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Part 5 - Steering the Business into the ... > Chapter 27 - Doing Well by Doing Goo...

Chapter 27
Doing Well by Doing Good: Business Law and Ethics
In This Chapter
• How business and society interact
• Key areas of the law that concern managers
• The importance of business ethics
The financial accounting and stock trading scandals of the early 2000s revealed a high level of greed and self-dealing among senior managers of some companies. Enron, Global Crossing, Qwest, Computer Associates, and AOL were subject to criminal investigation. Executives at Arthur Andersen, WorldCom, Tyco, Adelphia Communications, and Imclone Systems were charged with crimes ranging from fraud to obstruction of justice. Merrill Lynch paid a $100 million fine to New York State for violations of securities law.
During the rest of that decade, greed and malfeasance concentrated itself in the U.S. financial sector, particularly in the mortgage origination, lending, and securitization industry. (I explained securitization, the process by which mortgages or other loans are bundled into bonds, in Chapter 16.) Major financial institutions completely ignored risk management and even basic credit policy, for two reasons: they wanted rapid growth in profitability, and they believed someone else would get stuck with the bad loans they resold. These activities helped create the financial crisis of 2008 – 2009 and exacerbated the late-2000s recession. One result was the multibillion-dollar government bailouts of the institutions that caused these troubles.


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