The Great Recession 2007-2010: Harvard Case Solution & Analysis

1. Evaluate the role of unethical decisions in causing the financial crisis. Do you agree with Jeffrey Immelt’s comments that “the richest people made the most mistakes with the least accountability”? Can ethics be enhanced through regulations?

The unethical decisions have greatly contributed to the financial crisis. Moreover, mortgage providers have been involved in the legal fraud, a fraud that is not penalized under a law. Mortgage firms had freely provided mortgages to the borrowers without considering their credibility. These borrowers were unable to pay and subsequently these sub-prime mortgages were given to banks. The banks also got involved in this unethical business, as these banks offered these sub-prime mortgages to the investors, while the banks deliberately shown these investments to be safe and secure. The third player, rating companies, in order to satisfy banks placed higher ratings on these investments.All parties involved in this legal fraud system were aware of the fact that at long run this would cause several adverse effects, which would have effect on the interest of the innocent ones.

The U.S tax law has provided incentive of tax deductions on the account of mortgage interest, thus in order get benefit from this tax shield mortgages becomes more popular. The key problems that were involved in the system which prevented such information flow among those who were affected by it include general business culture and corporate culture. There were flaws in corporate culture of each bank, which provided opportunities to its employees to involve in the unethical and fraudulent business.The statement from Jeffrey Immelt can be considered as correct in the sense that rich people and capitalists often make investments with the view to get higher return. They did not think of the deprived ones, as these are the ones suffer. They are not accountable to anyone, even to the public authorities because of their position.

They are perceived as superiors. Ethics can be enhanced significantly by introducing some effective regulations. It can be implemented through general guideline ethical principles imposed through a regulation on the business enterprises. These principles shall address the ethical issues involved in consumer protection, human rights and adequate compliance of relevant laws. Detailed regulation on the consumers’ interests and consumer’ rights protection can help to prevent unethical businesses. Introduction of certain penalties on the violation of these regulations will enhance its implementation. Moreover, organizations should be compelled to incorporate such regulations in their day to day businesses.

2. Should financial institutions be prevented from becoming too big to fail? What criteria should be followed in making such judgments?

In making such a judgment firstly a situation should be taken into consideration where if a financial institution fails then what would the consequences.. The failure of large financial firms can create a system of failure for other firms and businesses as well. It can also affect the household and small business owners. Financial firms are not considered as large only by their financials but also by their business mix and their position in the financial market. If a financial firm holds  a middle position in the financial market and it is different from other firms and business are interconnected through it, then the failure of such firm will result in instability in the overall system. Thus, all interconnected firms and businesses will suffer as well. The failure of the larger financial institution can even affect the overall global economy as well.In such a case, government authorities and business regulatory bodies will be there to rescue such firm, whose failure will create an overall instability. Therefore,the cost of saving such a firm will be made on the expense of the public and state funds...................

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