Ethics

Every society runs on certain principles. These principles act like threads whose intertwining makes that society thrive. Various authors have offered a lot of theories explaining why this is so. One thing that is clear however is that, when these threads break loose, society runs into a kind of crisis. There is no society that can function without a set of ethical principles that govern the interaction of members within that group of people. In our contemporary society, the fabric that once held us together has become corrupted. Greed has led to the near demise of society itself, and this is evident in just about every aspect of societal function. The government is to a large extent supposed to be the custodian of the principles of the society it governs. However, the financial crunch has revealed the extent of its failure as far as this responsibility is concerned. The crisis brought the government to a point of near collapse. It left the people in great suffering, with several losing their sources of livelihood. The biggest question is why did it happen What caused this unfortunate situation in the country Where was the government This study seeks to discuss these issues from an ethical point of view. It seeks to demonstrate that when capitalistic tendencies override values, the actors in that drama are somehow digging their own graves. It seeks to show that both the government and the financial institutions are the main culprits in this issue. These two did not uphold ethical principles, because if they did, the recent crisis would not have been experienced. In addressing these questions, one must be very modest in their claims. While this study seeks to address these issues from an ethical view point, it does not claim to have found a conclusive answer to the questions. It leaves room for further speculation.

The Role of the Government and Financial Institutions in the Crisis
Everyone would agree with the argument that no individual or organization should be allowed to act in a manner that is likely to endanger the life and functioning of society. As already mentioned, the government ought to protect its own citizens against any exploitative tendencies. However, the financial crunch revealed that the government does not have the moral strength or will to do this. It is worth noting that the crisis is not something that happened overnight. This is a reality that several analysts saw coming. It is something that the government was aware of, but constantly chose to turn a blind eye on. The government licensed institutions, and even encouraged them to go on with certain projects that were clearly too risky, not just for those institutions, but to the society as a whole. For instance, by allowing financial liberalization, the government was simply allowing financial institutions to take loans off the balance sheet. This also meant that there would be a decrease in underwriting, as well as oversight in lending. Greed became the driving force of the financial institutions so that they no longer considered the monitoring of credit risks very essential. It is worth noting that the contemporary society largely, if not totally, depends on the financial prosperity. Societal progress, indeed the very livelihood of humanity, is in the modern day pegged on financial progress. This is the reason why this question becomes one of the most important contemporary ethical issues, because it totally deals with the existence of the human species, and by extension, the entire universe.

While it is important for the government to allow the free flow of business transactions, it has a moral responsibility of ensuring that the manner in which this is done does not leave the society on its knees. By allowing financial liberalization, the government technically lost control of credit, witnessed by the fact that huge credits growth was recorded in just a few years. Everyone knows very well that the crisis was largely a result of the huge amount of credits taken. The government seems to have been torn between placing regulation on the way these things were done and liberalizing in the hope of profiting from it. As aforementioned, upholding ethical principles in the management of financial affairs is perhaps the only way to prevent such unfortunate realities. The government must have been in a dilemma because strictly enforcing the ethical principles would somehow have dealt a major blow on the financial liberalization policy, yet some of the financial analysts had advised that liberalization was the only way to guarantee future financial prosperity.

In about every country, there are certain ethical principles which ought to guide financial management. Fundamentally, five principles feature as the most important ones. These include professional behavior, objectivity, integrity, confidentiality, and professional competence and due care. Apparently, these were all lacking in the way financial transactions were conducted. For instance, the government, for some reason, allowed some of the biggest investment banks to function without necessarily being bound by the regulations that bound other financial institutions. These investment banks took advantage of this to increase leverage. Obviously, this exemption meant, at least indirectly, that these institutions did not necessarily have to abide with the ethical principles very strictly. When institutions increase leverage, it simply means that in case of a downturn, these institutions have no cushion against financial shock. What happened is that in 2007, only five of these investment banks had over 4.1 trillion dollars in debts. Soon the world witnessed the fall of the Lehman Brothers, the sale of Merrill Lynch and Bears and Stearns. The reason why every society tries, or ought to try, to have some kind of ethical principles is to avoid such kind of outcomes. If the directors and financial advisors of these institutions were guided by integrity, it is very possible that the crunch would not have been to the current extent.

The Case of Enron and Andersen
Another good example of total neglect of ethical principles is the case of Enron. This case effectively demonstrates that greed and interest of one party can jeopardize the health not only of national, but of international economies. It is well known by now that Enron colluded with Andersen, the firm that had been responsible for auditing its books, to present false information to the public regarding its financial situation. The company had for several years been on a loosing trend, yet by creating an off-shore account, they managed to pass false information regarding their success. This obviously made a lot of people to invest in the company. When the reality slowly became public, people quickly sold their shares in the company, while others lost all of their investment when the company collapsed. This case exposes not only the ethical retardedness of the two companies, but of the government as well. This is because the government through the Securities and Exchange Commission (SEC) has a responsibility, both legal and ethical, of protecting the people from such exploitations. After this scandal caught public attention, the SEC through its chairman at the time said that they had done all they could to ensure that the public was protected. However, it is clear that what this commission considered enough was far from sufficient. The reason for this claim is that with the backing of the law and the government, the commission should have accessed the accounts of the company and assessed for themselves the exact nature of its operations.

Andersen was also an example of a serious decay of societal fabric. This is because at present, the only way to assess the financial soundness of an organization, the audit reports play a very big role. This is the reason why audit firms should act with extreme integrity. It is worth noting that this firm knew very well the ethical obligations that bound it, yet it chose to ignore them. By this complicity, several people lost billions of dollars and with it their sources of livelihood. Between 2001, when this was happening, and today, a lot of other financial firms have come into the limelight for and several gotten into legal suits for professional misconduct. Needless to say that every time these misconducts occur, it leads to people losing a lot of money. The biggest question is if such things happen for so many years without people discovering, what would assure the public that every one of the successful firms is genuinely successful Who is left as the true protector of the public      

The SEC and the Crisis
As already indicated, the SEC is directly charged with the legal and ethical responsibility of ensuring that securities are traded in an environment of ethicality and legality. Ethically, they should ensure that all the companies dealing with these issues abide by the set codes and principles. This should not be a very difficult to do because they have the necessary legal backing, and most of the professions are currently guided by some principles as well. However, the commission has evidently failed in its obligation. For instance, in September last year but one, the chairman was quoted saying that the problem of short selling, and the manipulation of the market was taken care of. Allegedly, there have been several cases of what is referred to as naked shorting. Brokers have the tendency of borrowing shares, and selling them at a high price, then when prices come down they buy shares to replace the ones they had already borrowed. Sometimes, these people do buy the shares, but they delay the delivery, creating a possible manipulation of prices, in order to benefit from this situation, by selling non existent securities. There is high possibility that this is exactly what happened in the current financial crisis. But it is not enough for the commission to come in after the worst has already happened. Its role is to ensure that the investors are warned, or informed of possible crisis. This is not what the commission did in this crisis. Those on the commissions side argue, however, that there is not much it can do in terms of helping out the falling companies, especially companies whose policies are formulated by parent companies elsewhere. Some have even blamed the Congress, arguing that they set stage for the crisis in the 90s when they took away the tools necessary to offer directions to emerging markets and securities. The chairman, when summoned by a committee of the Congress, said that the commission did not have the powers to control the kind of risks these corporations took. They argued that rules that were two centuries old, were expected to regulate modern markets all this in an attempt to absolve the commission from blame.

The commission is supposed to check on all the securities firms and all the brokers as well in order to ensure that those that are experiencing difficulties in performance can be highlighted to the public. This would go a long way in ensuring that the public knows exactly what is going on, so it can decide based on information obtained. Unfortunately, the commission in several instances did not even seem to know what was going on in these companies. This is evidenced by the fact that many companies that are in serious financial mess have come into public eye only in the last year. Although the commission has been actively involved in the regulation of the firms dealing in securities, they ought to have done more than just that. They ought to constantly monitor the efficiency of these principles and how well they are applied. This is the only way they can avert similar situation in the future.

Conclusion
As already mentioned, the government ought to protect its own citizens against any exploitative tendencies. This study has shown that both the government and the financial institutions terribly failed in this regard. As a matter of fact, some of the institutions went a step further to take advantage of the loopholes that existed to exploit the investors. Currently, the world is still struggling with the aftershocks of the recession, one that is considered the worst in the history of mankind. The government should have been guided by integrity when it allowed financial liberalization because too much freedom in financial matters is a kind of temptation. More stringent measures should be set in place to ensure that various institutions do not move towards the exploitative tendencies witnessed. At the same time, no particular institution should be exempted from following the set regulations, because that creates room for abuse of those privileges. The SEC should have done all it can within the existing laws, to ensure that the public is protected. This study has established that several firms have been taken to court for professional misconduct in the recent past. This means that there still are gaps to be sealed otherwise what has been witnessed may end up recurring again in the near future. It is important that everyone does something to strengthen the values and principles that guide society, as well as the internal commitment to abide by these principles. However, it is very clear that this is one of the most difficult tasks of our modern time.