Question

1. Subprime mortgages targeted lower-income Americans, new immigrants, and people who had a poor credit history. The customers were told that because house prices had been rising, the borrower would be able to refinance the loan at a later date with the increased equity in the house. Was this an ethically correct sales pitch? Were the lenders taking advantage of financially naïve customers?
2. O’Neal transformed Merrill Lynch from a conservative bank into an aggressive risk-taking institution. Risk-taking means that there is the potential for high rewards as well as large losses. From 2002, when O’Neal became CEO, Merrill’s share rose 53 percent. Should the investors now be upset that, as a result of the subprime mortgage melt-down, Merrill’s stock price fell by about 30 percent in 2007?
3. As a result of the subprime mortgage debacle, the CEOs at Merrill Lynch, Citigroup, Bear Stearns, and Morgan Stanley all resigned or were fired. Their departure packages were $161 million, $68 million, $40 million, and $18 million, respectively. Are these settlements unreasonably high, given the huge financial losses and write-downs that their companies recorded?

In December 2002, Stan O’Neal became CEO of Merrill Lynch & Co Inc, the world’s largest brokerage house. Known as “Mother Merrill” to insiders, the firm had a nurturing environment that accepted lower profit margins so that veteran employees could remain with the firm. O’Neal changed that culture. He laid off one-third of the workforce—24,000 employees—and fired nineteen senior executives while eliminating senior management perks.



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  • CreatedOctober 28, 2014
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