ETHICS EXAM II STUDY GUIDE Dr. S. John
50 True False Questions Issues 6 to 13
Bogle and Blankfeins primary arguments (Was the Financial Industry Responsible for the
Economic Meltdown of 2008?)
o Bogle: Yes. Unchecked market forces, particularly in the fields of investment
banking, banking, and finance that almost destroyed the global economy. He
calls for firms to make long-term investments, not short-term gains, and create
an overall culture of ethics in all practices. Lack of ethics was responsible or the
bailout and doesn’t excuse any one firm from responsibility.
o Blankfien: No. Believes the blame could be placed on issues of risk management
within the field instead. Grateful for the government bailout.
o Concerned with resolving problems that can exist in agency relationships; that is,
between principals (such as shareholders) and agents of the principals (for example,
o The two problems that agency theory addresses are:
1.) the problems that arise when the desires or goals of the principal and agent
are in conflict, and the principal is unable to verify (because it difficult and/or
expensive to do so) what the agent is actually doing; and
2.) the problems that arise when the principal and agent have different
attitudes towards risk. Because of different risk tolerances, the principal and
agent may each be inclined to take different actions.
Lowenstein’s belief why the government had to bail out the economy
o The only ethical perspective for the American people to avoid a complete
economic calamity was a government bailout. There was no choice for the
government economics- too much damage would have occurred to innocents
had the bailouts not been implemented.
The failings of economics as a discipline and counselor to the government
Samuelson’s boom/bust theory
o Prolonged prosperity dulled people’s sense of risk.
o time period characterized by sustained increases in several economic indicators
followed by a sharp and rapid contraction
o Financial instruments based on other products, whether physical or financial.
Three main types are: futures, options, and swaps. Buffett’s folly
o Lost $14.6 billion in bad bets on derivatives
Bass primary argument
o Compares derivatives to crystal meth.
o Believes that the market failures were due in large part to mismanagement of
o He recommends widespread regulation of these instruments or no use of them
Welby’s perspective when derivatives are appropriate financial instruments
o If they are intrinsically valuable and will the active management of our positions
created by this activity result in a change in the nature o