Ethics Could Have Avoided The Collapse of Lehman, Merrill Lynch
I can’t help wondering–would Lehman Brothers, Merrill Lynch, and other fallen giants be in such trouble if they’d followed common-sense ethical principles?
My award-winning sixth book, Principled Profit: Marketing That Puts People First, suggests a number of reasons to say no to a sale, focused on core ideas of honesty, integrity, and quality. In other words, successful businesses have standards both for how they behave and for whom they choose to do business with.
So many of the loans coming apart in the subprime crisis didn’t meet the basic criteria of quality–there was no assurance that the borrowers had enough resources to pay back the loans.
Yes, these loans provided a path to home ownership for many Americans who could not have otherwise afforded them–a worthy goal. But those ownerships turned out to be temporary, and those forced from their homes are now in worse shape. Perhaps if proper lending criteria had been applied, the market would have responded by lowering inflated home prices–and those who got burned would have had a safer and more secure path to real home ownership, and the financial titans wouldn’t be fighting for air.
Oh, and one more question: Why was Bear Stearns considered worthy of a bailout (something I wasn’t at all sure was a good idea) but not these latest casualties?
In my opinion the statement is accurate that business ethics at Merrill definitely would have helped. To substantiate this I provided some evidence at http://riskfriends.wordpress.com/2008/09/16/merrill-take-over-by-bofa-an-informed-decision/
Looking at the credit crisis you find evidence that lack of integrity is an important indicator of trouble ahead. Collecting one year of credit crisis events show that integrity concerns are a reliable risk indicator from an investor perspective. You can select integrity concerns events at the guided analysis provided by riskfriends and draw your own conclusions.
http://www.riskfriends.net/guided_analysis.html
Peter
Comment by peter — September 19, 2008 @ 7:16 pm
Peter, I absolutely agree. And you see this pattern in previous crises too. Remember Michael Milken or the Silverado S&L?
Comment by Shel Horowitz, Ethical Marketing Expert — September 19, 2008 @ 9:25 pm