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May 18, 2017 By Richard Bowen

The Ethics Merry Go Round

The McCuistion program, which airs in Dallas/Fort Worth on PBS station KERA, recently re-aired its program, Ethics and Transparency as Antidotes to Financial Fraud. Host Dennis McCuistion asked the guests what ethics and the lack of transparency may have done to contribute to the 2008 financial crisis?

One of his guests, Marianne Jennings, J.D.: Professor Emeritus Arizona State University Ethical and Legal Studies, author of The Seven Signs of Ethical Collapse; commended as a top 100 thought leader on ethics and one of the most influential people in ethics by Ethics Magazine, responded, ”I’m getting tired of doing this because it’s the same story over and over again. What happens is there are regulations and people find little loopholes.”

I was hooked- such a true statement. There is no question that the lack of ethics and transparency greatly contributed to our financial meltdown in 2008 and we aren’t learning anything new as the egregious lack of ethics still continues in the financial industry. Ms. Jennings commented that everything that is now regulated was at one time an ethics issue- and used a graph to firmly illustrate her point regarding social, regulatory and litigation cycles.

According to Ms. Jennings, people look for loopholes to get around rules and regulations, which while they maybe legal are not necessarily ethical. If you act fairly ethically and stay within the “wriggle room” parameters you’re fine. Step outside that and you enter the Awareness stage, and perhaps a major newspaper such as the Wall Street Journal catches it and reports on it. In the Activism stage, the pitchfork stage,  USA Today, reports on it, people are outraged, storm the castle and demand action be taken. In turn this leads to the Regulation stage and government sets regulations and more rules, with new loopholes, and the cycle starts all over again.

According to Ms. Jennings, as long as ethical issues are made within wriggle room parameters, proper disclosures made and transparency followed, all is fairly well. As she states, not all ethical issues are the same, there are layers of influence. If we treat all ethical issues equally, then one may erroneously think fixing the rogue players who exhibited unethical behavior will solve the problem.

However an individual may make an unethical decision because he or she was influenced by an organization’s culture, its expectations and what is rewarded. Ethical decisions are also driven by peer pressure within the industry which forces those organizations who want to continue to stay in business to go along to get along. What is really not acceptable then becomes an industry standard.

In the financial services industry this played a major role.  For example, the industry started widely accepting a borrower’s word as to his or her income and employment (a.k.a. “stated” or “no doc” loans) so these products became an integral part of doing business in the financial services industry. Those organizations that had misgivings but wanted to stay in business thus conformed to the new norm and embraced the new loan products.

After a while society goes along with the new norm, after all everyone else is doing it- why can’t we? Speeding, cheating on exams and taxes, the teenager’s “all my friend’s Moms let them do it” whine!!!!

Richard Ebeling, PhD: Distinguished Professor of Ethics and Free Enterprise Leadership at the Citadel, former President of the Foundation for Economic Education and V. P. Future of Freedom Foundation, the program’s second guest, says the financial industry has always been heavily regulated. When the Fed loosened its policies to keep interest rates low, there was no longer transparency and market forces were then not allowed to dictate interest rates and the Fed’s artificially low interest rates fueled the 2008 bubble.

Fannie Mae and Freddie Mac compounded the problem as they responded to Congressional pressure to loosen credit standards. By ensuring banks they could relax their underwriting standards and Fannie and Freddie would still buy the loans, market dictated risk parameters no longer applied and the banks were off to the races.

Dr. Ebeling believes it was our government agencies, like Fannie and Freddie, that helped undermine the financial market and threw sound ethical decisions out the window. His explanation fits Ms. Jennings layers of ethical issues. Eventually society starts accepting what is going on as everyone else is doing it too.

My soap box all over again. Ethics makes for good business. Yet even though it is talked about at length, codes of conduct are written, classes are taught, accountability-or-else mandates are made, there is still in the financial industry and in other business arenas as well a glaring lack of ethics and egregious lapses of conduct.

If we don’t solve the underlying problems, then ethics don’t matter because there is a payoff, with no consequences, for breaking them. Solutions become almost impossible. I’m with Ms. Jennings- ”I’m getting tired of doing this because it’s the same story over and over again.”

The White House Flouts Ethics Rules
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.

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William D. Cohan"Richard Bowen is one of my heroes. His is a story of human fortitude at its best and Wall Street at its worst."

~ William D. Cohan, NY Times Best Selling Author
2017-06-30T10:08:59-05:00
"Richard Bowen is one of my heroes. His is a story of human fortitude at its best and Wall Street at its worst." ~ William D. Cohan, NY Times Best Selling Author
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"Richard's speech at the April Financial Executives International dinner was informative, interesting, riveting, and fast moving.  The feedback from members was overwhelming positive, and Richard received one of the few standing ovations given by our membership." ~ Jim Farrell, Program Chairman, Dallas Chapter, Financial Executives International
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Dennis McCuistion"Richard Bowen has been there, done that, and has the scars to prove it, and his message of corruption at the highest levels of industry and government needs to be heard. I only wish that more bankers had the courage that Bowen exhibits. He is not only one of the most talented bankers I have ever met, he has more integrity than all the bankers on Wall Street put together. If his former employer had listened to him taxpayers would not have had to bail out Citi for the third time in the last 30 years."

~ Dennis McCuistion, Host of the McCuistion TV program
2014-12-28T19:48:06-06:00
"Richard Bowen has been there, done that, and has the scars to prove it, and his message of corruption at the highest levels of industry and government needs to be heard. I only wish that more bankers had the courage that Bowen exhibits. He is not only one of the most talented bankers I have ever met, he has more integrity than all the bankers on Wall Street put together. If his former employer had listened to him taxpayers would not have had to bail out Citi for the third time in the last 30 years." ~ Dennis McCuistion, Host of the McCuistion TV program
https://richardmbowen.com/testimonials/533/

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"Richard Bowen is a dynamic, entertaining speaker and story-teller - a CPA with a great personality!" ~ Betty Garrett, Garrett Speakers International
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Presentation Topics

Playing for High Stakes: The Principles and Practice of Ethical Leadership

Dark Citi: The Story of a Whistleblower

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Now an ethical leadership speaker, Richard Bowen was Citigroup's Business Chief Underwriter during the housing bubble.

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