Social Responsibility not a part of Subprime Lending

Critique the role of leadership decision-making in the subprime loan financial crisis.

Evaluate subprime loans with the notion of social responsibility. Compare and contrast the resulting consequences for these actions

In the last blog, I explained what the subprime crisis was, the cause, and effects of this unethical issues in the financial market.  This post will discuss the leadership roles in this problem, and their decision making in pursuit of the golden rule.  According to Watkins (2011), the recession began with Subprime loans defaulting.  Though a fourth of loans were subprime, there was over 50 percent of foreclosures, or 1.5 million homes in 2006 (Glibert, 2011, p. 87).  Banks, brokers, and lenders were bought by other banks, or defaulted on their investments or were a part of the government bailout.  During the crisis, the leaders’ decisions were discussed because the critics believed that unethical decisions were made in pursuit of money.  The problem is that the crisis included everyone.  1.jpgAccording to Gilbert, borrowers potentially lied on their applications, lenders and brokers were potentially inexperienced enough not to ask pertinent questions, or investors bought the collateral without understanding the details of the investment (Gilbert, 2011, pg. 91).  There are many who disagree; however, the bailout of big businesses was a necessity that would prevent America’s economy from falling into another depression (Thiel, Bagadasarov, Harkrider, Johnson, & Mumford, 2012).  This issue was wide spread.  Even government employees, to include the military were threatened by a freeze on pay for service.  The argument of what was fair or morally right is sometimes misplaced (Prager, 2013).  The banks should have fallen in opinion, but America’s buying power and place as a super economy would have been next.  What I have found through experience as a leader is that there has to be an acute distinction between ethical leadership and ethical decision making. According to Thiel et al., ethical decision makers are bound to identifying and responding to ethical issues or problems.  The difference is that an ethical leader is perceived by his behavior.  Where they relate is that an ethical leader must make decisions based off his character; or good decisions are made by ethical leaders.  Because of this problem, thousands of layoffs and billions in write offs of assets happened since 2007.  In my opinion, ethics was not as important as legally making a profit on high interest rates and fees paid by the borrowers.

Bank Loan RestrictionsBad Loans…Baaad Loans

Gilbert, J. (2011). Moral Duties in Business and Their Societal Impacts: The Case of the Subprime Lending Mess. Business & Soiety Review (00453609), 116(1), 87-107. doi:10.1111/j.1467-8594.2011.00378.x

Prager, J. (2013). The financial crisis of 2008/8: Misaligned incentives, bank mismanagement, and troubling policy implications. Economics, Management, and Financial Markets, 8(2), 11-56.

Theiel, C. E., Bagdasarov, Z., Harkrider, L., Johnson, J. F., & Mumford, M. D. (2012). Leader ethical decision-making in organizations: Strategies for sensemaking. Journal of Business Ethics, 107, 49-64. doi:10.1007/s10551-012-1299-1

Watkins, J. P. (2011). Banking ethics and the Goldman Rule. Journal of Economic Issues,45(2), 363-372. doi:10.2753/JEI0021-3624450213

 

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