Name:Aishen D.

Reyes
Chapter 5-Case Study

1. Are subprime loans an unethical financial instrument or are they ethical but misused in a
way that created ethical issues?

 Subprime mortgages are thought of as morally-sound financial tools, but their

inappropriate use raises more questions. Subprime loans are taken out by those who
wouldn't qualify for conventional loans. These consumers pay more for their subprime
loans than the market rate. The objective of subprime loans was to let people borrow
money to buy a house even when they have problems receiving standard loans, however
many lending companies have severely exploited this unethical instrument. The
subprime loans were never meant to be a money maker for the lending companies.
Various sectors' greedy executives and salespeople benefit from these loans.

2. Discuss the ethical issues that caused the downfall of Countrywide Financial.

 Countrywide Financial was the largest provider of home loans, but in 2007 the company
disclosed over $20 billion in company depreciation and that it had absorbed over $1
billion in losses. One of the ethical problems that led to Countrywide Financial's demise
was that it appeared to be a problem with Countrywide sales people being given
extensive time to engage in riskier transactions so that the company should continue to
grow at a rapid rate, even including offering loans to people who couldn't afford them.

3. How should Bank of America deal with potential ethical and legal misconduct
discovered Countrywide?

 Countrywide Financial was the largest provider of mortgage loans. Bank of America has
a history of treating everyone wrong, including its customers, stockholders, investors, the
government, and even its own workers. One of the ethical issues that contributed to
Countrywide's financial collapse was the appearance of a problem with the company's
salespeople receiving incentives to engage in risky business dealings so the company
should continue to grow quickly, even going so far as to provide subprime loans to
people who qualified for them. The business disclosed in 2007 that it had incurred losses
of more than $1 billion and that the company had appreciated by over 20 billion dollars.