Business Ethics Paper

Subprime Lending-Greed, Faith, & Disaster (Page 604-605)

Provide an overview of the case facts and then address the following:

1. Subprime mortgages targeted lower-income Americans, new immigrants, and people who had poor credit history. The customers were told that because house process had been rising, the borrower would be able to refinance the loan at a later date with the increased equity in the house. Was this an ethically correct sales pitch? Were the lenders taking advantage of financially naïve customers?

2. O’Neal transformed Merrill Lynch from a conservative bank into an aggressive risk-taking institution. Risk-taking means that there is the potential for high rewards as well as large losses. From 2002, when O’Neal became CEO, Merrill’s share rose 35%. Should the investors now be upset that, as a result of the subprime mortgage meltdown, Merrill’s stock price fell by about 30% in 2007?

3. As a result of the subprime mortgage debacle, the CEOs at Merrill Lynch, Citigroup, Bear Sterans, and Morgan Stanley all resigned or were fired. Their departure packages were $161 million, $68 million, $40 million, and $18 million respectively. Are these settlements unreasonably high, given the huge financial losses and write-downs that their companies recorded?