Leadership and Decision-Making Issues
The major problem in leadership and effective decision-making revealed by the financial crisis of 2008 was the lack of system in the short-term reactions of the government. The crisis started with the borrowers’ inability to pay off their mortgage loans (Flynn, 2012). To regain stability, the leadership took short-term measures, such as expanding the liquidities of the central bank and creating currency. The expansion nearly brought down the global economy, and the banks invested the money into advancing markets. Within the TARP program, the government bought off the assets to protect financial organizations; however, there were many possibilities for fraud (Webel, 2011). The bailout program, however, can be considered a relative success. The leaders’ non-intervention would not have boosted the majority of current financial markets into functioning as they do nowadays (Webel, 2011).
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Ethical Dilemmas Faced by Decision Makers
Ethical issues during the crisis were mainly related to the government’s interference with the transactions. It met disagreement because it was a breach of the banks’ financial freedom. However, it is the government’s primary obligation to opt for common benefit even if its actions are not entirely ethical. Thus, when the federal and global economy was threatened to hit a plateau and evolve into global depression, the Securities and Exchange Commission decided to ban short selling in the early fall. They aimed at the market stability and achieved it at least temporarily (Flynn, 2012).
Another dilemma resulted in the government’s decision to bail out banks instead of thousands of Americans who lost their homes in crisis. The government created currency and distributed it among the banks for them to finance mortgages. It was done in order to ensure the stakeholders’ well-being and maintain the banks in function. It is arguably unethical because it is the banks that are supposed to create currency, not the government. What is more, such loans are believed to have helped the banks but not the people because the banks spent them elsewhere (Flynn, 2012).
Pre-Existing Issues that Exacerbated the Crisis
Presumably, what triggered the crisis was Bill Clinton’s housing policy. His aim was to establish reasonable prices for housing, and for this purpose $100 million were raised from pension funds in 1994. Furthermore, he signed the act that made it impossible to regulate loan default deals. In 1995, the banks were pressed to give loans to bad credit borrowers. Besides, Fannie Mae and Freddie Mac were to turn a third of their mortgages into loans, and up until 2008 the quota has been increasing (Gramm & Solon, 2013, para. 1-8). Supposedly, Clinton felt they were too powerful to collapse, and the risks were justified, but only until the capital from other countries stopped fueling the housing policy. After that, the housing bubble exploded (Gramm & Solon, 2013, para. 10).
Lessons learned from the financial crisis of 2008 include the following. Firstly, from the result of the short selling ban we can conclude that the government’s intervention in financial transactions is necessary for establishing financial stability. Secondly, it is necessary to have a proper regulation system to track loan default swaps that Mr. Clinton seemed to have trouble with. The situation with the banks investing money into the aspiring markets suggests that regulation is also needed to see that the bailout conditions are followed (Stiglitz, 2010).
Flynn, E. P. (2012). Ethical Lessons of the Financial Crisis. London, United Kingdom: Routledge.
Gramm, P., & Solon, M. (2013). The Clinton-Era Roots of the Financial Crisis. The Wall Street Journal. Web.
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Stiglitz, J. E. (2010). Lessons from the Global Financial Crisis of 2008. Seoul Journal of Economics, 23(3), 322-399.
Webel, B. (2011). Government Interventions in Response to Financial Turmoil. Collingdale, Pennsylvania: DIANE Publishing.