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The End of Ethics and A Way Back: How To Fix A Fundamentally Broken Global Financial System

ISBN: 978-1-118-55027-4
288 pages
February 2013
The End of Ethics and A Way Back: How To Fix A Fundamentally Broken Global Financial System (1118550277) cover image

Description

Bestselling author and professor Ted Malloch calls for real financial reform to restore confidence and fairness to a broken system

From Ponzi schemes to the credit crisis to the real estate bubble, the financial industry seems to have lost its way on the road to riches. As private greed continues to undermine the public good, one might wonder what ever happened to business ethics. And how can we reform the global financial system to benefit everyone, rather than just the very lucky few? In The End of Ethics and the Way Back, the bestselling author of Doing Virtuous Business teams up with attorney and Yale University Postdoctoral Fellow, Jordan Mamorsky to examine the most recent failures of business virtue, prudence, and governance—from Bernie Madoff to Jon Corzine and MF Global—before offering a set of structural and holistic solutions for our current ethical crisis in global finance.

  • Features compelling case studies that reveal the saturation of economic vice in global finance
  • Suggests structural reforms to the global financial system that would increase confidence among consumers and encourage ethical behavior among finance professionals
  • Written by Ted Malloch, author of the bestseller Doing Virtuous Business with attorney Jordan Mamorsky
  • Ideal for financial regulators, business students and academics, and professionals in the finance industry
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Table of Contents

Foreword xvii

Acknowledgments xxix

Introduction xxxiii

Prologue xxxix

Part One: Economic Vice 1

Chapter 1 The Selfish Betrayal of the Global Investor: Libor and Its Consequences 3

The Calculation of Libor 5

The Rise and Fall of the World’s

Financial Benchmark 8

Knowingly Asleep at the Wheel 13

A Troubling New Normal 16

Notes 17

Chapter 2 Jon Corzine’s Fallen Empire of Risk: MF Global 19

History of MF Global 21

Jon Corzine’s Midwestern Roots 22

The Rise of “Fuzzy” 23

The Establishment of MF Global 26

Rogue Trader Scandal 27

From Gubernatorial Disgrace to MF Global CEO 28

MF Global under Corzine 29

Risk Governance Failures 32

Notes 33

Chapter 3 The Continued Rating Agencies Game: Will Rating Agencies Be Reined in for the Sake of Global Market Stability? 37

History of Rating Agencies 43

Mortgages and the Ratings Boondoggle 47

Notes 51

Chapter 4 Belligerent Leadership and the Demise of Lehman Brothers 55

History of Lehman 57

Brewing Anger 60

Uncaging the “Animal” 62

Culture of Anger 64

Increasing Risk and Authority 66

Walsh’s Rise 67

A Gorilla Bursting the Bubble 69

Extreme Leverage 71

The Deception of Repo 105 73

Fuld’s Marginalization of Risk Management 75

Fuld’s Last Chance to Save Lehman 77

Notes 79

Chapter 5 How Out-of-Control Pride Brought Down Bear Stearns 83

History of Bear 85

A Different PSD 89

Greenberg’s Vision of Corporate Thrift at Bear Stearns 91

Bridge Bum Turned Bear Salesman and CEO 93

A Casino Culture 95

BSAM: Bear Stearns’ Kryptonite 98

“Never a Losing Month” 100

The End of Bear Stearns: The Importance of Golf and Bridge during a Liquidity Crisis 105

JP Morgan and the Takeover of Bear 106

Notes 107

Chapter 6 Tyco: Exceptional Greed and the Destruction of a Billion-Dollar Company 113

Tyco History 115

The Makings of a “Bad” CEO 117

Seeds of Greed 118

Kozlowski’s Culture of Fear at Grinnel 119

Looting the Company 120

Kozlowski’s Accomplices 124

A Convicted “Piggy” 128

Notes 128

Chapter 7 Insatiable Lust and Two of the Most Destructive Ponzi Schemes in American History 131

The Ponzi Scheme and Society 133

Bernie Madoff and the Seeds of Lustful Temptations 134

Madoff ’s Culture of Sexual, Criminal, and Moral Deviance 138

Tom Petters, the High School Dropout 139

Birth of the Ponzi Scheme, Petters Company Inc. 140

Succumbing to Uncontrollable Lust 141

Madoff ’s Cast of Characters 142

Petters’ Cast of Characters 151

Will We Witness Another Madoff ? 155

Notes 155

Chapter 8 HealthSouth and WorldCom: How a Gluttonous Appetite for Expansion Resulted in Accounting Fraud and Failed Corporations 161

HealthSouth 163

Bernie Ebbers and WorldCom 172

Blunting Future Accounting Fraud 178

Notes 179

Part Two: Recommendations 183

Chapter 9 Why Financial Regulation Has Failed, and What to Do about It 185

The Failed Promises of DoddFrank 185

The New Rules of the Game that Reinforce Vice 189

A Dummies’ Guide to Save the SEC 194

The Regulatory Reforms Necessary to Reverse the End of Ethics 195

Reforms Needed for the Commodities Market 202

The Need for Heightened and Streamlined Fiduciary Rules 205

Notes 208

Chapter 10 The Case for Reintroducing Governance and Morality 213

The Important Demand for Corporate Governance 213

The Importance of Corporate Responsibility 215

The Importance of Reputation and Avoiding Long-Term Litigation Costs 218

Bonuses Redux: Corporate Welfare Reform and Cutting Golden Parachutes 220

The Need to Morally Redefine Ourselves on the Macro Level 223

Rebuilding Our Character 226

How to Remedy the Evils in Modern-Day Consumerism 227

Virtue and the Moral Life 228

The Consequences of Modern Selfishness 230

Modern Theories and Institutions 232

Democratic Morality and Our Current Crisis 233

Notes 234

Chapter 11 The Way Back 237

Appendix 241

About the Authors 249

Index 251

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Author Information

Theodore Roosevelt Malloch is Research Professor for the Spiritual Capital Initiative at Yale University. He was Chairman and Chief Executive Officer of The Roosevelt Group, a leading strategic management and thought leadership company. He has served on the executive board of the World Economic Forum-Davos; has held an ambassadorial-level position at the United Nations in Geneva, Switzerland; worked in the U.S. State Department and Senate; worked in the capital markets at Salomon Brothers on Wall Street; and has sat on a number of corporate, mutual fund, and not-for-profit boards, including the University of Toronto International Governing Council, a Pew Charitable Trust board, and the Templeton Foundation. Ted earned his PhD in international political economy from the University of Toronto.

Jordan D. Mamorsky is an experienced attorney specializing in business regulation, corporate governance, and compliance. He was a postdoctoral fellow at Yale University where his research focused on the legal, financial, and ethical failures that contribute to financial crisis, corporate illegality, and breach of legal fiduciary duties. Jordan formerly worked at the U.S. Treasury Department, where he received the "special act award" in recognition of his recommendations detailing the dangers of predatory subprime lending in low-income communities. He is a contributor to Morningstar Advisor. He is an active practicing attorney and has represented Fortune 500 companies, global investment banks, insurance companies, hedge fund managers, health services corporations and an international sports league, among other clients.

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