Even after all this, the company’s executives told the investors that the stock was just undervalued and they wanted their investors to keep on investing. The investors lost trust in the company as stock prices decreased, which led the company to file bankruptcy in December 2001. This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes. II. Assessing the Housing Crisis In terms of looking at how credit rating agencies affected the market as a whole, they played a role within the mortgage crisis as they gave way to a real estate credit bubble.
I find it interesting that Richard Fuld the CEO at Lehman Brothers at this time was Paulson’s chief competitor before becoming Treasury Secretary. Why was Lehman Brothers by the way of Paulson’s moral hazard decision making? They were a large bank and posed greater systemic risk to the overall industry than Bear Stearns. Paulson told Fold to make a deal with another bank or risk bankruptcy. When no deal could be made Paulson told the Wall Street banks to solve the problem collectively since they created the problems collectively.
Auditing firms have been overlooking figures and hiding debt from the public for their high paying companies. This is where our corporations have gone astray and started to cheat their investors by deception because of conflicts of interest of... ... middle of paper ... ...rruption In The Auditing Profession." Review of Human Factor Studies. Jun. 2005, Vol.
However, these outsiders essentially saw what the big banks and Wall Street investors failed to see, which was that the housing market was prompted up on bad loans. To summarize the film, Michael Burry (Christian Bale) was an ex- physician, who turned into a hedge fund manager. He had autonomy and freedom within the company to make decisions, so he bet against the housing market. Burry believed that the housing market would crash because it was built off bad loans given out to people who couldn’t afford to keep up with the loan payments, which would eventually cause the housing market to collapse. Burry, knowing this information, made an offer with the banks that if the
The Lehman Brothers, an investment banking firm filed for bankruptcy in September of 2008 due to poor financial choices. The company made many bad decisions because of their greed and unethical decision to manipulate the books. The lack of success by the Lehman Brothers shows that it is imperative to be self-evident with financial reporting. The bankruptcy shows that they failed to use factual figures by disguising their actual financial position. The analysis of the Lehman Brothers will show the acts of unethical financial reporting and the effect it had on this financial banking firm.
But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger pointing and placing blame, but both companies contributed to one of the most notorious accounting scandals in history. There remains much speculation as to what steps could and should have been taken to protect innocent victims and numerous investors from experiencing the enormous loses that resulted from this scandal.
There was a lot of over speculations which lead to a lot of people taking out loans and not being able to pay back, including banks that used up the money that had been deposited to them. This as well as the governments’ laissez-fair attitude led to the collapse of the stock exchange. The laissez-fair attitude cannot be solely blamed for the collapse but could possibly blamed for prolonging the great depression as no steps were taken to help the people as they felt the businesses would help end the depression and provide jobs but this did not happen and the depression lasted for many years.
These high risk mortgages were processed as securitisation; this is a financial practice of combining mortgages into one large pool. Most of the pools became mortgage – backed security (MBS) and were traded on the financial markets by firms such as Fannie Mae and Freddie Mac. These MBS delivered high rate of return for the traders increasing their bonus but were not sound investments for the bank. This careless disregard of the compan... ... middle of paper ... ... to guarantee these banks & their debts, economies & Countries would collapse. Society as a whole could have collapsed.
Paulson had inside information and were able to bet against the RMBS to the detriment of Goldman’s clients. Clients & investors included ACA : a third party with experience analysing credit risk in RMBS, IKB : a commercial bank in Germany, who lost $150m in to the Abacus , ABN AMRO : one of the largest banks in Europe before it was acquired by RBS . These investors were provided with misleading information and were not notified of the fact that Goldman and Paulson Inc.; who was involved in the structuring of the security were betting against these securities and actually profited from them at the expense of Goldman’s clients . This behaviour was criminal and fraudulent, it showed clear conflicts of interest, a lack of duty of care for investors and mostly results in a lo... ... middle of paper ... ...ewed 8 March 2014. The Abacus SCDO explained: video http://www.youtube.com/watch?v=5bS6UsWKMuk.