Harideep999
Explain Financial Crisis” 2007-2008. (Refer to the following para…
Explain Financial Crisis” 2007-2008. (Refer to the following para and answer the question
This case views the global, capitalist economic system through the prism of the 2007-2008 financial crisis (referred to here as the Financial Crisis). More than a decade later, what more do we now know? How did the crisis emerge, and what were its consequences (short- and longterm)? What challenges does it present for capitalism today? What was the role of social responsibility? And perhaps most importantly, what changes does a strategic CSR perspective suggest moving forward? In many ways, the dramatic economic events that began toward the end of 20071 (widely reported as “the most serious financial crisis since the Great Crash of 1929″2 or the “Great Recession”3 ) brought into focus the comprehensive nature of CSR. From individual greed and the abdication of responsibility, to organizational fraud and the mismanagement of resources, to governmental failure to monitor and adequately regulate the financial system, the crisis emphasized the many interlocking factors that make CSR so complex. At the same time, and with the benefit of hindsight, these events demonstrate how straightforward CSR can be. At its simplest, CSR is not rocket science. It is often common sense, combined with an enlightened approach to management and decision making. To look back at some of the decisions that contributed to the economic crisis and try to rationalize why they were made, however, represents an exercise in exasperation. Essentially, the crisis resulted from the cumulative effects of multiple bad decisions by many individuals who had lost their sense of perspective.5 What was amazing at the time was “how so many people could be so stupid . . . and self-destructive all at once”6 to produce “a near total breakdown of responsibility at every link in our financial chain.”7 The scale of negligence and culpability defies belief. How could the people who sold these [products] have been so short-sightedly greedy? . . The industry as a whole experienced all the signs of a bubble, theaftermath of which generated dramatic headlines such as “Sex, Lies, and Mortgage Deals.”11 As a society, we should have picked this up earlier and acted to diffuse it. As such, the Financial Crisis highlights the central role of CSR in today’s global business environment. It is a lens through which excesses can be minimized, risk can be mitigated, and value can be optimized. At various stages, key actors suspected the system was unsustainable, but had no self-interest in advocating for change. As Citibank’s Chuck Prince said in 2007, shortly before the crash and his ouster as CEO later that year, “as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”12 When firms lack a CSR perspective, they not only endanger themselves but also can cause great harm to society.The Financial Crisis was driven by three main factors: first, the housing market bubble, which was fueled by low interest rates and easy access to mortgages (e.g., so-called “liar”13 or “ninja”14 loans); second, the underpricing of risk, particularly by investors on Wall Street; and third, the failure (or inability) of the regulatory infrastructure to police the increasingly liquid global financial market. In other words, there is plenty of blame to go aroundfrom the individuals who sold mortgages that had attractive commissions but were unlikely to be repaid, to the firms that allowed these sales to continue because they were passing on the risk, to the regulators who failed to oversee the markets it was their responsibility to monitor, to the investors who developed complex securities and other financial instruments that few people (including themselves) fully understood.
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