Running head: Lehman Brothers Case Analysis 1 3 Lehman Brothers Case Analysis

Running head: Lehman Brothers Case Analysis

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Lehman Brothers Case Analysis

Lehman Brothers Case Analysis

Lehman Brothers Case Analysis

Lehman Brothers Holdings was a major U.S. banking firm until its bankruptcy. Weinberg argues that the company’s bankruptcy shook the globe because of how huge it was (2020). The defunct corporation had $639 billion in assets and $613 billion in liabilities (Weinberg, 2020). According to Weinberg’s investigation, the subprime mortgage business caused the company’s failure. Weinberg concludes that the bank was hit by the $10 trillion subprime calamity. The firm fell due to poor risk management in the overheated mortgage securities market. Lehman Brothers Holdings functioned in a contemporary capitalist economy with little governmental intrusion (Mieszala, 2019). Companies were left alone as long as they kept clean (Mieszala, 2019). In 2008, Fannie Mae and Freddie Mac regulated the home securities market. However, in 2014, securities reporting rules were implemented, and Fannie Mae and Freddie Mac were more rigorously monitored following the recession to avoid future catastrophes (Mieszala, 2019). Weinberg says that because of the 2008 crisis, tighter preventive regulations and procedures are in place to prevent the global financial system from failing again owing to banks’ negligence (2020). While remaining free-market and capitalistic, the economy is strictly managed and shielded from overdependence on the financial markets.

Banks have an overarching responsibility to be as profitable as possible within the confines of the law and normative business ethics. Stating that banks have an ethical obligation to be profitable is postulating a theory, which is a prime example of deontological ethics (Rae, 2018). The deontological outlook discussed in the literary works of Immanuel Kant proposes that possessing a moral motivation and pursuing the right course of action is a preferable supplement to moral behavior than obtaining optimum results (Saylor, n.d.). This view is presented in Kant’s writings. A deontologist, just as Kant was, is likely to believe that ethical behavior results from fulfilling one’s obligations and that one’s responsibilities may be articulated via rational thinking (Saylor, n.d.). According to Kant, duties do not pertain to certain types of people. Rather, they apply to every single human being. This fundamental concept of equality entails, according to Kantian philosophers, that people need to be able to embrace any specific legislation or conduct to judge whether or not it complies with ethical standards (Rae, 2018). Deontological ethics states that people have moral responsibilities in their day-to-day lives, and this fits right in with the statement that people have a moral responsibility to make profits in their businesses.

People and, by extension, companies have a responsibility to make profits as they conduct their business. Business is what enables people to survive since the funds for their continued survival (their living, so to speak) come from the business that people do. When companies make profits, they are enabling their hordes of employees to purchase food, shelter, clothing, and all the other necessities of life. Companies are responsible for their employees (Hariana & Davianti, 2020), hence their obligation to keep surviving through making profits and avoiding bankruptcy. To continue fulfilling this responsibility, companies have to be diligent and sometimes forego what seems to be quick money for smaller profits that provide the company with assurance that the company’s employees will be provided for in the foreseeable future. Thus, providing for one’s employees is an employer’s responsibility. Without the employer, the employees would have nobody to turn to for a sense of validation, sustenance, and something with which to fill themselves with purpose and drive to progress.

Companies also have a responsibility to society to be profitable. Corporate social responsibility studies have it that companies have a responsibility to the society to keep society going through their business activities (Hariana & Davianti, 2020). The economy is composed of many businesses that are all simply making profits in their various lines of work but are enabling the economies of wherever they are to keep thriving. The nature of capitalistic economies is such that the companies’ individual activities work like pieces of a puzzle, coming together to make a mosaic that comprises the sum of all the economic activities in a country and even the world. Most of the world does business on capitalistic terms, even in so-called communist countries such as North Korea (World Population Review, 2022). These individual economies, in turn, are what interact with each other and thus enable the global community to continue growing. The world is a connected place, and the thriving of businesses in one part of the globe may very well mean survival for another different area. Thus, companies are obligated to provide sustenance for their employees and fuel the growth and survival of other companies and economies around the world, keeping the human race in existence.

Deontological ethics and the norm theory of business ethics come together to give birth to an exciting line of thought about a business’s relationship with other companies, its employees, and the world as a whole. Businesses are what keep the world running, so they have an almost sacred responsibility to keep their doors open and continue running as much as possible. Thus, the government’s regulations on safe business activities are safeguards against the excesses of hungry corporate executives who are merely looking for a quick buck and disregard the longer-term consequences of their rash actions. Businesses require caution, which is perhaps one of their most important responsibilities other than the most obvious profit-oriented ones. A solution for the issue of regulating banks derived from deontological ethics would see a much less risk-driven business model and more simple business activities being undertaken rather than risky and profitable activities such as dealing in mortgage-backed securities. Had the corporate executives of the world’s largest financial firms and banks been more cautious by conducting more due diligence before shouldering unacceptable levels of risk in purchasing overvalued mortgages in the events leading up to the 2008 recession, the recession may have even never have taken place.

This implies that using the deontological theory of ethics instead of the norm theory of business ethics may have its value in urging caution and preventing rash investments, which have in the past been known to cause widespread poverty after economic crashes. A stitch in time saves nine, and deontological ethics may very well be the stitch in normative business ethics that can prevent businesses from diving headfirst into deep speculative waters before doing their due diligence. Caution may be the best way for companies dealing in such risky industries as the financial securities markets. Thus, the norm theory of business is good for instilling the correct values in businesspeople. Still, the deontological theory of ethics is better because it instills a sense of responsibility in corporate executives and employers, reminding them that they should do the right thing, not only for themselves or their employees but for society and the human race at large.

References

Hariana, N., & Davianti, A. (2020). Corporate social responsibility (CSR): Profit seeking or social activity? Jurnal Akuntansi Bisnis, 13(2). https://doi.org/10.30813/jab.v13i2.2144

Mieszala, R. (2019). Impact of the collapse of the Lehman Brothers bank and the 2008 financial crisis on global economic security. Scientific Journal of the Military University of Land Forces, 191(1), 149–158. https://doi.org/10.5604/01.3001.0013.2405

Rae, S. (2018). Moral choices: An introduction to ethics (4th ed.). Zondervan Academic.

Saylor. (n.d.). Major Ethical Perspectives. Saylordotorg. Retrieved June 17, 2022, from https://saylordotorg.github.io/text_introduction-to-the-law-of-property-estate-planning-and-insurance/s05-02-major-ethical-perspectives.html

Weinberg, B. J. (2020). The great recession and its aftermath. Federal Reserve History. Retrieved June 17, 2022, from https://www.federalreservehistory.org/essays/great-recession-and-its-aftermath

World Population Review. (2022). Capitalist countries 2022. Retrieved June 17, 2022, from https://worldpopulationreview.com/country-rankings/capitalist-countries