1 Ethical Dilemma - graduateskills.edu.au

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Description

An ethical dilemma

Task Type in‐class activity, tutorial, assignment

Time 45 minutes‐1 hour

Level All

Class Size Small or large classes. Class needs to be divided into groups of 4‐6 students

Learning Outcomes

Students should be able to:

Demonstrate an understanding of government roles, social responsibility and sound business practices in complex situations.

Demonstrate an understanding of the role of social and corporate responsibilities.

Demonstrate an understanding of the ethical issues involved.

Method

This is a relatively open‐ended activity to promote creativity and to authentically represent likely situations that occur in the workplace (i.e., employees are not necessarily prompted or given highly structured directives in ethical situations). Students are given a description of the scenario and a list of questions to discuss in small groups, they are free to select from these questions or choose their own, with the general aim of coming to a better understanding of the ethical issues and the important aspects for ethical consideration. Students are asked to read (or watch) materials before the class (see additional materials below). Have a discussion and the present and/or write up their examination of the ethical issues.

Ethical DilemmaBailing out the Banks


Concluding Activity

Each group should present a summary to the class of the issues covered in their discussion. The class discussion should cover:

The costs and benefits of bailing out banks from different points of view.

The key ethical aspects involved in their consideration.

Assessment

Assessment activities:

If the group oral presentations are to be assessed, students should be given some time to prepare them, for example the presentations should be in a subsequent session.

Alternatively groups could be asked to submit a written report. Students could be assessed individually on a written report covering the question. The length would depend on the weight given to the assignment. Material covered in group discussions would form a basis for individual assignments.

Tips

Limit the number of questions listed in the next section according to the level of students and time available. Try to encourage students to work it out for themselves because that is what they will need to do in workplace situations.

Student Instructions

Read the instruction sheet and the preparation materials. Then investigate the issues of bailing out banks. You might like to consider these questions as a starting point for your investigation, but you may prefer to formulate different questions. It is up to you and your team.

How did the banks get into this situation, what ethical issues does this raise?

Iceland and Australia are both small economies with concentrated banking sectors. All three of Iceland’s major banks have effectively failed. All four of Australia’s major banks are still stable. Why the difference?

What ethical issues are raised by government moves to support individual banks?

What is your view of ‘moral hazard’? Is it relevant here? Should weak banks be allowed to fail? What would be the consequences of this? What, if anything, should be expected of a bank and its management in return for government support?

What form can/should government support take? Who are the stakeholders here? What does all this mean for different stakeholder groups? Some, including Kevin Rudd, have blamed the problems on a failure


of ‘laissez‐faire’ capitalism and called for more stringent regulation. Is this a good idea?

Additional Material

Millions of words have been written and spoken about these issues in the last six months; a Google search on “bank bailout” produces over 13.6 million hits! Explore widely but, as always, be aware of the context of the information you find. The attached article provides a good starting point from a Nobel prize winning economist. For a more sensational view that is highly critical of the banks you could watch the video titled Countdown: Special Comment on the Bank Bailouts and Corporate Greed‐Enough! [Link] Both of these focuses on the US so try to look at what approach governments have taken elsewhere, for example in the UK and Australia.


Summary of Scenario In 2007 banks around the world began to experience an increasing problem with bad and ‘toxic’ debt. There was a range of reasons for this and some of the financial instruments involved were highly complex. Whatever the cause the affect has been that banks have been increasingly unable and/or unwilling to lend money to each other, to businesses and to individuals. Some banks in Europe and the USA have gone out of business or come very close to doing so. Banks need a certain amount of capital in order to remain solvent and continue to lend. If they are losing too much money through bad debts etc. they need to recapitalise. They can do this, primarily, by attracting more deposits, issuing shares or borrowing from other financial institutions; but if there is a general loss of confidence in the bank investors will not be prepared to provide the capital needed. Governments around the world have taken the view that if the banking system is not able to operate normally the economic downturn is likely to worsen because businesses of all sizes cannot access the funds they need for their operations. In response to this governments in many developed countries have moved to support their banks by providing capital themselves or by trying to repair confidence in banks so that others are willing to provide capital.

Additional Information Governments have chosen to support banks in a range of different ways. These include:

Government lends the bank money, usually through the central bank. Government guarantees bank debt: If the bank fails the government will repay any debts it has incurred with other banks, depositors etc.

The “bad bank” solution: Government effectively creates a new, government owned bank which buys or otherwise acquires all bad and ‘toxic’ debt from struggling banks. This leaves the banks in a stable position to return to business as usual. Over time the “bad bank” unwinds the debts, recovering whatever money it can.

Governments become shareholders in banks: The government acquires a proportion, or possibly all, of the bank’s shares. It can then provide the capital needed as a shareholder.

Support for this resource has been provided by the Australian Learning and Teaching Council Ltd, an initiative of the Australian Government Department of Education, Employment and Workplace Relations. The views expressed in this (report/publication/activity) do not necessarily reflect the views of the Australian Learning and Teaching Council.

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1 Ethical Dilemma - graduateskills.edu.au