The End of Ethics and A Way Back: How To Fix A Fundamentally Broken Global Financial System


Even now, in the wake of the worst financial crisis since the Great Depression, Wall Street bankers, fund managers, and corporate leaders, in an effort to appease unrealistic shareholder expectations while feeding their own corrosive greed, are doing all in their power to avoid reform. Untroubled by the economic calamities they helped engender in the past, and unfazed by toothless reform efforts such as Dodd-Frank, too-big-to-fail banks are bigger and more unaccountable than ever. Everything from Ponzi schemes to...

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Even now, in the wake of the worst financial crisis since the Great Depression, Wall Street bankers, fund managers, and corporate leaders, in an effort to appease unrealistic shareholder expectations while feeding their own corrosive greed, are doing all in their power to avoid reform. Untroubled by the economic calamities they helped engender in the past, and unfazed by toothless reform efforts such as Dodd-Frank, too-big-to-fail banks are bigger and more unaccountable than ever. Everything from Ponzi schemes to massive accounting fraud, interest rate rigging to money laundering on an epic scale continue to chip away at the foundations of the global economy.

As the excesses of private greed continue to undermine the public good on a level never before witnessed, one can only wonder if Adam Smith's "virtuous circle" has, at last, gone off the rails, and, if so, what can be done to set it right once again and restore the ethical compass of a once great economic system.

In The End of Ethics and a Way Back, Theodore Malloch, author of the international bestseller Doing Virtuous Business, and attorney and Yale University postdoctoral fellow, Jordan Mamorsky, make an impassioned call for an end to corrupt and irresponsible capitalism and the restoration of a more virtuous, ethics-based version. More importantly, they offer cogent, well-reasoned prescriptions for how to achieve that end.

In Part One, the authors explore some of the most outrageous recent examples of financial vice, including the LIBOR scandal, the demise of Lehman Brothers, ratings agency corruption, John Corzine's MF Global, Tyco, and Bernie Madoff's two-decade Ponzi scheme, among others. In a series of compelling case studies, Malloch and Mamorsky chronicle how those organizations and their leaders lost their way and the havoc their reckless, often criminal activities wreaked globally.

In Part Two, the authors concentrate on what can be done to pull us back from the brink of total economic chaos. They propound well-reasoned solutions to problems deeply embedded in global markets and corporate cultures, including:

  • Restructure the SEC and staff it with better qualified, better compensated investigators
  • Institute new rules of the financial game, beginning with reinstitution of Glass-Steagall
  • Take the exotic derivatives market in hand—including the aggressive regulation of CDSs
  • Devise aggressive new accounting rules to curtail accounting gimmickry and "shadow banking" leading to off–balance sheet risk
  • Reign in the commodities markets with better and more frequent regulatory audits and smarter corporate governance
  • Implement stronger fiduciary standards and enhanced transparency for retail investors

Offering a penetrating, at times controversial analysis of the demise of virtuous capitalism, and a road map for achieving a return to ethics, virtue, and sustainable economic growth—The End of Ethics and a Way Back is a must-read for lawmakers, financial regulators, financial advisors and auditors, journalists and media commentators, and all thoughtful observers of current affairs.

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Product Details

  • ISBN-13: 9781118550175
  • Publisher: Wiley
  • Publication date: 4/29/2013
  • Edition number: 1
  • Pages: 256
  • Product dimensions: 6.40 (w) x 9.10 (h) x 1.30 (d)

Meet the Author

Theodore Roosevelt Malloch is Research Professor for the Spiritual Capital Initiative at Yale University. He was Chairman and Chief Executive Officer of The Roosevelt Group, a leading strategic management and thought leadership company. He has served on the executive board of the World Economic Forum-Davos; has held an ambassadorial-level position at the United Nations in Geneva, Switzerland; worked in the U.S. State Department and Senate; worked in the capital markets at Salomon Brothers on Wall Street; and has sat on a number of corporate, mutual fund, and not-for-profit boards, including the University of Toronto International Governing Council, a Pew Charitable Trust board, and the Templeton Foundation. Ted earned his PhD in international political economy from the University of Toronto.

Jordan D. Mamorsky is an experienced attorney specializing in business regulation, corporate governance, and compliance. He was a postdoctoral fellow at Yale University where his research focused on the legal, financial, and ethical failures that contribute to financial crisis, corporate illegality, and breach of legal fiduciary duties. Jordan formerly worked at the U.S. Treasury Department, where he received the "special act award" in recognition of his recommendations detailing the dangers of predatory subprime lending in low-income communities. He is a contributor to Morningstar Advisor. He is an active practicing attorney and has represented Fortune 500 companies, global investment banks, insurance companies, hedge fund managers, health services corporations and an international sports league, among other clients.

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Table of Contents

Foreword xvii

Acknowledgments xxix

Introduction xxxiii

Prologue xxxix

Part One: Economic Vice 1

Chapter 1 The Selfish Betrayal of the Global Investor: Libor and Its Consequences 3

The Calculation of Libor 5

The Rise and Fall of the World’s

Financial Benchmark 8

Knowingly Asleep at the Wheel 13

A Troubling New Normal 16

Notes 17

Chapter 2 Jon Corzine’s Fallen Empire of Risk: MF Global 19

History of MF Global 21

Jon Corzine’s Midwestern Roots 22

The Rise of “Fuzzy” 23

The Establishment of MF Global 26

Rogue Trader Scandal 27

From Gubernatorial Disgrace to MF Global CEO 28

MF Global under Corzine 29

Risk Governance Failures 32

Notes 33

Chapter 3 The Continued Rating Agencies Game: Will Rating Agencies Be Reined in for the Sake of Global Market Stability? 37

History of Rating Agencies 43

Mortgages and the Ratings Boondoggle 47

Notes 51

Chapter 4 Belligerent Leadership and the Demise of Lehman Brothers 55

History of Lehman 57

Brewing Anger 60

Uncaging the “Animal” 62

Culture of Anger 64

Increasing Risk and Authority 66

Walsh’s Rise 67

A Gorilla Bursting the Bubble 69

Extreme Leverage 71

The Deception of Repo 105 73

Fuld’s Marginalization of Risk Management 75

Fuld’s Last Chance to Save Lehman 77

Notes 79

Chapter 5 How Out-of-Control Pride Brought Down Bear Stearns 83

History of Bear 85

A Different PSD 89

Greenberg’s Vision of Corporate Thrift at Bear Stearns 91

Bridge Bum Turned Bear Salesman and CEO 93

A Casino Culture 95

BSAM: Bear Stearns’ Kryptonite 98

“Never a Losing Month” 100

The End of Bear Stearns: The Importance of Golf and Bridge during a Liquidity Crisis 105

JP Morgan and the Takeover of Bear 106

Notes 107

Chapter 6 Tyco: Exceptional Greed and the Destruction of a Billion-Dollar Company 113

Tyco History 115

The Makings of a “Bad” CEO 117

Seeds of Greed 118

Kozlowski’s Culture of Fear at Grinnel 119

Looting the Company 120

Kozlowski’s Accomplices 124

A Convicted “Piggy” 128

Notes 128

Chapter 7 Insatiable Lust and Two of the Most Destructive Ponzi Schemes in American History 131

The Ponzi Scheme and Society 133

Bernie Madoff and the Seeds of Lustful Temptations 134

Madoff ’s Culture of Sexual, Criminal, and Moral Deviance 138

Tom Petters, the High School Dropout 139

Birth of the Ponzi Scheme, Petters Company Inc. 140

Succumbing to Uncontrollable Lust 141

Madoff ’s Cast of Characters 142

Petters’ Cast of Characters 151

Will We Witness Another Madoff—155

Notes 155

Chapter 8 HealthSouth and WorldCom: How a Gluttonous Appetite for Expansion Resulted in Accounting Fraud and Failed Corporations 161

HealthSouth 163

Bernie Ebbers and WorldCom 172

Blunting Future Accounting Fraud 178

Notes 179

Part Two: Recommendations 183

Chapter 9 Why Financial Regulation Has Failed, and What to Do about It 185

The Failed Promises of DoddFrank 185

The New Rules of the Game that Reinforce Vice 189

A Dummies’ Guide to Save the SEC 194

The Regulatory Reforms Necessary to Reverse the End of Ethics 195

Reforms Needed for the Commodities Market 202

The Need for Heightened and Streamlined Fiduciary Rules 205

Notes 208

Chapter 10 The Case for Reintroducing Governance and Morality 213

The Important Demand for Corporate Governance 213

The Importance of Corporate Responsibility 215

The Importance of Reputation and Avoiding Long-Term Litigation Costs 218

Bonuses Redux: Corporate Welfare Reform and Cutting Golden Parachutes 220

The Need to Morally Redefine Ourselves on the Macro Level 223

Rebuilding Our Character 226

How to Remedy the Evils in Modern-Day Consumerism 227

Virtue and the Moral Life 228

The Consequences of Modern Selfishness 230

Modern Theories and Institutions 232

Democratic Morality and Our Current Crisis 233

Notes 234

Chapter 11 The Way Back 237

Appendix 241

About the Authors 249

Index 251

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