime (WCC) does not differ from blue collar crime in that there are still victims who are seriously or fatally damaged,...
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