Short selling in the stock markets is the sale of stocks not owned by the seller. Money is made when the stock drops in value instead of increasing in value, thus making it such a controversial activity. Many have argued that short selling have large detrimental effects to the stock market, however it does also provide benefits to the society. By applying ethical models of reasoning and determining if NRFs are acting in the conflict of interest, we will be able to determine if short selling conducted by NRFs is indeed ethical and whether it should be allowed to be conducted.
Ethical Model of Reasoning
Consequentialism
Consequentialism is based on the principle of maximizing utility, focusing on the consequences of the action. As long as the positive consequences outweigh the negative consequences, it is considered as ethical (Brooks & Dunn, 2011). The strength of consequentialism is that it can be applied systematically. Unfortunately, it is difficult to apply because it is difficult to determine and measure all the consequences bore by others. Moreover, there is no definite guideline to who are the stakeholders that should be considered when applying the model (Hart, n.d).
Deontology
Deontology is a “duty” based ethics. In order to be ethical, one must take proper actions with good intentions resulting in positive consequences (Brooks & Dunn, 2011). The appeal of Deontology is that it provides us with rules that are applicable to all situations as rules. On the other hand, it is rigid and unable to be fair in different situations (Hovland & Wolburg, 2010).
Justice Ethical Approach
Justice ethical approach is where everyone should be treated equally regardless of their social standing and background (Velasquez, Andre, Sha...
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Deontology is an ethical theory concerned with duties and rights. The founder of deontological ethics was a German philosopher named Immanuel Kant. Kant’s deontological perspective implies people are sensitive to moral duties that require or prohibit certain behaviors, irrespective of the consequences (Tanner, Medin, & Iliev, 2008). The main focus of deontology is duty: deontology is derived from the Greek word deon, meaning duty. A duty is morally mandated action, for instance, the duty never to lie and always to keep your word. Based on Kant, even when individuals do not want to act on duty they are ethically obligated to do so (Rich, 2008).
Deontological ethics are “ethical theories that place special emphasis on the relationship between duty and the morality of human actions” (Encyclopaedia Britannica, 2018). This viewpoint focuses more on the action itself rather than the outcome. Per Kant’s Categorical Imperative one should “so act that you treat humanity in your own person and in the person of everyone else always at the same time as an end and never merely as means” (Encyclopaedia Britannica, 2018). An example of this is that killing is wrong, even if it is in self-defense. Many of the values and morals of the ELI Responsibilities Lens are based on the deontological
Deontology diverges from consequentialism because deontology concentrates on the rightness or wrongness of the actions themselves instead of the consequences. There are different types of deontological theories. According to Kant, theoretical reasoning helps us discover what we should believe whereas the practical reasoning tells us what we should do. Morality falls under theoretical reasoning. In Kantian deontology, motives matter. Rather than consequences, it is the motive of an action makes that action morally right or wrong. Likewise, if an action intends to hurt someone, but eventually it benefits the other person, then it does not make that action morally right. All in all, deontology comes down to common-sense: whether it is a good action or a bad
Also, since deontologists place a high value on the individual, in some instances it is permissible not to maximize the good when it is detrimental to yourself. For example, one does not need to impoverish oneself to the point of worthlessness simply to satisfy one’s moral obligations. Deontology can be looked at as a generally flexible moral theory that allows for self-interpretation but like all others theories studied thus far, there are arguments one can make against its reasoning. One objection to deontological moral theory is that the theory yields only absolutes and cannot always justify its standpoints.
Not only were millions of Americans been put out of work due to these manager’s actions, the American financial markets themselves were pushed to the brink of collapse. Despite the fact that the global financial markets, in reality, are not perfectly efficient, there is a corrective mechanism built into the day-to-day trading in the market. When prices are driven down by large sells, either by large investors or a movement in a stock, there are usually new buyers for these stocks at the cheaper price. Managers of...
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
Consequentialism is an ethical perspective that primarily focuses upon the consequences resulting from an action and aims to eliminate the negative consequences. Within this framework there are three sub-categories: Egoism, Altruism and Utilitarianism.
During the 1920s, approximately 20 million Americans took advantage of post-war prosperity by purchasing shares of stock in various securities exchanges. When the stock market crashed in 1929, the fortunes of many investors were lost. In addition, banks lost great sums of money in the Crash because they had invested heavily in the markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a “run” on the banking system caused many bank failures. After the crash, public confidence in the market and the economy fell sharply. In response, Congress held hearings to identify the problems and look for solutions; the answer was found in the new SEC. The Commission was established in 1934 to enforce new securities laws that were passed with the Securities Act of 1933 and the Securities Exchange Act of 1934. The two new laws stated that “Companies publicly offering securities must tell the public the truth about their businesses, the securities they are selling and the risks involved in the investing.” Secondly, “People who sell and trade securities must treat investors fairly and honestly, putting investors’ interests first.”2
Eight years ago, the world economy crashed. Jobs were lost, families misplaced, hundreds of thousands of people left shocked and confused as they watched the security of their world fall to pieces around them. In, “The Big Short,” a film directed by Adam McKay and based on the book written by Michael Lewis, viewers get an inside perspective on how the financial crisis of 2008 really happened. Viewers learn the truth about the unethical actions and irrational justifications made by those who unwittingly set the world up for failure. Two main ethically tied decisions are brought into question when watching the film: how could anyone conscionably make the decision to mislead investors by misrepresenting mortgage backed securities (MBS), and why
First, Deontology is the prevailing universal ethical ideology because its principles provide moral guidance. Deontology finds morality to be a virtue. Its principles have
Wall Street in the 1980s had big competition among the brokers to make money in legal and illegal ways. Although, making money was easy and quick, but nothing can compare to Bud’s guilty feelings. Bud causes loss of
Therefore, a morally right action is one that produces a good outcome or result and the ends justify the means. This would mean that a consequentialist person would make their ethical decisions based on costs and benefits, so the morally right action is one of the best overall consequences. The benefits of this approach are that you have to take into consideration all alternatives and think about what consequences will follow your actions. Like deontology, there are problems with having a fully consequential ethical view. It is important to note that with the positives there are also problems that can arise with this point of view. The major problem with this approach is how can you efficiently calculate the greatest good? as you are required to guess the benefits of the outcome of your choice?. One example of this could be what if a solution drastically harms a minority group, would it is considered ethical if the majority group benefited from the consequential decision. It is important to realize that this would negate the goal of public relations which is to build relationships and trust with all stakeholder groups. Grunig states that this is a faulty line of reasoning when he suggested that “We believe, in contrast, the public relations should be based on a worldview that incorporates ethics
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2011). Business Ethics: Ethical Decision Making and Cases. Mason, Ohio: South-Western Cengage Learning.
For deontology, we first need a general principle based on the action that you have to do; “pushing someone is ok” or maybe “killing people is ok.” But the second statement is a consideration of the consequence so that does not follow the rule. Next we have to universalize the statement; do I want someone to push me? The answer is probably no, leading to a failed test, which means that you are morally obligated to just stand there and let things happen.
In the late 1700’s, William Duer is believed to have been involved in the first case of insider trading. In the 1920’s, when the stock market crashed, Albert H. Wiggin became a multi-millionaire (Beattie, 2013) thanks to what is now considered insider trading. According to Andrew Beattie, Mr. Wiggin shorted his company by 40,000 shares. However, in the 1920’s it was legal for him to short his own company. There were no rules against it at that time. In the mid 1980’s, one of the most famous cases of insider trading took place. The SEC brought charges against four business men. Michael Milken, Dennis Levine, Martin Siegal, and Ivan Boesky were charged with 98 charges involving insider trading among them. However, not all charges stuck to them (Beattie, 2013). A Wall Street Journal columnist, R. Foster Winans, wrote an article pertaining to a certain company’s stocks. Stockbrokers used his information to purchase the stock from the information he gave them before his article was published. It is also believed that Mr. Winans gained from the profits from the information he provided (Beattie, 2013). Another scanda...