1. Is it ethical for a government to act in ways that “socialize” financial risks or losses? Is it ethical to do so while privatizing gains/profits? Or to do so in ways that favor wealthier citizens while imposing risks on less wealthy taxpayers (or vice versa)? Or that create moral hazards? Why or why not? Are there social goals that are so important that they would lead you to change your answer?
2. Put yourself in the shoes of a person running a small, local S&L in the late 1980s. If you refuse to take on risk, something that you have always tried to do, deposi- tors will move their funds to riskier investments, which offer higher interest rates. Eventually your S&L could be bankrupt. Your depositors will be protected by federal insurance, but you, your employees, family, and community will suf- fer. Alternatively, you could do what many of your peers are doing—make riskier investments. If you make good choices, your S&L may survive, and you could become very rich in the process. If you do not, it will go bankrupt sooner. What is the ethical thing for you to do? Why?
3. Now pretend that it is 2005 and you just graduated from college, got married, and landed an entry-level job in one of the booming economies of Southern California, Nevada, or Florida. You like your apartment but keep reading about low interest rate home loans that are available to people who have not saved up the “old-fashioned” 20% down payment. You also vividly remember messages from your childhood telling you that renting is a waste of money because it does not build equity. You also feel that you won’t have really become an independent, mature person until you own your home (or at least your own mortgage). Home prices are skyrocketing, and if you wait until you’ve saved a standard down payment, houses will be much more expensive. You find a house that both you and your partner love. Your banker shows you a way to buy the house at payments you can afford, as long as both of you keep your jobs. You know it’s risky to commit that high a percentage of your income to housing, but you also know that interest rates may never again be this low. Would it be ethical to take the bank’s offer? Will ethical considerations deter- mine what you do? Should they? Why or why not?
4. Your new job is as a bank loan officer; your partner’s job is as a construction engi- neer specializing in housing developments. A young couple just like you apply for a mortgage in hopes of buying a house in one of the subdivisions that your partner helped build. They don’t qualify for a standard mortgage or even a standard variable rate mortgage, but they would qualify for a “subprime” package. You worry about them because you’ve discovered that there are a lot of hidden costs in homeown- ership, which have made your financial life stressful. But you need a big year-end bonus to cover those costs, and it will be based on the number and value of the mortgages you write. Turning them down would reduce your bonus and make your shaky finances even shakier. What would you do? Would ethical considerations enter into your decision making? Should they? Why or why not? What will you say when you explain your decision to your partner?
5. The Federal Debt Reduction Commission recently recommended that both mortgage-related subsidies and tax breaks from the federal agencies that help middle- and lower-income families buy homes be scaled back or eliminated. The Obama administration has proposed taking the latter step, eliminating Fannie Mae and Freddie Mac but doing nothing about the incentives and tax breaks that benefit wealthier taxpayers (Morgenson, 2011a; Wagner & Kravitz, 2011). Is their proposal ethical? Why or why not?