How corporate greed caused economic turmoil
The United States of America is the financial center of the world operating on a capitalist approach driven by the laissez-faire principle. Being a member and a dominant force in the WTO and NAFTA, he pushed world markets to be more open, more integrated and more accessible to boost global competition. The United States connected global business with trading partners with rich infrastructure and world-class SCM to import and export goods for the benefit of consumers.
With consumers at the center of attraction and the housing market booming, trade boomed across all sectors, pushing the Dow Jones to its all-time high of 14,111 on October 1, 2007. Innovation peaked and capital markets confidence rose tremendously during this period and corporations began to relax trading rules in the absence of regulations to post record quarterly profits. Each and every country, small and large, powerful and powerless, social and economic, looked to the US for direction, opportunity, and leadership in trade.
Asia witnessed some of the biggest booms in history led by China and India. The European stock index also rose due to global competition. The first part of the 21st century witnessed unprecedented growth in the United States national real estate market, with the prices of homes purchased in 2002 and 2003 rising a record 50% in 2006. According to data published by According to the Office of Federal Housing Enterprise Oversight, the HPI (home price index) increased by 12% each year in 2004, 2005 and 2006 and began to decline starting in 2007 (“OFHEO”, 2006). When everything looked rosy and green, greed took hold in corporate America, sending the national economy into free fall and creating global crises.
As corporations got greedy, they started lending money to people who were not qualified to own houses. While they might have increased the customer base, customer numbers, and wins in the short term, the long-term yielded problematic results. Many dedicated and good citizens lost their homes and life savings when they became prey to unethical dealers and sellers who forced them into bankruptcy as post-ARM payments increased beyond what they could afford. There were schemes designed to pay interest only and no principle for a few years to get more people to buy real estate. In some cases, people bought more than one house out of greed so they could make money from rising prices. Land and houses that were traditionally treated as assets were treated as liquidity items and people began to invest along the lines of day trading.
When they filed for bankruptcy, they lost everything, including their savings as well. The corporations on the other side began reporting record losses at the end of 2008 due to the increase in foreclosures. Each and every foreclosure began to affect corporate finances, and with home prices plummeting, corporations had to sell foreclosed homes for much less value just to account for the losses. These losses were in the billions, and as companies could not bear the losses, they began filing for bankruptcy or knocking on government doors for help to stay afloat. This was all a predatory lending scheme or Sub Prime mortgages caused by socially irresponsible and unethical corporate executives with greed as their core business model.
The corporations in the United States of America together with the legislative council seem to be following the mantra of socializing the losses and privatizing the profits. Never in the history of the United States has the government considered entering the market economy to use taxpayer money to bail out the large private sector. The failed policies of the corporations seem to be getting a second chance to take a new course. As Congress debates how to effectively use taxpayer dollars to help struggling businesses, no one seems to wonder what the social responsibility of these organizations is when they are profitable, wealthy, and prosperous.
The greed of corporations to hoard money under any circumstances brought the economy to its knees leaving responsible citizens suffering. CEOs always seem to make big bucks in the millions, regardless of the company’s published results. Although it is nice to see a responsive government that is reacting to the market and trying to avoid a financial crisis of a great depression nature, questions still remain to what extent the government should be involved in the capitalist market and how it can be held accountable for making sure that the money that pays the tax is recovered with interest.
The ethical and social responsibility of corporations towards their shareholders, the community and the country vanished when they became involved in predatory lending. Misleading innocent citizens into deeper problems by luring them into short-term gains for long-term losses for their bonds is a disgusting and unethical business practice. Clearly, these corporations did not have a true government embedded in the culture. These unethical business practices that started with the housing market have now seeped into the financial sector, the banking sector, the automobile sector and may even reach the service sector, creating a huge uncontrollable ripple effect.
Corporations need to understand that their role is much bigger than they realize in the world of economics. It is the responsibility of the executives of these corporations to establish a roadmap for their shareholders to profitably create innovative products while enriching the infrastructure and careers of their employees. They share a greater responsibility with their communities than they realize, and they must take care of those communities and not the other way around.
While CEOs are called to the capitol for hearings on why they should be bailed out, there should be separate House meetings on what regulations should be enforced to prevent these situations from happening again. The only way to put a tab on unethical practices is by regulating the ethical principles of the public sector. While some critics might argue that it is not the government’s responsibility to monitor the ethical accountability element of what public and private corporations do, then the same argument holds for bailing them out as well. There is no middle ground, either the government gets fully involved or stands aside as organizations navigate their future.
Every business, every state, every school, and every church that is in trouble is now seeking financial help from the government to bail them out. The United States of America is about to become a socialist country. While the bailout may be a temporary solution, the government needs to look harder for permanent solutions to trap corrupt CEOs through regulations. Corporations, on the other hand, must learn to be better “corporate citizens.”
(Cutter Consortium and USAID, 2002, p. 6).