When you're a teenager, peer pressure makes you do things that your friends do, sometimes until it causes some harm, and other times it develops into a cycle of bad decisions growing up. At a presentation at the University of Southern California given by Andrew Fastow, former CFO of Enron discussing the great 2001 scandal, his train of thought throughout the fraud strangely resembled someone walking through his oblivious teenage decisions that led him to rehab (white-collar prison). It was frustrating considering he is a convicted white collar criminal/perpetrator of the greatest fraud in the history of corporate America/millionaire.
Whether a scheme is honed in from a few top-level individuals like Fastow or the fault can be distributed to many large, ethically lenient companies and their managers like the 2008 Mortgage Crisis, corporate decisions with a conscious disregard for the principles behind the rules have caused tremendous harm, such as catapulting the country into recessions, robbing civilians of jobs, destroying retirement accounts, and cheating taxpayers out of billions of dollars. This paper will outline the intricacies behind the most prominent examples of financial deceptions to help shed some light on how they harm the public. It will also explore the perpetrators’ skewed motivations and the influence of the culture that allows—or drives—their damaging behavior. This will lead to the examination of the related social and psychological patterns, all coming together to look at possible solutions for this destructive cultural epidemic, both regulatory and collective.
Fraud can be defined as “an intentional act of deception for purpose of personal gain.” In most
of the white collar crimes focused in on one firm, the perpetrators tip toe on
their skewed version of ethical boundaries; they gradually evolve into criminals
as their intentions take small steps downward toward the definition of
fraud. Although they are
much different than your average bank robber, their actions can arguably be
considered worse; executive robberies result in monetary consequences that are much more
substantial than your average theft. Prominent examples of public deception can illustrate how criminal
they are, even though they go way less punished. The behavior of
those behind the Enron scandal is often used as a primary example of how a group of executives' poor decisions can snowball into disastrous outcomes. The 2008
housing crisis was more of a widespread manipulation of deregulation among many
large firms, which has not been treated as legitimate fraud by the government,
but had devastating results nonetheless. More discreetly, companies currently
go more out of their way than ever to exploit the government and taxpayers with
tax loopholes.
Consequently, the
inner workings of the biggest corporations travel with their moral compass
replaced by a device that points them towards what technically isn’t illegal, even though it might be wrong. The compliance culture of
corporate America has become a game to see who can create the best loopholes, who
can bury disclosures deepest in the fine print, and who can best exploit the
law, and this mindset has proven to be the source of some devastating consequences for innocent
civilians. These examples call for a solution. To limit the scope to relatively recent events, we will begin with the Enron scandal in the early 2000’s.
The
Enron Scandal
It is worth noting the principles that the perpetrators of the Enron scandal ignored and the way they went right around the rules. What is referred to
as the greatest fraud in the history of corporate America has made a large mark
on the way we currently criticize business leaders. The details of this case will be utilized to draw
parallels between more recent forms of public deception so we can properly
analyze these maneuvers from a broader perspective.
To perpetrate this
fraud, the leaders of Enron strategically combined various manipulations of
accounting policies. It began with misrepresentations through a concept
referred to as “mark-to-market accounting.” Generally, when a company invests
in a project, it is first reflected in their financial statements as an asset
in the amount of the investment. Mark-to-market accounting was created to allow
companies to revalue the asset to what it is worth in the market, or its “fair
value,” after it has perhaps shown to be a good investment, and report the
increase in value as income. Enron managers made lousy investments in projects
like failed oil and gas explorations, but used mark-to-market to make drastic
claims about their “success,” overstate the worth of these investments, and
recognize false profits, leading to false increases in their stock price (Jackson 224). It didn’t
stop there.
The even larger
step was the use of “special purpose entities.” The rules state corporations
can create a legally separate entity and avoid combining the financial results
of that entity with the parent company if the entity serves a specific purpose
that is substantially different than the parent’s ordinary course of business. The basic purpose is the project being different enough so that the results aren't considered the same as the results of the overall business. Certain requirements need to be met, but the new entity can have its own set of
assets and take out its own loans off the books of the parent, hence the strategy is now referred to as "off-balance sheet financing."
By the time Enron
collapsed, the company owned over 3,000 “special purpose entities.” The purpose they replaced the basic principle with was ultimately disguising loans as income. The entities comprised of billions of dollars of loans taken out indirectly by Enron. They then
took those previous assets that they had already inflated the price of using
mark-to-market accounting and “sold” them to their own special
purpose entities with the intent to make look like an actual sale, but it was all
being paid for with their own loans.
So management could kill two birds with one stone: get rid of improperly priced
assets and record what was actually debt as enormous profit, once again falsely
driving up their stock price. These are just two of the countless strategies
employed by Enron management to disguise loans and take home millions of dollars
in income (Jackson 224-26). None of the exact details were systematically prohibited at the
time, but it had to have been clear to those on the inside that it was all just
a large fraud that went around the wording of the rules.
At first glance, it
really seems the intent is focused on a small group of individuals including the
CEO, CFO, and so forth. However when one considers Arthur Andersen, the accounting
firm who audited their financial statements, it points to the notion that
unethical behavior can viciously spread throughout individuals and companies.
Enron was a client of Arthur Andersen, both an audit client and a client of
their consulting business (subsequent independence rules that prohibit this
conflict were established after the crisis). Since Arthur Andersen was
receiving such hefty payments on the consulting side for "advising" managers on their highly profitable affairs, it is assumed they turned a blind eye on the audits and
allowed the company to move forward freely. Leaders at Arthur Andersen and the firm lost their accreditations, basically due to the practice of willful blindness.
As a result of this fraud, 4500 Enron employees lost jobs, not to mention the accountants who lost
their jobs when Arthur Andersen went under. Investors lost about $60 billion
within a few days; for many people invested in the stock, this meant they lost
much of their retirement security. Employees of the company lost literally all
of their pensions. The stock market overall took the largest hit it had seen in
decades. This example shows not only how far certain individuals will go to
defraud people and how much power those individuals possess, but the
problematic tendency for other people in influential positions to become ferociously
infected with a tolerance for tactics that use positions of power to exploit. This
idea will be further explored in the next example, the fraud that was the 2008
mortgage crisis.
Because of the
massive headlines surrounding the Enron managers directly responsible, one can
be quick to misperceive this problem as one concentrated effort from a CEO and
CFO that got extremely out of hand. But ignoring certain principles can spread through companies just like a competitor's profitable business opportunity. Analyzing the mortgage crisis, from which
we can draw some similarities to Enron, implies these consequences are more the
result of a larger group of individuals and corporations in different areas of
business, coming together to either commit or accept these actions. The culture
that fueled Enron’s malicious efforts is alive and well.
The
Mortgage Crisis
The causes of the
2008 housing crisis are of the same misleading strategies that constitute fraud
in the Enron case, just more complicated and systematically discrete. A large number of managers ignored basic principles of home loans, and it once again led to a tremendous amount of harm and uncertainty across the entire country. Institutional
business leaders’ unethical behavior and deceptive tactics strongly contributed
to the most tragic financial market crash since the Great Depression, while the
executives responsible got off without prosecution in this case. The nature of the story and
the schemes utilized can shed some light on structural similarities with the
Enron scandal and other, more current frauds.
The government
wanted to encourage home ownership. This resulted in the need to flow more
money into the market by selling mortgage-backed securities, which are
investments in a pool of mortgage loans. Basically, investors buy a security that represents a portion of a pool of loans, earn a return paid by homeowners’ payments, and invested capital flows
to mortgage lenders who should be able to get more people to own homes with the
increased capacity. It started out limited to mortgages that were safely backed
by government entities like the VA, until Wall Street lobbied to be granted
access to engage in the same tactics, as long as the underlying mortgages had
high ratings from credit agencies. Thus, lenders shifted their efforts from
focusing on receiving their payments to selling their loans, ignoring the principle of having a successful loan so the person keeps their home, and focusing on unwarranted profits. Over the couple of
decades prior to 2008, they increasingly gave out more loans with very high
risk of default and high interest rates to compensate. The deception was deepened when credit agencies were able to slap positive ratings on the loans because the
banks actually went out of their way to offer letters of credit guaranteeing payment to investors of the
loans if the homeowners default. The point of loan ratings is to represent the risk associated with the payments. These barely legal letters clearly paved the way around this rule, and this shows how badly they wanted in on the
action (Jackson 304).
Lenders, insurance
companies, and banks then started to merge into larger, more powerful
corporations. These conglomerates irresponsibly controlled almost every aspect
of home buying, and they allowed what became known as “subprime loans,” basically
loans that were very likely to default, to comprise of 12.5% of residential
home mortgages by 1999 (Jackson 305). They allowed many people a home loan regardless of if
it was within their means, which was dramatically driving up the value of
homes, which encouraged many economically naïve people to go ahead and take on
a heavy mortgage. But managers were cashing in for years selling these loans that
had a false rating from credit agencies. Firms sacrificed basic principles of safe home
ownership and accurate risk representation for short-term profits.
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Managers clearly
knew it would all come crashing down on them as soon as an abnormally large
number of people started to actually miss payments and the rising value of
homes being used as collateral inevitably began dropping. Accounting rules
generally require firms to create “reserves.” If the company is lending money,
on their financial statements they estimate the overall risk of defaults across
all of their loans and put some money away in an allowance account that is
allocated yearly over the duration of the loan. Frankly, the whole point is once again so that
the risk is represented in one way or another. This is so that a company cannot,
for example, give out very risky loans without presenting a fair look at the
nature of the increased expected losses due to defaults. Basically, they would
have had to disclose how risky the loans were if they followed the correct risk representation principles.
Concentrating on
the exact wording of the rules, however, they worked around this complication with
the creation of credit default swaps, prolonging and aggravating the pressure
being forced into this damaged bubble. The holder of the credit default swap
pays to have the right to be paid if the underlying homeowners default. If more
people defaulted, the price of the credit default swaps they owned would rise. In essence, they could buy a credit default swap, effectively making payments that get them paid in the event of people defaulting. To combat the risk of too many defaults, firms would buy and sell these credit
default swaps sort of like insurance policies. allowing them to omit the
reserves that indicate payments are risky (Jackson 307). Again, this was such a complicated scheme that there was no specific law against this at the time. Many firms held the loans and also held credit default swaps. By the logic used in this accounting strategy, if the company is getting paid in the event of certain defaults, it is in some sense hedging their bets, and accounting rules tend to let you reduce the risk represented when you've spent money trying to manage it. So their loans overall are not as risky per se. But billions of dollars of the swaps were intertwined between all the largest firms, it was certain the mortgage backed securities and the credit default swaps were largely overvalued, which meant home values were being grossly inflated. They should have known this couldn't go on forever and house prices would crash, they wouldn't have enough collateral anymore which causes people's mortgage rates to increase dramatically, and people would get foreclosed. Ignoring those basic principles and getting increasingly greedy with it set up an inevitable crash that doomed the entire country.
Although there was
not a specific regulation against this, it proved dangerously unethical. For a
period of time, they were essentially being used as false insurance policies. Entities could buy only the credit default swap alone, effectively
betting on people losing their homes; it is astounding no managers evidently communicated
something was extremely wrong with this. So there was
not just one Enron and one Arthur Andersen. Investment banks like Lehman Brothers
had more than $700 billion worth of credit default swaps, many of them backed
by AIG. AIG held $440 billion of credit default swaps as well, tied to other
firms. Many other large institutions like Merrill Lynch, Leyman Brothers, and
Countrywide are examples of companies that contributed to the tremendous crash.
None of it was against the rules.
Regardless, any
competent economic professional in any one of these firms should see a
nationwide problem in making so much money from hidden risk concealed within
people who would likely end up defaulting on their home loans. They should have
known that they were dramatically inflating the housing market with these
instruments and charging too high of interest rates borrowers
couldn’t afford, but they were taking millions of dollars home to their own
bank accounts in the meantime. At the very least, someone should have spoken up
for the thousands of people for whom it was inevitable a significantly large
portion of would lose homes.
In 2007-2008, as various
rumors about the nature of these mortgage trades began to surface, the market
inevitably corrected itself and house prices tanked. All of a sudden, all of
the collateral that backed those guarantees was gone and economists realized it
was all a big sham. Homeowners defaulted and unsurprisingly, the banks and
insurance companies didn’t have nearly enough cash to back all those guarantees,
calling for government bailouts, which catapulted the country into its worst
recession in decades. The decision-makers took the idea of encouraging home
ownership and viciously ran it into the wall. With respect to consequences of the
fraud to Americans, the drastic increase in foreclosures was just the start. People
lost retirement plans, unemployment hit peak levels, and well-qualified
borrowers couldn’t get approved for a home for years. Bankruptcies rose 32% in
2009 after this widespread crash took other firms and people with them. AIG,
for example, had to be bailed out with $14 billion of taxpayer money. These constitute
just a portion of what it can mean for innocent citizens when those
representing large companies ignore the principles behind the rules set up for businesses, and corporations in particular.
Government
officials against prosecuting those many executives and firms involved argued proving
intent was difficult because they claimed top-level management was far removed
from those actually putting together the dubious securities. However, various “suspicious
activity reports” regarding the questionable strategies were found to have
surfaced from the banks themselves in
years prior to the crash. So how could managers not perform an inquiry or
investigate further on these suspicious reports within their own firms, and
eventually come forward or fix it internally? Even if it can’t be proven managers
made direct orders, it is clear they can be held accountable. Willful blindness,
just as we saw with Arthur Andersen, does not and should not serve as an excuse
for unethical business practices, as the Supreme Court has acknowledged in various
situations in the past.
This massive screw up seems to get away with the teenage excuse of "...But everybody else is doing it!" Nonetheless, the complex nature
of the maneuvers behind the mortgage crisis exemplifies how ridiculously far
leaders of corporations will travel to commit and conceal deceptive acts, just
like the Enron scandal. Because there were such a large number of firms and
executives working with the intent of realizing false profits for so long in
this case, another relatively worsened resemblance to Enron is the level of contagion the
exploitation of unregulated behavior reached in this situation, and again how
it can prove effective enough to severely harm the public financially.
The
Illusion of Fair Taxation
Although nobody can
currently point out another major fraud in the works, a more prolonged and
discrete deception that ignores basic principles of protecting the financial interests of all citizens still exists today. It is the widespread exploitation of tax
loopholes. When the government doesn’t collect corporate taxes, the
costs undoubtedly fall on citizens in one way or another. The way
in which companies maneuver through the code of law to avoid paying taxes is in
many aspects similar to the frauds mentioned above. Although it is not as punishable,
the manipulations ignore even the most basic reasons why the rules try to
enforce what they try to enforce, just like the way principles are ignored with fraud that was "technically not against the law at the time." Furthermore, the behavior is
widespread among almost every large company with the ability to take advantage
in a given industry, like we observed with the mortgage crisis.
To move forward
with the increasingly global economy, the tax code allows corporations various
benefits of investing in “foreign subsidiaries” (similar to the special purpose
entities discussed, just based on international location). One controversial
benefit is the deference of paying taxes on foreign income until the income is
“repatriated” or reinvested in the area. Repatriating is basically the act of bringing
the income back into the US. When the company does repatriate, the tax system
provides a foreign tax credit so they get an equal amount in a benefit if they
already paid taxes somewhere else. This system is set up to avoid the
discouragement of foreign investment into the new global economy.
The problem arises
with how brutally the technicalities of this system are taken advantage of. Setting
up a subsidiary in a foreign area must serve a legitimate business purpose
besides tax incentives, but decision-makers find reasons to conveniently set up
shop in the most tax effective, middle-of-nowhere countries around. Many of
these areas, such as the Cayman Islands and Ireland, only impose an income tax
on locally controlled companies. So technically, US-controlled corporations
that are simply “operating” there don’t fit that bill. Your favorite tech
company Apple, for example, picked Ireland to refer to as the center of all of
their European operations to house billions of dollars of income that they pay
virtually no taxes on. In 2014, Pfizer paid less than $1 billion in taxes good
for an effective tax rate of just 7.5% (the federal and state combined
corporate tax rate is about 39%). Since they can just “defer” the income by not
repatriating, some get away with paying little to no taxes on billions of
dollars in income.
One might think
that at the bare minimum, they would eventually
have to bring the extra money home to reap the benefits of the income here in
the US. But the people at the top will indeed take the next step necessary for monetary
concealment, without a consideration of the money fundamentally missing from
the pockets of civilians. There are dozens of next steps available to realize
this income by recharacterizing the income. A popular example is masking it as a
loan going back to some entity in the US. The act of concealing profits as a
loan seems to bear a striking resemblance to what Enron did.
People often wonder
why CEO’s get paid so much compared to employees. The tax code attempts to prevent this, likely for principles such as income inequality and protecting workers,
by stating that the compensation of any officer salary over $1,000,000 becomes
non-deductible for the taxes of the corporation. The loophole points to the blatant ignorance of these important principles. It resides in the
area of “performance-based pay,” where corporations can deduct bonuses that are contingent upon achieving some sort of benchmark
goal. Corporations end up deducting ridiculous amounts of loosely set up
performance-based bonuses, even though salaries remain at $1,000,000 for tax
purposes. Nowadays, CEO’s make on average 300x the average worker (this number
was 30 in the last generation). Unfortunately, this is just one of dozens of
examples of the unlimited boundaries being pushed for personal gains while ignoring the principles that the tax code tries to enforce.
In March of 2014, in
a report titled “The Disappearing Corporate Tax Base,” the Center for Effective Government outlined the way these loopholes have affected ordinary taxpayers,
and analyzing the numbers can help develop an accurate impression of the lost
public funds. In 2013 corporate tax revenues were 1.6% of US GDP and made up
less than 10% of our federal funding, compared to 3.5% and 15% in the 1970s,
respectively. Corporate profits in 2013, however, reached an all-time high of
12% of GDP. So even though corporations are making more money than ever before
relative to the government, they are paying less and less than of a share of the government's bills, primarily because of the various loopholes companies have learned to
take advantage of.
To gain a good
perspective out of this report, if these percentages reflected what they did in 1973, corporations would have paid an additional $188 billion
in 2013. The money from just one year of honest corporate taxpayers who follow the principles instead of the rules could
potentially be used to refill the 667,000 jobs that teachers, first responders,
librarians, and caretakers lost to budget cuts since the recession ($36
billion), while making a substantial commitment in infrastructure ($125
billion), adding 2.5 million brand new jobs as well.
The following chart displays what the loss of corporate tax revenue has been actually attributed to over the years. The 100% level at the top of the chart represents all of the federal government’s bills and each section represents how much of the total is contributed from each form of tax.
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| ("The Disappearing Corporate Tax Base" by the Center for Effective Government) |
Over time, corporate
taxes have made up less and less of our federal government’s revenue, and the missing
cost is clearly attributed to payroll and income taxes which come straight from
civilians’ pockets. So as the US economy is recovering from the recession that
was largely the fault of deceptive leaders, US businesses are flourishing, and
from a tax perspective, corporations reap much more of the benefits that come
with all of this while leaving lower income workers and the middle class hoping
to someday fully recover from the effects. It seems like many of our problems,
such as income inequality and the slow recovery from the recession, could be
solved with honest corporations.
“But everybody else is doing it!”
We discussed the odd resemblance to "peer pressure" among teenagers. Before Enron fell apart, Andrew Fastow was receiving numerous awards for being an outstanding CFO, was nationally recognized in financial magazines
and newspapers, his directors were calling him a financial genius, and he was taking
millions home until he went to prison (he was estimated to have been able to
keep a substantial amount of his money after serving his six year sentence).
This is evidence that loudly speaks to the social glorification of these
actions in corporate America. What should have clearly been questioned as faulty financial manipulations from the start were viewed ultimately as creative success, as was previously mentioned, mainly because they weren't illegal per se and netted positive results. Fastow and other perpetrators act as if it is all just one big game, as if clearly going right around the rules won't have some other effect on innocents, as if none of their business decisions can ever cause collective harm. The same goes for the masterminds behind each tax loophole that weakens citizens' paychecks, or the bankers who first began using credit default swaps as insurance policies. Not to mention, the entire idea of credit default swaps was created by a guy at JPMorgan during an "off-site weekend," basically a retreat for teams of bankers with alcohol and bikini models on yachts. So no, this behavior is not just limited to the actors on "Wolf of Wall Street." Considering the apparent capability of these powerful corporate leaders to reap havoc on the lower classes, the surrounding forces of each tactic speaks to the broken culture that has relinquished the population's strive towards a safer economy; that control is now focused into one questionable group of people, firm managers, who have made some horrible decisions.
There are
definitely a number of select individuals leading corporations who have room for
moral improvement. Although we have displayed evidence of the motivating culture behind it, frankly, the leaders responsible
for the outcomes are viewed as highly unethical. However, the motivation and/or
willingness to commit financially deceitful acts can be explained by tendencies that show up frequently in human nature, and since questionable moral tendencies have proven to be common among businesspeople in particular, it pumps more fuel into the
minds that make up the hazy corporate culture.
In a very interesting TedTalk titled, “Our Buggy Moral Code,” behavioral economist Dan Ariely dives
into the psychological aspects of these actions by giving similar opportunities
of “cheating” to ordinary people and analyzing the results. Of his most
interesting findings, he observed that people are significantly more likely to
cheat for extra money if they see someone else do it and get away with it. This speaks to the contagious nature of these exploitations discussed. He also found that
the further the distance between people and the actual physical cash they are stealing, the more
likely they are to cheat to make more and more of it (they were more likely to cheat
when they were presented the same opportunity except with tokens redeemable for
cash instead of actual cash). Executives are among the most detached from the actual physical cash in decision-making. Psychology can somewhat explain the reason why when working together, many times their
minds can rationalize misappropriating a relatively large amount money but could never imagine individually robbing a bank at gunpoint.
They see other people get away with it and they are very detached from the reality of the effects of their actions. So, from a cultural and psychological perspective, executive overshadowing of the moral compass is
well explained in the workings of how their minds justify pursuing deceitful
advantages, both from internal and external motivators.
It is interesting to
examine how this tendency adds to a primary defense from the competitive perspective. Most CFOs would argue they would assume competitors
take full advantage of any legal exploitation that arises, whether it’s a tax
loophole or a new sketchy business tactic. Cash is always tight. From the perspective of any CFO, if the company were to come out and willingly pay a tax competitors aren’t
paying or avoid an opportunity competitors are taking advantage of without legal motivation, they would be putting
their future cash flows at a tremendous disadvantage and risk losing the
business altogether. After 2004 early warnings of the "pervasive problem" of mortgage-backed securities surfaced, they were shoved aside. This was not because they were believed to be incorrect or every single executive was just too stubborn to admit wrongdoing, but as one top-level banker stated, "A decision was made that 'we're going to have to hold our nose and start buying the stated product if we want to stay in business.'" Business is business. But this shouldn't be considered an actual excuse. If one executive crosses a certain line for profit, enough to significantly threaten the existence of other firms, should it really be the norm that all of the rest follow? But with the way things are now, this “everybody is doing it” justification,
combined with the psychosocial effects discussed earlier, come together to create an acceptance for corporate managers to engage in these tactics,
further them, and eventually become one of the frontrunners in the newest
cycle.
Fixes
to Consider
How exactly do you fix a culture? Is there anything aside from costly regulations that could help prevent this? Although
we established many similarities among the three major areas of fraud
discussed, it’s difficult to hope for one collective solution. From a long-term social
perspective, there is a need to reach young corporate employees and business students at an early age
and educate them on the importance of business ethics and the tragic results of
unethical decisions in the past. Many firms, especially accounting firms like
Deloitte, have recently employed programs with an ethical focus for all
employees for this exact reason. These efforts should be expanded and rewarded.
It seems to get more complicated in the political grand scheme of things. The Sarbanes Oxley Act of 2002 took care of the major tactics employed by Enron. Similarly, regulations popped up after the mortgage crisis that disallowed much of the same behavior. Corporate taxes have gotten more and more complicated by the year since 1988. One might raise the question of why there weren’t regulations to enforce any of these things in the first place, or why the tax code is so increasingly complex and easy for professionals to take advantage of, or how we can end each cycle.
From a tax point of view, there are far too many complicated deductions and exemptions to begin proposing the elimination of specific loopholes. This in and of itself is a major source of the tax issue: it is so excruciatingly complex that eventually anyone with enough money and the right teams will find ways to realize unwarranted benefits. As shown, the major problem remains that corporations no longer make up as significant of a portion of the government’s tax receipts. In 1986, Reagan saw a similar issue and negotiated a corporate tax reform bill that in essence, exchanged the closing of a large number of loopholes with a slice in the corporate tax rate from 46% to 34%. Even though there was a simpler code with less loopholes back then, and even considering a huge 12% cut in the corporate tax rate, the share of the federal budget covered by corporate taxes rose from 8.4% to 10.4% by just two years later in 1988. Whether the corporate tax rate itself is too high falls out of the scope of this argument, however any plausible solution that nets positive results should be considered, and a similar "trade," especially with the offshore account phenomenon, seems like it can help. Either way, loopholes obviously need to be closed.
Specifically
regarding the mortgage crisis, one notion remains surprisingly simple. None of the high level executives responsible were ever prosecuted for what was clearly an
enormous fraud, primarily because the prosecutions themselves would have further
damaged the US economy. Prosecutors might have been overwhelmed with the drastic crash and thought to do what seemed to be best for the overall good. However, this notion of putting them above the law because of how great their fraud was strongly contributes
to the infected culture we so desperately need to put an end to. Sending those
primarily responsible to prison would help prevent others from chasing similar
opportunities in the future, which is worth the extra hit to the economy in the
long run. Increasing punishments for these crimes, in general, might do a
number on the increased cultural glory of getting away with it. Frankly, people in this country serve
life sentences and end up dying in prison for causing much less overall harm. In general, prosecuting more of
these types of people and truly stripping them of their wealth and accomplishments would send a signal to current perpetrators that
these actions are not tolerated and they will likely end up in jail for longer and broke. When other managers look at the executives responsible for the mortgage crisis, for example, there is not a great deterrence factor to help prevent deceptive ideas from catching wind riding on the next yacht with alcohol and bikini models.
It is surprising
how much of the behavior prior to the two major crashes can be traced back to
one form of effort that catalyzed each of the major fraud developments, not to mention most
major tax loopholes: lobbying. Enron lobbied for all sorts of things they
wanted to take advantage of (Jackson 207). Wall Street had to lobby for the ability to get in
on the mortgage-backed security market and create their tools of destruction. Furthermore, large corporations have a long
history of lobbying for the tax complications they take advantage of. There
needs to be a fix centered on this misused ability to influence policy. Allowing
firms to lobby is clearly the first step in encouraging harmful corporate
behavior. If something is against the rules, but managers believe they have a
great chance of changing the rules, this pushes them to strive for whatever
deceitful business tactic they can come up with. At least with regard to
certain regulations and tax rules that are most crucial to the US economy and
might be most dangerous to let up on, such as home ownership, the evidence calls for a limit of lobbying efforts.
The blame can be
placed across many different parties in all of these different
situations, but certain things remain common. Managers of corporations are not
concerned with how their decisions affect the financial well-being of American
citizens, the most immoral of those decisions have caused and are currently
causing a great deal of financial harm for purpose of personal gains,
and there exist psychological, social, business-related, and most importantly,
cultural reasons behind it all. They will probably keep cheating. They are
likely to continue finding loopholes. It is policymakers’ and sophisticated law
enforcements’ collective responsibility, however, to focus on enforcing proper
business ethics and protecting the financial interests of citizens. Hopefully beginning with some policy adjustments, we will begin to see a societal shift and
eventually rid ourselves of the corporate culture that is plaguing America.
