CASE STUDIES ON TRUST VIOLATIONS AND TRUST REPAIR

Below are selected papers written on the topics of trust violations and repair.

"Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" by Alissa Brunetti
"On September 15th, 2008, Lehman Brothers – at the time, the world’s fourth largest investment bank – filed for bankruptcy. This event marked the beginning of a downturn of the public’s trust level in the U.S. financial system – a downturn clearly visible in the price of the Dow Jones Industrial Average as it steadily declined by three thousand points in the following four weeks. Outwardly, the financial crisis of the late 2000s may appear to have had a sudden onset, but a closer look reveals that the crisis was the result of a years-long buildup of multiple factors. A process of steady deregulation in the financial sector over a period of decades resulted in lumbering, monopolistic, “too-big-to-fail” banking institutions with increasingly unhealthy balance sheets and growing freedom to make investments with consumer deposits. Before the crisis, financial technologies added new complexity to investment vehicles including CLOs and derivative markets. The inherently complicated nature of such securities makes them difficult to price and rate without thorough consideration and understanding which, at the time of the crisis, many market participants – from finance executives to retail investors – ultimately lacked. Despite pressure from several prominent figures, the regulatory arms of the US government failed to monitor the situation and intervene when necessary."

"Enron: Where was the Trust?" by Jessica Dudzinski
When one hears the word “Enron” they immediately think of deceitful accounting fraud, corporate greed, a devastating bankruptcy and perhaps even a notion as simple as pure failure. However, rooted deep within the Enron bankruptcy is the fundamental issue of trust. Trust can be defined as confident reliance on another person or an organization (Hurley, 13). Enron Corporation violated shareholder and employee trust on a massive scale. This paper examines these trust issues, analyzing the specific trust violations at hand, and their underlying causes. The analysis will conclude with an examination of the government interventions that were put into place to prevent future trust scandals of similar nature.

"United Kingdom TV Series Scandals: Premium Rate Services" by Robert F. LoCurto
"From 2006 to 2007, problems surfaced with the use of Premium Rate Services (PRS) in the UK television industry. Premium Rate Services are typically displayed during television programming to provide services for callers who are then charged a higher rate on their phone bill.1 As details of various network examples of PRS failures were made public in 2007, the trust in these networks by viewers was severely damaged along with the reputations of the PRS business model and commercial broadcasters. In 2003, the UK government created the communications convergence regulator, Ofcom, yet PRS regulation continued to remain the responsibility of a separate entity PhonepayPlus (PPP). PPP was established in 1986 as a UK regulatory body for phone-paid services. In operations, premium rate service phone-ins on TV (where viewers are invited to call in and participate in live programs) presented regulators with a major challenge. Since PRS represented a major revenue stream for UK broadcasters, the damage to the reputation of PRS and consumer mistrust, resulted in an industry-wide effort to restore trust from 2007-2008. A high profile review of UK PRS regulation was subsequently undertaken in order to begin the process of repairing trust."

"When Good Banks Go Bad, Bad Traders Are Good (Until They're Not)" by Lauren Piccolo
"More ironic than SocGen’s image as a reputable bank was its reputation for risk management. In January 2008, the same month in which Jerome Kerviel’s $7 billion trading loss was revealed, SocGen received the “derivatives house of the year” award from Risk Magazine. Risk Magazine is a publication focused on financial risk management news and analysis. The Risk Magazine article on SocGen praises the bank for its risk management skill and quotes SocGen’s head of Corporate and Investment Banking saying that the bank’s losses due to the volatility in the global market were “relatively minor and entirely manageable.”1,3,4 For purposes of clarity, the Risk Magazine feature was published before the trading scandal was uncovered. The quote from the head of Corporate and Investment Banking relates to losses from the deepening global economic crisis from which SocGen announced €2 billion of losses in January 2008 (SocGen lumped the announcement of these losses in with the losses of the trading scandal, which conveniently overshadow the bank’s ex-trading scandal losses)."


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