How Corporate Greed Caused the Economic Turmoil

United States of America is the financial hub of the world operating with capitalistic approach driven by the Laissez-faire principle. Being a member and a dominant force in WTO and NAFTA, it propelled the world markets to be more open, more integrated and more accessible to drive global competition. America connected the global business to business partners with rich infrastructure and a world class SCM for importing and exporting of goods for the benefit of consumers.

With consumers at the center of attraction and housing market at boom trade flourished across all sectors pushing the Dow Jones to highest ever of 14,111 points in October 1st, 2007. Innovation peaked and capital markets confidence increased tremendously during this period and corporations started to relax the rules of trade in the absence of regulations to book record quarterly profits. Each and every country, small and big, powerful and powerless, social and economic looked up to USA for direction, opportunity and leadership in trade.

Asia witnessed some of the biggest booms in history lead by China and India. Europe stock index rose as well due to global competition. Early part of 21st century witnessed unprecedented growth in the domestic housing market of United States where the prices of the houses that were bought in 2002, 2003 increased a record 50{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0} by 2006. As per the data released by Office of Federal Housing Enterprise Oversight, the HPI (House Pricing Index) increased by 12{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0} each year 2004, 2005 and 2006 and started to decline starting 2007 (“OFHEO”, 2006). When everything was looking rosy and green, greediness took over the corporate America sending the domestic economy to a free-fall and creating global crises.

As corporations got greedy they started lending money to people who were less than qualified to own homes. While they might have increased the customer base, the number of clients and gained in the short run, the long run yielded troubled results. Many dedicated and good citizens lost their homes and life long savings as they became prey to unethical marketers and salesmen forcing them to declare bankruptcy as the payments after ARM increased beyond what they could pay for. There were schemes designed to pay just the interest and no principle for few years to get more people to buy the real-estate. In some instances people bought more than one home out of greediness so they can make money out of price increase. Land and homes which were traditionally treated as assets were treated as liquidity items and people started investing along the lines of day trading.

As they declared bankruptcy, they lost everything including their nest egg too. Corporations on the other side started to report record losses in later part of 2008 due to increased foreclosures. Each and every foreclosure started to impact the corporate finances and with house prices dropping corporations had to sell the foreclosed homes for way less worth only to book losses. These losses were in the billions and as companies couldn’t sustain the losses they started to go either bankrupt or knock the doors of government for help to stay afloat. This was all a scheme of predatory lending or Sub Prime mortgage caused by unethical and socially irresponsible corporate executives with greed as their core business model.

Corporations in United States of America along with legislative council appear to be following the mantra of socializing the losses and privatizing the profits. Never in the history of America has the government considered stepping into market economy to use tax payers’ money to bail out private sector of a large magnitude. The much failed policies of corporations seem to be getting a second chance to charter new course. While the congress debates on how to effectively use the tax payer’s money to help the struggling companies, no one ever seems to ask what the social responsibility of these organizations is when they are profitable, rich and blooming?

The greediness of the corporations to hoard money under any circumstances got the economy to its knees leaving the responsible citizens to suffer. The CEOs always seem to make the big bucks in millions irrespective of the results posted by the company. Though it’s nice to see a responsive government that is reacting to the market and trying to avoid a financial crisis of great depression in nature, the questions still remains to the extent the government should involve in the capitalistic market and how it can be accountable to make sure tax payers money is recovered with interest.

The ethical and social responsibility of the corporations towards their shareholders, community and country has faded away when they got involved with predatory lending. Tricking the innocent citizens to deeper problems by luring them to short term gains for long term losses for their bonuses is a sickening and unethical business practice. Clearly these corporations did not have any true governance embedded into the culture. These unethical business practices that started with the housing market has now sneaked to the financial sector, banking sector, automobile sector and may even to services sector creating a big uncontrollable ripple effect.

Corporations need to understand that their role is much larger than they realize in the in the world of economy. It is the responsibility of these corporations’ executives to lay down a road map for their share holders to create innovative products in a cost efficient manner while enriching the infrastructure and careers of their employees. They share greater responsibility to their communities than they realize and they need to look after those communities and not vice versa.

While the CEOs are called upon to the capitol for hearings on why they should be bailed out, there should be separate meetings from House of Representatives on what regulations to be enforced to avoid these situations from occurring again. Only way to put a tab on unethical practices is by regulating the ethical principles of public sector. While some critics might argue that it is not the responsibility of the government to monitor ethical responsibility element of what private and public corporations do, then the same argument holds true for bailing them out as well. There is no middle ground, either government gets fully involved or steps aside for organizations to navigate their future.

Every company, every state, every school and every church that is in trouble is now looking for the government for financial assistance to bail them out. United States of America is in the verge of becoming a socialist country. While bail out may be a temporary solution, the government needs to look harder for permanent solutions so that the corrupt CEOs are put on the hook through regulations. Corporations on the other hand need should learn to be better “corporate citizens”

(Cutter Consortium and USAID, 2002, p. 6).

Pungky Dwiasmoro Hiswardhani

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