Banks Involvement in the World Financial Crisis - Essay Example

?Banks have often come under criticism for their involvement in the world’s financial crises, and compli in developing a materialistic society asrevealed in an excerpt from Stiglitz book entitled Freefall: Free Markets and the Sinking of the Global Economy. He argues that “rugged individualism and market fundamentalism have eroded any sense of community and have led to the exploitation of the unwary...”As such, this essay seeks to critically analyse the basis of this argument in terms of culture, motivation and strategy as well as commenting on their substance. The paper also seeks to reflect on how power is exercised in organisations in relation to moral values. The paper begins by explaining the concept of culture in view of the arguments raised by Stiglitz. The paper will also critically analyse how motivation of the people as well as the strategy implemented have a bearing in the way financial institutions are operating during the contemporary period in USA in particular. Culture is the most basic cause of a person’s wants and behaviours. “This is commonly referred to as a set of basic values, perceptions, wants behaviours learned by a member of society from the family and other important institutions,” (Kotler & Armstrong, 2004). For instance, the following values are given priority in the United States of America: achievement and success, activity and involvement, efficiency and practicality, progress, material comfort, individualism, freedom as well as humanitarianism. The success or failure of a given organisation can be attributed to this concept of culture. However, Stiglitz argues that individualism and market fundamentalism have eroded the sense of community and have led to exploitation of the ordinary people. Instead of putting measures that are meant to create a fine balance between the profit goals of the financial institutions and the needs of the people as a whole, the approach taken by the banks is primarily designed to reap huge profits from hapless people. The Great Recession that began in 2008 resulted in many people losing their jobs, homes as well as other financial loses as the savings in the banks dwindled as a result of the negative impacts of the recession. Stiglitz suggests that the banks in particular are to blame as their capitalist system of operation is comprised of fundamental flaws. In actual fact, the approach taken by the banks is that which advocates the survival of the fittest. Whilst the free market concept posits to the effect that the market forces should shape the standards expectations especially of financial institutions, it can be argued that the conditions set are favourable to the business organisations which leaves the ordinary people exposed to manipulation by these big businesses. The aspect of materialism has increased dramatically in the operations of financial institutions and this has posed a serious challenge to the ordinary people who end being victims especially during turbulent periods that can be attributed to the strategies implemented by the financial institutions. Whereas marketers in the other industries worry about the impact of culture on their strategies, financial institutions in USA are primarily concerned with entrenching the aspect of individualism in their operations (Kotler & Armstrong, 2004). Stiglitz argues that rugged individualism combined with a high degree of materialism has led to loss of trust among the members of the society and different financial institutions. The aspect of culture and moral values can also be attributed to the concept of ethics. Business ethics loosely refers to values, principles and standards that operate within a particular organisation which attempts to make a distinction between something that is morally good from bad (Rossouw, 2004). The concept of business ethics therefore derives from the value system that is used by a particular organisation to shape its operations. To reinforce this assertion, DesJardins (2006, p. 5) describes values as the “essential and enduring tenets” that help define the company and are “not to be compromised for financial gain or short term expediency.” From this argument, values are also regarded as beliefs that shape the way organisations operate in pursuit of their set organisational goals which make them different from the other players in the same industry. There are different values which shape the operations of the organisation and these include political and mainly financial values in as far as the operations of a certain business are concerned. The concept of ethics is mainly concerned with fairly serving the ends of human well being while allowing the organisation to achieve its financial goals. Financial institutions in particular should be guided by the need to create a balance the needs of the people they serve as well as their objectives in a manner that does not undermine or exploit the clients. However, financial institutions often face an ethical dilemma with regards to making a distinction between something that is morally good from bad in relation to the profit margins set by the organisation. In some instances, financial organisations often see as if there is nothing wrong with profiteering at the expense of the ordinary people since their main goal will be to make profits. Whilst the aim of business is to generate profits from its operations, there is still need for the financial organisations to uphold their moral obligations to the people they serve since the aspect of values is not given the priority it deserves. The situation obtaining in the financial services sector in USA according to Stiglitz is that the people have lost trust with the financial organisations hence the need for the federal government to put measures that can ensure transparent operations by the banks. If there is lack of trust among the customers, there are likely chances of business declining which can negatively impact on the viability of the organisations in the long run. Loyalty among the customers is very important as it can be noted that mutual understanding between the financial organisation and the customers will be promoted. However, the aspect of ethical values is seen as controversial at times as it often contradicts with the goals of the organisation to generate profits while at the same time serving the ends of the well being of the people. The financial organisations are expected to put risk measures that are meant to cushion the severe impacts of unprecedented changes that may take place in the economy. As it stands, commercial banks in America have not fully implemented these measures as they are particularly concerned about their business interests. Critics charge that the market system is responsible for creating cultural pollution since the financial institutions in particular wields too much political power (Kotler & Armstrong, 2004). To a certain extent, Stiglitz’s argument is of substance given that commercial banks yield too much power which ought to be controlled by the responsible authorities to safeguard the interests of everyone. It follows from this argument that the strategy used by financial institutions is ruthless, profit oriented tool which is an agent of capitalism which creates unfavourable conditions to the clients as there are no effective risk measures in place to protect the interests of the people at large. The strategy does not protect the interests of the customers since it is based on the notion that only the fittest players in the financial sector will survive. It seems the financial institutions in USA are bent on protecting their own interests and their influence is excessively great such that measures should be put in place to rein their activities. The negative impacts of the just ended global economic crisis bears testimony that the activities of the financial institutions are mainly driven by self serving interests where due consideration is not given to the well being of the economy at large. Too much business powers tend to result in counter forces that check and offset these powerful interests (Kotler & Armstrong, 2004). As such, the government should put measures in place to ensure the restriction of certain risky products. Critics also charge that too much power vested in the hands of big financial institutions are detrimental to the development of a healthy economy where there is need to balance the needs of the big businesses against those of the public. The excessive powers of the financial institutions must be clipped such that some measures to control the economy can be fully implemented. In as far as motivation is concerned, there is need for the financial institutions in USA to adopt a strategy that will at least hold them accountable to their actions. As it stands, the moral among the Americans is low given that the financial crisis that gripped the world has eroded their savings and the standard of their live living is declining. Basically, “motivation is described as a state arising in individuals which compels them to take a particular course of action that is meant to influence the achievement of certain outcomes that will fulfil the needs and desires of the people” (Robinson, 2004, p. 16). In most cases, people are compelled to behave in a particular way if they are assured of deriving certain benefits from using certain services. Motivation of individuals is mainly concerned with fulfilment of needs, goals, expectations, motives as well as drives. In this case, a need is seen as something that is basic to human life such as shelter while a goal is a specific target an individual will be expecting to achieve. However, the situation obtaining in the American economy is not reflective of a situation that is anticipated to motivate the people to have trust with the financial institutions since they have experienced some difficulties at the helm of the financial institutions. On the other hand, it can be seen that the expectations of the customers are not fully met given that the policies pursued by the financial organisations are skewed towards the profit oriented goals. Lastly, there are limited factors to drive the consumers to invest their monies in banks in the face of uncertainty in the financial economy that have been characterising the US economy over the last few years. Maslow’s hierarchy of needs is one of the most appealing in as much as the concept of motivation is concerned. According to Maslow, when a need arises, motivational tension develops and it is directed towards the satisfaction of that need (Carrell, 1995). The hierarchy comprises of five levels of needs namely physiological, security, social, self esteem and self actualisation needs and these develop from lower levels to higher levels. As far as the needs of the people are concerned, financial institutions in USA should put measures that are meant to ensure that they are treated as valuable stakeholders not to be reaped of their hard earned money as a result of policies that are not compatible with the situation obtaining on the ground. If the people are motivated to the extent that they will be able to identify with the organisation, there will be likely chances that they will not be disgruntled about the services offered. In theory and practice, Maslow’s hierarchy of needs is based on two assumptions which state that human beings have needs and secondly, once these needs have been satisfied the people concerned will be motivated. However, it seems that motivating the people at the moment is a bit challenging given that they are emerging from a financial crisis that siphoned all their savings as a result of policies pursued by the financial institutions in USA which are seen as centred towards the fulfilment of individualism as well as capitalism which are not favourable to the well being of the people. However, whilst Stiglitz’s argument that financial institutions in USA are vehicles for individualism and capitalism is of substance to a certain extent, it contradicts with the dictates of the concept of a free market economy which states that the economy should be self regulating whereby the ways that are implemented by the organisations in managing risk will be instrumental in determining their future as well as success. “In a free market economy, the ‘invisible hand’ of supply-and-demand market forces defines what is produced, in what quantity, and at what price.” Details about market economy can be viewed at EconomyWatch website at . In a market economy, all the market forces are governed by the law of demand and supply which determines the quantity to be supplied as well as the price of different products and commodities. The concept of the market economy is based on the premise that the system is flexible and responsive to any change that may take place in the economy. Whilst the market economy is not absolutely free from some levels of control, it advocates that market forces should determine the way organisations operate and they should be able to set the parameters that will guide their operations. However, the intervention by the government is necessary at times since it has the overall responsibility to oversee and regulate the operations of the organisations to ensure that there is compliance with the rules and laws of the country. The other role played by the government is to put measures in place that will ensure that monopoly in the economy does not exist since this will be detrimental to promotion of competition in the market. Whilst there may be some form of government intervention, in most cases, the decisions made in the market economy are mainly determined by the free hand which makes it a bit challenging for the government to put measures which can curtail the freedoms of the free market economy. Government intervention may be a bit challenging given that the economic system of this nature is molded on the notion that market forces should shape the operations of the financial institutions as well as other related organisations. Over and above, it can be noted that banks have often come under criticism for their involvement in the world’s financial crises, and complicity in developing a materialistic society as revealed in an excerpt from Stiglitz book entitled Freefall: Free Markets and the Sinking of the Global Economy. The author of the above mentioned article argues that financial institutions in USA are responsible for creating a culture that promotes individualism as well as capitalism which is detrimental to the welfare of the ordinary people at last whose interests are supposed to be catered for. The concept of moral values is often overlooked by the financial institutions as they are mainly concerned with their profit oriented goals at the expense of the individual needs. Critics charge that the market system is responsible for creating cultural pollution since the financial institutions in particular wields too much political power (Kotler & Armstrong, 2004). To a certain extent, Stiglitz’s argument is of substance given that commercial banks yield too much power which ought to be controlled by the responsible authorities to safeguard the interests of everyone. It follows from this argument that the strategy used by financial institutions is ruthless, profit oriented tool which is bent on fulfilling the agenda of the capitalists in the operations of the financial institutions. Bibliography Armstrong, M 1999, Human Resources Management Practice, 7th Edition, Kogan Page Limited: NY. USA. 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