Mgt-216 Global Business and Ethics Paper

Global Business and Ethics Paper

Over the past year there have been many companies that have failed, gone under, or were bailed out by the government. These businesses all made ethical and moral decisions that have led to their demise, but two of the most widely known companies are Freddie Mac and Fannie Mae, two of the country’s biggest mortgage companies. These companies were bound by poor legislating and poor decision-making by their employees. This paper will discuss their poor decisions and how these decisions have put the United States of America into a financial and mortgage crisis.

Fannie Mae, or the Federal National Mortgage Association, was created in the 1930’s during President Franklin D Roosevelt’s New Deal plan to help ease the financial burden on banks so that they could use the freed monies to make new loans. In 1977, President Jimmy Carter signed into law the Community Reinvestment Act (CRA). “To boost community development laws, CRA was a provision designed to stem bank "redlining," the practice of drawing a red line around low-income communities and denying lending in these areas. The original intent of CRA was to encourage banks to foster homeownership opportunities in these underserved communities in which the lending institutions are chartered” (Wells, 2008).

In essence, the lending industry was forced, by governmental law, to give loans to those that may not be able to afford them. This created a housing bubble, with Freddie Mac and Fannie Mae sitting on top. Basic ethics tell us that this was a poor decision made by the government because of the simple fact that those the loans were given to would eventually default on them and the artificial bubble that was created would burst.

During the 1990s, the government sponsored enterprises (GSEs) “resisted purchasing these risky mortgages but eventually the Clinton Administration instructed them to substantially increase the percentage of these mortgages in their...