Case Study: What Is Up with Wall Street?

Category: Case Study, Wall Street
Last Updated: 06 Jul 2020
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NORTHCENTRAL UNIVERSITY ASSIGNMENT COVER SHEET Learner: Demetrice S. Campbell | | MGT7019-8| Douglas Buck| | | Ethics in Business| #3 Paper- Case study: What is Up With Wall Street? The Goldman Standard and Shades of Gray| | | Academic Integrity: All work submitted in each course must be the Learner’s own. This includes all assignments, exams, term papers, and other projects required by the faculty mentor.

The known submission of another person’s work represented as that of the Learner’s without properly citing the source of the work will be considered plagiarism and will result in an unsatisfactory grade for the work submitted or for the entire course, and may result in academic dismissal. ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Faculty Use Only ------------------------------------------------- <Faculty comments here> ------------------------------------------------- ------------------------------------------------- lt;Faculty Name><Grade Earned><Writing Score><Date Graded> Running Head: What Is Up with Wall Street? The Goldman Standard and Shades of Gray What is up with Wall Street? The Goldman Standard and Shades of Gray Demetrice S. Campbell Ethics in Business November 11, 2012 Abstract Case Study of Goldman Sachs What is up with Wall Street? The Goldman Standard and Shades of Gray was a case study focused on the company Goldman Sachs and the unfolding of a horrible decision that affected the economic structure of our banking system, stock shares, and the government.

Their strategies to make a more successful business, ended with them being greedy for more money and success. These strategies lead to questions of their ethical standards in their business practices. The company was founded by Marcus Goldman and Samuel Sachs in 1869 (Jennings, 2012). The company was supposed to provide loans to small businesses, but instead Goldman wanted to do investments. Greed caused the company to turn a blind eye to what was really going on and this resulted in several downfalls for the company and others involved.

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The 1929 market crash was one result of the company’s practices. Rather than doing what was right, Goldman and Sachs just carried on running into many walls. The problem to be investigated is the ethical standards of the company in relation to their investors and the price they pay. Introduction The problem to be investigated here is the ethical standards of the company in relation to their investors and the price they pay. In the corporate world, business ethics are very important and can be costly. Sometimes ethics can be over looked to motivate people.

Ethics should be important elements of our day to day functions. It is important to realize the importance of business ethics if you want your business to grow. This could have a positive or negative impact on the productivity of the company. Business ethics are made up of a lot of subjective topics. Some people think that business ethics are comparative. There are many things that businesses take part in that can be seen as gray area. Gray areas are situations in which the rules are not clear, or you are not sure what is right or wrong.

Key items include lying and false representation. Goldman may have committed both these behaviors just to have greed and a successful company. Things that Goldman did that would be in the gray area include: a. Sophisticated Investor--by definition, it is to escape full disclosure to its clients. Goldman made offerings to sophisticated investors, but failed to tell the whole story and their position in the investment or the market. Since then, the Dodd-Frank Wall Street Reform Act has better clarified the definition to prevent firms from withholding information b.

Analysts and two opinions—He failed to follow the rules on the consistency between the analysts’ internal conversations and their communications and the external recommendations of the SEC rules require because it was for a particular group as strategists. The rules did not apply if their name did not have the word analyst in it. c. Auction rate securities—it took state law to come up with a settlement of these problems. The SEC had difficulties applying regulations and laws to this behavior of bidding up the price and then not buying.

The clients were not aware that Goldman was bidding on the securities. Goldman’s response as well as some others was that there was always investment houses bidding in such auctions. d. IPO allocation and structure of the market—this also was eventually settled, but not without the insistent small fines and new rules on IPO allocations and agreements between the clients on second-wave agreements to buy more. e. IPO profitability changes prior to IPO—Goldman failed to share that the steady drift from three years of profit to one year then down to one quarter.

This was sort of a unique legal problem in regards to the profitability standard to one quarter because the financials were available on the dot-coms for the investors to see. Nothing was being disclosed. f. Partnership to corporation structure—When Goldman decided to change from partnership to a corporation, this shielded them from being liable, where as being the principals, you put it all on the line. The move to a corporation with limited liability resulted in riskier practices taken by the firm.

Goldman was guilty creating a company and buying 90 percent of the shares with its own money. This practice made the public want in on the deal not knowing they were being misled. This allowed him to sell the shares he bought for more money; while he buys more shares on the secondary market and causes the share prices to increase. He then turned around and used his money to create another corporation. (Jennings, 2012) Goldman was also engaged in laddering, which is an agreement between Goldman and its best clients for the distribution of a portion of the IPO at a reestablished price.

However, under a laddering arrangement, those clients also had to agree to purchase a certain number of shares later during the IPO rollout at a price of $10 to $15 higher. (Jennings, 2012) Goldman also participated in auction-rate markets. He gave loans to executive members in exchange for shares. Many of the issues included the nondisclosure of facts that an investor would have deemed very important in making their investment decisions. Goldman and Sachs were guilty of false impression, simply because the investors were not aware of their position in the market.

There is also the point of moral vulnerability and how allowing AIG to be bailed out provided a cover for Mr. Goldman and his sneaky business practices. Then there is the “too big to fail” issue, this is important because the investors were the one who lost money, not Goldman. He was protected. The front page of the newspaper test was a winner in this case because the headlines did not prove to be flattering for Goldman. The Senator’s questions reflected the struggle of the people who were trying to understand how and what Mr.

Goldman had done complied to the law, but still come across as a deceptive practice. The law is only one part of the ethical analysis. Goldman failed to think through the consequences of additional regulations, the fines that would be involved, and the clients because of the perception that he could not be trusted and may not always be acting in the best interest of the client. There areas affected by the Goldman model and gray areas include: investors, the market, the U. S. conomy and the global economy, AIG, AIG investors, employees of AIG and other companies and investment banks that had to be dissolved or acquired or reduced in size, employees of dot-coms, beneficiaries of donations by companies and investment bankers, nonprofits also were affected because they had their endowment funds invested, real estate markets because of the impact in value, all those affected by a slump in the real estate market including real estate agents and brokers, contractors, furniture and window covering companies, decorators, landscapers. A little of everything was affected by these strategies and gray areas.

Some of the people that were effect by Goldman’s decisions were his clients as well as some of the top employees, such as Lloyd Blankfein. (Jennings, 2012) Investors thought they were going to receive money on their purchase. No employee or officer should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other illegal trade practice. (Jennings, 2012) The main factors that contributed to the way that the employees, executives, traders, and advisers made their decisions were money and political power.

The idea of being “Filthy rich by 40,” and the enticement is what produced so many millionaires so early in their lives. Many companies are cutting back on their financial-incentive programs, but there are many things that can be used to motivate employees. Goldman worked “toes to the line” culture, always looking to find the next big loophole available. The culture was also, “If it is legal, then it is ethical”; which is not always the case. (Jennings, 2012) Goldman’s behaviors are a typical image of Carr’s theories. (Jennings, 2012) Could it be bluffing of Goldman to not reveal their positions or were they just tricking innocent people?

Not everybody is aware and knowledgeable of the rules of the Wall Street. The larger investment bankers clearly were aware because of their own involvement in IPOs to auction securities to their structuring of the CDOs. However, these investments made their way to the retail level where the knowledge base was nonexistent. Goldman and others believed them to be sophisticated investors by definition and it was unnecessary to share. However, that definition has now changed and more disclosure is required because they obviously did not understand the double positions.

This is saying that the culture that existed at Goldman before will stay the same. The drive to be successful and the fact that Goldman does not feel that its client base will be affected is why things will go on as business as usual. In other words, Goldman emerges with a fine but little remorse and a plan to go forward with the status quo. It does not seem as if any lessons were learned. Compare & Contrast Senator Collins has made clear that there was no legal fiduciary duty, but she questioned whether Goldman needed to act in its clients’ best interests as an issue of good business practice.

The discussion states, Goldman struggled with that answer and could only come to the conclusion that it was “an interesting idea. ” Goldman had a mentality that only the strong can survive in the markets. However, he did not take into account that with new regulations and the changes in the market; he could no longer engage in those legally gray areas and would be obligated to compete on a different foundation other than his normal loopholes Conclusion Business ethics are very important to have but sometimes they can conflict with personal ethics.

Owning a business can be a risky task. You have to make the decision of what is more important to you, is it the money that drives you or the will to do what is right and ethical. Goldman was not producing but he trick the investors into giving money without every showing anything. This is a very common thing that most investors never realize until they have lost millions of dollars. References Jennings, M. (2012). Business ethics: Case studies and selected readings. (7th Ed. ). Mason, OH: South-Western Cengage Learning.

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