Ethics Paper--Bailout

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Bailout Ethics
Americans are outraged. Billions of taxpayer dollars were committed last year to rescuing firms such as Citigroup and the American International Group (AIG). Earlier this year, several companies who received Troubled Asset Relief Program (TARP) assistance were awarding top executives with extravagant bonuses. According to the Wall Street Journal, the U.S. government lent $238 billion in TARP taxpayer funds to almost 700 banks; 44 of these banks have repaid a $71 billion (Johnston, para 6). There remains $167 billion invested in banks. Some critics argue that a “mere” $167 billion is not significant to warrant public indignation against bonuses. However, the issue is not about specific bonus amounts but the principle of business ethics and responsibility. It stands to reason to ask: Is it ethical for companies who have benefited from government bailouts to reward themselves with bonuses? Answering this question is not simple. The ethical dilemma pits the sanctity of bonus contracts against the American government’s interest in maintaining a stable economy. Companies fear losing crucial employees if bonuses are cut too deeply. Critics of bailout bonuses, such as Sen. Olympia Snowe (R-Maine), ask: “Bonuses for what?” (Johnston, para 13). The question is commonly asked because these “crucial” executives are ironically seen as the likely culprits responsible for the ongoing financial crisis. On the other hand, proponents argue that interfering with the bonuses constitutes a violation of “sacred” contracts (Collins, para 4). Although there may be legal claims to bonuses, some of their moral aspects do not stand to scrutiny. This ethical dilemma can be best understood by applying ethical standards such as the Rights and Common Good Approaches. Rights Approach: Definition and Analysis

The Rights Approach focuses on protecting and respecting the moral rights of entities affected by an ethical situation or dilemma. The approach says that each human being has dignity and is worthy of respect. Therefore, humans have legitimate claims on others and their society. The principle states: "An action or policy is ethical if it protects or advances moral rights” (Markkula, para 10). Organizations have the legal right to pay their employees whatever amount they choose. However, rights come with responsibilities. These responsibilities include respecting the rights of others. Assuming there are no performance clauses in the contracts, executives may also have legal rights to their bonuses. Similarly, the U.S. government and the American people have the right to expect their investment in the banks to be used for only what is necessary for survival. An action is moral when it respects the moral rights of everyone involved. Arguably, neither the banks nor executives have moral rights to these bonuses unless the TARP loans are repaid. The moral rights to pay or accept bonuses do not stand under the ethical microscope because circumstances have drastically changed. Without TARP funds many banks would have collapsed and consequently, no bonuses would have been given (Sorkin, para 9). In light of this fact, banks and executives have a moral obligation to the American people—not to seek after their own self interests, but to maintain a stable economy. Without a bailout, many executives would likely be unemployed (Collins, para 8).Taxpayer funds gave them a second chance to clean up the financial mess that they played a role in creating. Rights Approach: Examples

In one example of applying the Rights Approach to bailout bonuses, Goldman Sachs repaid its $10 billion TARP loan. Shortly afterward, Goldman paid bonuses and consequently received public criticism (Sorkin, para 12). Critics believe that Goldman executives did not deserve bonuses. Opponents said that much of Goldman’s current prosperity can be traced to government assistance and that these bonuses came too soon following repayment of TARP funds. In this particular case,...
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