Bailouts and Bonuses: From Financial Bankruptcy to Moral Bankruptcy?



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Code : GOV0041

Year :
2009

Industry : Banking

Region : Global

Teaching Note: Available

Structured Assignment : Not Available

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** Finalists at "Dark Side VIII" Case Writing Competition, Academy of Management Annual Conference, Chicago, Illinois 2009.

Abstract:
This case study is compiled to highlight the moral arguments on bailing-out the banks that have lost more than a $ 1.5 trillion of investors’ money by betting on the highly complicated financial instruments. The case builds an interesting debate over extending an exorbitant helping hand for the financial institutions, by forcing the huge sums on exchequers.

In the late 1990s and early 2000s when the great housing bubble was building in the US, the so-called “too big to fail” banks have created, traded and invested in toxic financial derivatives. They lured the speculators and investors from across the globe by multiplying the initial investments at every corner point in the chain. In the process these banks grew even bigger by every passing quarter and the Wall Street was all too happy to bestow AAA ratings to the financial investment that barely anybody could decipher – not even the creators. The euphoria blindfolded everyone involved to question the fundamentals. And when the bubble bust, the financial institutions were worth nothing more than a heap of paper assets. The federal government – on behalf of taxpayer – assumed the onus of honouring the cheap, toxic assets to the tune $1.3 trillion. The idea behind the valor was noble -to arrest the damaging effects and bring normalcy to the sinking financial system. But, what happened after the bailouts was all the more disappointing. Some of the banks that were benefited by these packages have announced bonuses for their executives.

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Pedagogical Objectives:

  • To debate on the relevance and efficacy of the US bank bailouts and examine the fallout if the banks were not bailed out
  • To have a holistic understanding of the US Financial Crisis, with special reference to the role played by the US banks
  • To critically examine the nature and efficacy of bonuses being granted to the banks’ employees in the wake of the US Financial Crisis and out of the bailout money
  • To explore if there is a case for financial bankruptcy becoming a moral bankruptcy
  • To examine and critically evaluate if the entire episode has shades of dark capitalism.

    Keywords :US Financial Crisis; CEO Compensation; CEO Pay; CEO Bonuses; Bailouts; Bank Bailouts; Average CEO Pay; TARP; Corporate Governance; Moral Bankruptcy

    Contents :
    » US Financial Crisis:AnAnatomy
    » Bailout: Historical Evidences from the US
    » Bank Bailouts and Bonuses: The (Im)moral Considerations


    Case Introduction >>


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