Question

1. Was Wells Fargo’s goal of maximizing shareholder wealth consistent with ethical behavior?

2. What were the causes of the crisis of credit?

Answer 1

1. No, Wells Fargo's goal.was not consistent with shareholder's interest and ethical at time because they had put high benchmarks for sales employees, forced them to convince customers to open new accounts and avail bank's services.

So over the period of 4 years employees opened about 4000 fake accounts which was unethical as it lead to levy of unnecessary charges on customer's account.

2. Crisis of credit occured in 2010 when the banks gave huge loans to individuals for buying house property on mortgage. so as credit in The market increased more and more people started buying houses. Banks use to give about 80℅ of the property value as loan without any verification process being carried out and the large mortgage loans given were then used for a derivative instrument CDO in which all the big houses were interested as they pretended that is safe investment with higher returns, so more and more people were attracted and started investing.

But as soon as more and more borrowers started defaulting, the CDO and CDS fumbled as banks lost money.

This was followed by great depression.