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Solution manual and case solutions for business and society stakeholders ethics public policy 13th edition by lawrence

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Solution manual and case solutions for business and society stakeholders ethics public policy 13th edition by lawrence

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  • Jackie Speier, “Credit Rating Agencies Are No Longer First Rate,” San Francisco Chronicle, December 17, 2008.

  • TEACHING TIP: VIDEOS AND PODCASTS

    • TEACHING TIP: “A” STUDENT / “C” STUDENT

    • Excellent students will recognize that many of the parties that benefited in the short run from Moody’s ratings—including home buyers, mortgage originators, investment banks, and investors—took huge losses later when securities backed by bad loans collapsed and were downgraded.

    • THEORETICAL LINK: CONFLICT OF INTEREST

    • The term conflict of interest has been defined by the Encyclopedic Dictionary of Business Ethics as follows:

    • [A] conflict of interest occurs if and only if a person P is in a relationship with one or more others requiring P to exercise judgment in their behalf, and P has a (special) interest tending to interfere with the proper exercise of judgment in that relationship.

    • Another definition has been offered by John Boatright:

    • [A] conflict of interest is a conflict that occurs when a personal interest interferes with a person’s acting so as to promote the interest of another, when the person has an obligation to act in that other person’s interest.

    • In ethics theory, the person or organization exercising judgment is normally referred to as the agent, and the person or organization on whose behalf judgment is exercised is referred to as the principal.

    • Conflicts of interest are normally considered unethical for several reasons. Persons and organizations that have contracted with an agent for a service that requires an exercise of judgment have a reasonable expectation that the agent will act in the principal’s interest, not the agent’s. Failure to disclose a conflict of interest represents deception and may result in injury to the principal. Many ethicists believe that even the appearance of a conflict of interest should be avoided, because it undermines trust in the relationship.

    • Did Moody’s have a conflict of interest?

      • TEACHING TIP: COUNTER ARGUMENTS

      • After each of these options is proposed, ask students to critique them. For example, in the case, Moody’s CEO Raymond McDaniel makes several arguments against the investor-pays business model, suggesting that it carries its own conflicts of interest.

      • TEACHING TIP: “A” STUDENT / “C” STUDENT

      • Excellent students will recognize that the procedures Moody’s has adopted to manage conflicts of interest address possible individual conflicts (e.g., an individual analyst owns stock in a company whose bonds he rates), as opposed to organizational conflicts (e.g., Moody’s is paid by the institutions whose bonds it rates).

      • TEACHING TIP: WHO BORE THE GREATEST RESPONSIBILITY?

      • Students may be asked to debate which party was most responsible. Some will argue that the credit rating agencies bore the greatest responsibility, because the RMBSs could not have been sold without investment-grade ratings. Other will argue that the home buyer was ultimately responsible, because without bad loans the subprime market would not have collapsed.

      • THEORETICAL LINK: MORAL HAZARD

      • One concept that the instructor may find useful is “moral hazard.”

      • The term “moral hazard” refers to the likelihood that someone who is protected from risk will behave differently from one who is exposed to risk. The term first arose in the insurance industry, where an insured person might be expected to take greater risks than an uninsured person. For example, someone with auto theft insurance might be less careful to always lock his or her car, or a person covered by flood insurance might be more likely to buy a house in a flood plain.

      • Holden Lewis, writing for bankrate.com, offered a clear explanation of the relevance of this concept to the subprime mortgage meltdown:

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