May 5, 2011
Ethics of Penn Square Bank and the Dow Corning Bankruptcy
Ethics play a role in everyday business. Many company executives in an attempt to build a profitable organization and build individual wealth are confronted with ethical decisions daily. Penn Square Bank and Dow Corning have both made decisions in their business that started out making millions of dollars but ultimately cost them more than could have been imagined. Unethical decisions cause more than just cash to an organization, the loss of reputation could be even more detrimental. Penn Square Bank
Penn Square Bank made decisions that were not only unethical but also based on pure greed. Penn Square Bank could not fund the extravagant loans that they were negotiating on their own forcing them to originate the loans and sell them to large banks. The arrangement alone was not the problem it was the loose credit terms and lack of documentation employed by Penn Square Bank. The loose credit terms and issues with valuation of the collateral led to the demise of not only Penn Square but also some of the other organizations that bought the loans. The idea that this practice was going to last forever and all would become rich was insane. Banks should base the loans on revenue the collateral produces not on the hopes of what it may be worth some time in the future. The lack of documentation shows that management was more interested in the cash that will be made from originating the loan and not the regulations in place or the ability for repayment. Penn Square Bank’s credit extensions made the situation even worse. Refinancing loans instead of requiring payment on the loans perpetuates the problem. The downfalls of the oil and gas industry led to Penn Square Bank failure and almost the collapse of some of the largest banking institutions in the country. The...