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

Key Facts / Figures /
Input Problems
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
Problem
Identification/Formulatio
n
Controllable
Variables:Regulatory
framework of banks,
Tax structure, high-risk
lending ,Moral myopia,
Credit rating agencies
Uncontrollable
Variables: Profit
maximizing approach

Key Subjects/Objects /
Properties ( SOPE)

Timelines of key problem

input events

Explanation of SPOE as
problem input

Subjects: Financial banks,,

bankers, policy makers , US
treasury, US government
Objects: Sub-prime
lending, Global recession.
Properties: Ethical,
Structural, Legal problems
in the financial system.

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

Blind eye to the bubble

like conditions
Poor risk controls
Ethical failures of
investment banks and
credit rating agencies.

Optimation Problem
Solution

Consequence

Sensitized about the

importance of ethical
business.
Zero tolerance for any
lapse in compliance.

Strict
scrutiny
of
Financial service sector
in future .
Responsible behaviour
desired.
Trace possible fraud
scenarios.

Learning
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 :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 ones 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
Key Outcome
Consequences ( SOPE )
Consequences
Market Instability
Domino Effect Loss of
home and jobs
Benefits: Created
opportunities for
economies like India
for investment
destination

Intended / Unintended
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

Key Subjects/Objects /
Properties ( SOPE)

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

Teleological
Analysis/Deontological
Analysis
Consequences
cant
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

Classify , categorize &

characterize harmful
consequences

Timelines of key problem

input events

Explanation of harmful
consequences

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

Irresponsible mortgage
lending
Regulation lapses by
the US Government
tolerating
global
current-account
imbalances
Abiding by the law in
letter and not in spirit

Distributed
Justice/Corrective Justice

Virtue Ethics/Trust Ethics

Hindsight vs Foresight

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

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

US Gov issued bailout

packages which were
more of a reactive
measure
Reserves should bring
in more regulation
and
prevent
speculative behavior

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

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

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
stakeholders went for a toss

the

authorities,

regulators

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

and