Introduction

$800 billion lost by the financial services industry between July 2007 and September 2008.

Cascading international impact. Stocks throughout the world lost 42 percent of their value in 2008. (MSCI World Index)

No assets spared apart from secured government bonds of developed countries and Gold.

Indiscriminate lending by multinational banks and other NBFCs in the hope of higher than normal returns.

Global debt stands at 286% of the GDP today. Is this a sustainable figure?

Most governments and financial systems providing tax subsidies on debts. Is this logic fundamentally flawed?

AOL 1 - Problem | Input Variables

• Financial Industry lost $800 bn between July 2007 and Sept 2008

• Sub Prime Crisis – Major Investment banks file for Bankruptcy

• Stocks throughout the world lost 42 percent of their value

Key Facts / Figures / Input Problems

Subjects: Financial banks,, bankers, policy makers , US treasury, US governmentObjects: Sub-prime lending, Global recession.Properties: Ethical, Structural, Legal problems in the financial system.

Key Subjects/Objects / Properties ( SOPE)

• Share prices plummeted followed by a range of collapses, of big and small financial services firms.

• Investment firms file for bankruptcy.

• US govt. commit $700 bn bailout plan

Timelines of key problem input events

• Blind eye to the bubble like conditions

• Poor risk controls • Ethical failures of

investment banks and credit rating agencies.

Explanation of SPOE as problem input

• Controllable Variables:Regulatory framework of banks, Tax structure, high-risk lending ,Moral myopia, Credit rating agencies Uncontrollable Variables: Profit maximizing approach

Problem Identification/Formulatio

n

• Sensitized about the importance of ethical business.

• Zero tolerance for any lapse in compliance.

Optimation Problem Solution

• Strict scrutiny of Financial service sector in future .

• Responsible behaviour desired.

• Trace possible fraud scenarios.

Consequence• Economy based on

short term profit agenda is more likely to be doomed and forebodes disaster for all.

• Short term profit maximization as agenda often leads to unethical business practices.

Learning

Learning :Economy based on short term profit agenda is more likely to be doomed and forebodes disaster for all. Moral Myopia is like a termite that has the strength to hollow out even the most developed, strong and efficient economies in the world.

AOL 2 - Problem | Process Based Problem Formulation – Resolution Model

SOPE Elements: Subject: US Banks, Financial Investment Companies

Object: Mortgage Crisis, Global Financial Market, Oil Markets

Properties: Liquidity Crisis, Faulty Valuation, Job Insecurity

Events: Debt default, Increased borrowing costs, frequent bailouts

Moral , Ethical and Legal Issues: Moral Issues: The main reason for the human greed and desire to

acquire more wealth.

Legal Issues: Subprime lending, Glass-Steagall act or Banking Act of 1933, repeal and U.S. parallel banking system.

Ethical Issues: Did not follow the proper rules and legislation and duped the natural law.

Solution and Learning : Thinking beyond one’s individual interest. Instead of taking a myopic

view of the situation one needs to take a holistic view of the whole process.

AOL 3 - Outcome based problem Resolution

• Consequences - Market Instability

• Domino Effect – Loss of home and jobs

• Benefits: Created opportunities for economies like India for investment destination

Key Outcome – Consequences ( SOPE )

• Stakeholders- US Government , US Companies , Federal Reserves , US commercial and Investment banks

Key Subjects/Objects / Properties ( SOPE)

• Feb 2008: US announced a $168bn economic stimulus package

• Sep 15, 2008: Lehman Brothers collapses

• Oct-Nov, 2008: Bailout Plan of $700bn by the US Government to save the Financial Crisis

Timelines of key problem input events

• Irresponsible mortgage lending

• Regulation lapses by the US Government tolerating global current-account imbalances

• Abiding by the law in letter and not in spirit

Explanation of harmful consequences

• Unintended Consequence – Loss of jobs and livelihood across the globe & reduction in the economic growth in the country

• Intended Consequence - Mortgage default - causing massive losses

Intended / Unintended

• Consequences can’t be justified as some banks and private individuals made money

• Harmful consequences cannot not justified because common public suffers due to the greed of few individuals and companies

Teleological Analysis/Deontological

Analysis• There consequences

are not justifiable as the profit was shared with few while there was massive job loss, loss of livelihood occurred for many

• Outcome are not justifiable because US has not taken any corrective action

Distributed Justice/Corrective Justice

• Not Justifiable as the common public (US and abroad) got maximum impacted from the crisis and also suffered the maximum

• No transparency existed in these dealings which led to loss of trust of the people towards investment firms, regulators & credit agencies

Virtue Ethics/Trust Ethics

Learning : Financial crisis and its impact on the US economy and the Global Economy so that the causes are understood and measures are kept in place to ensure the same is not repeated …

• Financial crisis of similar nature had not taken place in the past

• Financial crisis not only impacted the US economy but also had a domino effect and the global economy

Classify , categorize & characterize harmful

consequences

• US Gov issued bailout packages which were more of a reactive measure

• Reserves should bring in more regulation and prevent speculative behavior

Hindsight vs Foresight

Findings | Additional Insights Crisis was caused by a failure of governance

Political governance by regulators and legislators

Corporate governance by firms and executives

Personal governance by individuals

Morality and Ethicality of the authorities, regulators and stakeholders went for a toss

Major drivers of crisis:

High-risk lending & irresponsible behaviors

Highly capitalistic thinking

Profit-maximization need of financial firms

Personal benefits were preferred over a holistic gain

This crisis was definitely avoidable