Financial Meltdown? Where Were Our Government Leader’s Ethics? Comments by Ethics Speaker Chuck Gallagher

September 23, 2008

The words are “urgent action” as uttered by those in financial leadership in our country.  Action needs to be taken in order to avoid a financial meltdown.  Somehow, I would suspect that words similar to that were uttered immediately before the Great Depression.  Have we learned nothing from past history?

According to CNN:

“You know, I share the outrage that people have,” said Paulson. “It’s embarrassing to look at this, and I think it’s embarrassing to the United States of America.”

“There is a lot of blame to go around – a lot of blame with big financial institutions that engaged in this irresponsible lending … blame to the people who made loans they shouldn’t have made, people who took out loans they shouldn’t have taken out,” said Paulson, who served as CEO of Wall Street giant Goldman Sachs for seven years before he became Treasury Secretary in 2006.

Now I’m confused.  Treasury Secretary Paulson is a smart man…otherwise he would not have lead Goldman Sachs and been named Treasury Secretary.  Yet, now we face one of the most significant financial crisis of our generation and times and at the heart of the issue are actions taken by aggressive financial institutions.

“Blame to the people who made loans they shouldn’t have…”  Secretary Paulson shame.  Blame to the people.  The people don’t have control over what loans are available and which loans are marketed to them.  I agree there should be blame, but to blame people who responded to sophisticated marketing campaigns that were promulgated by financial institutions who have huge profits to earn is absurd!

The “people” bought what you sold and only by the grace of the federal reserve is your former company – Goldman Sachs still in business.  The sad reality is – we are where we are due to misguided efforts and actions by those institutions (financial and government) who should have known better.

Fed Chairman Ben Bernanke is reported to have said that the central bank would prefer that the government not have to take an active role in raising capital needed by financial firms. But he said there was no alternative given current market conditions.

“Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” Bernanke said.

Ethics are defined as the discipline dealing with what is good and bad and with moral duty and obligation.  As an Ethics Speaker, I feel that those who lead have not only a moral duty but a supreme obligation to do what is good and in the best interest of those they serve.  At this moment the debate in Washington, DC directly relates to doing what is in the “good and best interest” of those they serve.  Sad that we had to arrive on the brink of a financial disaster in order for our leaders to take notice.

We can all make mistakes.  Leaders are not perfect.  But as I say in ever Ethics presentation I make – Every Choice Has A Consequence.  This is no different.  The self-serving profiteering choices of the past – loaning money to those who could not afford it and driving an economy on the back of those who are now blamed – is unethical and wrong.  I submit that had the same actions been made on a small scale – the government would have charged those involved with fraud and it would have been a “white collar crime” example.  But this is too big and now it is called a mistake with our top financial leaders and institutions being bailed out.

What do you think – Goldman, Merrill, Lehman, AIG, Freddie Mac and Fannie Mae – the government’s oversight – ethical or unethical?

An interesting commentary by Ron Paul can be found here…you might want to take a look.


Goldman Sachs and Morgan Stanley Survive! On The Back of Taxpayer Deposits?

September 21, 2008

Now let me state from the outset – I don’t claim to be a financial wizard, but I find it curious that in order for the last of our country’s investment banks to survive they must become – well – regular banks.

If somehow we haven’t gotten it thus far – AMERICA IS IN FINANCIAL CRISIS!  The scope of the crisis is truly unknown to the average citizen and while I am no doomsayer – it is not over.

The borderline unethical financial practices of these institutions are the root cause of their demise.  When you loan money to people who can’t practically pay it back in the interest of profits – you are, in my opinion, acting without sound business ethics.  But here’s the deal – if it were you or I, we would be conviced of some fraud or conspiracy.  That would mean jail time.  But when your crime (yes I said crime) is so large that it shakes the foundation of our financial markets – you get bailed out and make no mistake the Fed’s action today (on a Sunday) is a bail out.

Think about it – over the course of the past three weeks our government in one form or another has spent up to nearly 1 TRILLION of our taxpayer dollars to shore up our financial institutions so that we would not experience another GREAT DEPRESSION.  Wise or not remains to be seen.  All I report on here are the facts.

Goldman Sachs and Morgan Stanley are the remaining two investment backs surviving.  Lehman Brothers filed for bankruptcy and will be sold to Barclays and Merrill Lynch was purchased by Bank of America.  Fascinating that little NCNB (former North Carolina National Bank) became Bank of America and now is the largest bank in the US with the Merrill acquisition.  Who said the South would not rise again.  But I digress.

According to a report by CNN:

The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.

It is clear that this change of status is designed to use “deposit” as a means of leverage giving them a stable source of funding.  The question is – who would want to deposit funds into either institution.

Answer:  In the surprise announcement late Sunday, the central bank said that to provide increase funding support to Goldman (GS, Fortune 500) and Morgan (MS, Fortune 500) during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.

So let me get this straight in my mind – the federal reserve is going to make loans to both Goldman and Morgan giving them cash to offset their poor loan portfolio making them appear to be safe.  To me that is like paint a rotten fence with white paint and calling it new.  This is nothing more than a disguised bail out.

According to MSNBC: After the collapse of Bear Stearns and its forced sale to JP Morgan Chase last March, the Fed used powers it had been granted during the Great Depression to extend its emergency loans to investment banks as well as commercial banks. However, that extension was granted on a temporary basis.

But as commercial banks, Goldman Sachs and Morgan Stanley will have permanent access to emergency loans from the Fed, the same privilege that other commercial banks enjoy.

So here are some questions to ponder – and feel free to respond!

Question 1: Should the Fed have taken the actions to allow Goldman and Morgan to survive by allowing “normal” banking deposits?

Question 2: Do you feel that the actions by the “investment banks” have been ethical or unethical?  Why?

Question 3: With the massive actions taken over the course of the past three or so weeks, do you feel more or less confident in our nations economy?

As a business ethics speaker, I can say that there has never been a time in my lifetime that demands more thought, focus and ethical consideration of actions taken than now.  Business is good and business done with right ethical intention can grow and prosper.  But, as I say in practically every presentation I make – Every choice has a consequence.  Now we are reaping the consequences of choices made – not so long ago.

For all our sakes let’s hope that we can weather the economic storm ahead.

Your comments are welcome!


Massive Government Bail-Out … Good Business or Bad Ethics? Ethics Speaker Chuck Gallagher Comments…

September 19, 2008

Unless you are on an island somewhere disconnected from society…you are no doubt aware that we are in the midst of one of the most massive government bail outs in US history!  While I wasn’t around during the great depression – from everything we read what is taking place now is second only to that and, folks, that is amazing.  I was around during the massive savings and loan scandal and, like most who read, know that we are far from over with this one.  In fact, I don’t know of many institutions (Savings and Loans that is) who did survive.  

If the past is to be repeated, our financial climate or landscape will be dramatically different in several years.  Further, seldom does the government estimate a number that is right.  You can count on the cost being several times what is proposed today.  200 Billion will likely be a drop in the bucket when it is all said and done.  

For months I have been reporting on mortgage frauds and the number seems to keep increasing.  Clearly, the “greed is good” mentality went far beyond the crooks who are being prosecuted today and spread far and wide.  The net is being cast wide for this financial disaster and many will not survive.

The question, however, here is – should the government being doing what it is doing.  Many popular writers of financial books say – YES.  “What took them so long?”  Yet others claim that the government has no business getting involved in private business – especially when there are companies who perhaps engaged in unethical behavior – knowing full well that the products they were selling would result in financial disaster for many.  When you loan money to someone who cannot afford to make the payments you are committing a financial unethical act.  Sure there is short term profit, but at what cost?   

What’s your opinion:  (1)  Were the financial institutions unethical in their actions related to the sub-prime mortgage issue? (2)  Should the government have taken the actions that are now underway?  (3) Would it have been better to let the free market take it’s own corrective action and let the chips fall where they may?

Good business or bad ethics – what’s your call?


A Merrill Lynch Analyst, A Postal Worker, Business Week Employees and An Exotic Dancer – That Equals Nearly Five Years In Prison!

January 7, 2008

Eugene Plotkin, age 28, was sentenced to four years and nine months in federal prison for insider trading. But this was no ordinary insider trading scandal – rather, it was a bizarre series of events that caused one (who’s old enough) to remember the days of Ivan Boesky.

Here’s the skinny:

  • In the first insider trading scheme, Plotkin and a former co-worker, David Pajcin, obtained tips from a former Merrill analyst Stanislav Shipigelman about up-coming mergers, including the Adidas-Saloman acquisition of Reebok International. Profits from the illegal tips – roughly $6.2 million.
  • Scheme two – Plotkin and Pajcin hire to folks who worked at a Business Week printing plant to provide information (illegally) on upcoming prepublication issues of the magazine.
  • Lastly, Plotkin and Pajcin traded on shares of Bristol-Myers Squibb based on information provided from a postal worker who was serving on a grand jury in the investigation of BMS.

Pajcin traded in several accounts including those of his girlfriend, an exotic dancer.

Every choice has a consequence!

I keep hearing the words to the song … money for nothing and the chicks for free. Dire Straits I think. Well, it seems like these boys are in dire straits with prison terms awaiting them.

Having been there, I know what they’ll be facing.  YouTube  You’re known as a number. You’re a nobody and most of the inmates have no patience for a Harvard educated white guy. You’re counted six times per day and no special privileges. You work five days per week. My first assignment was collecting garbage on a military base. Collecting other people’s trash is nasty and it seemed it took days to remove the stench.

Almost five years … that’s nearly 20% of Plotkin’s life thus far. And what happens when he emerges? He’ll likely emerge a changed man. Technology will pass him by (although he’s bright enough to catch up quickly). Perhaps he’ll emerge bitter and wear the title convicted felon for the rest of his life. Or, perhaps, he’ll emerge with a motivation and spirit of service figuring out while there how to help others upon his release.

I repeat – Every choice has a consequence. The cool thing is – we control the consequences by our choices. Bad choices yield negative consequences – something Plotkin will experience soon. On the other hand, good choices yield positive results – something I have experienced – even as a convicted felon.

Chuck Gallagher, Ethics Speaker

Today, I am the founder of the Choices Foundation, a non-profit foundation whose purpose is to education young people about the effect of choices and consequences. Likewise, I am a motivational speaker (http://www.chuckgallagher.com) – speaking nationally to business organizations and associations about business ethics and sales. For information about speaking to your organization please visit my web site and request a promotional video.