The Role of Leadership Decision-making in the Subprime Loan Financial Crisis

Leadership decision-making is very important and played a part in the subprime loan crisis. Decision-making is not exclusive to lenders because borrowers make decisions too. A borrower’s decision-making is personal while in comparison a lender’s decision-making is business oriented. In businesses there exists a chain of command that separates the leadership from those who orchestrate the loan process. What kind of loans that are offered is a policy making decision reserved for the leadership or senior executives (Gilbert, 2011). The subprime lending segment appears to have been lacking in effective leadership decision-making. Poor leadership decision-making created a climate where predatory and negligent lending practices thrived. According to Gilbert (2011), careless lending occurs when one or more individuals with the authority to approve loans do not show care for borrowers or for investors who will be harmed by the loan default. The leadership of lending institutions should bear responsibility for the effects of the policies that they make. For example, ethically predatory lending is dishonest. Predatory lending implies that there are persons who encourage borrowers to make loans that are harmful to them (Gilbert, 2011). Further, everyone is harmed in defaults, including the lending institution and the defaulting borrower (Gilbert, 2011). Leadership decision-makers who participate in predatory lending are hurting others and go against social responsibility. The continued reign of monetary values leaves intact the Goldman Rule, which is to pursue profitable opportunities regardless the effects on others (Watkins, 2011). The Goldman Rule refers to the behavior displayed by Goldman Sachs, the most profitable bank on Wall Street, which consisted of ethically questionable activities that generated huge profits (Watkins, 2011). Leaders who consider ethics important are challenged by the fact that the quest of financial values insinuates a tradeoff between profitable opportunities and social ethics. The greater the profitable opportunities, the more likely individuals and organizations will engage in behavior without regard for the broader consequences (Watkins, 2011). Leadership decision-makers must strive to make decisions that do not take advantage of others, therefore eliminating the possibility of lowering profits.

References

Gilbert, J. (2011). Moral duties in business and their societal impacts: The case of the subprime lending mess. Business & Society Review (00453609), 116(1), 87-107. doi:10.1111/j.1467-8594.2011.00378.x

Watkins, J. P. (2011). Banking Ethics and the Goldman Rule. Journal Of Economic Issues (M.E. Sharpe Inc.), 45(2), 363-372. doi:10.2753/JEI0021-3624450213

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s