Employees, investors, customers, and the banking sector were among the primary stakeholders affected by the crisis. Following the crisis, job levels fell significantly. GDP growth was negative in the third and fourth quarters of 2008. As a result of the decline in market demand, enterprises laid off workers. In the United Kingdom, job vacancies had fallen to around 466,000, a 22% decrease from the first quarter of the recession. Also, the financial crisis resulted in the decline of consumer confidence in the market. As a result, they significantly cut their expenditure, which consequently reduced demand for goods and services. Their attention shifted from style to price and durability. There was a significant preference for domestic products to imported brands. This change of preference was a boost to local investors (Ivashina and Scharfstein 2010). The financial market became unstable following the financial crisis. This instability made it difficult for investors to predict the future in the business jungle. The credit crunch that followed brought up a wave of uncertainty, and investors consequently avoided taking risks as investment capital became scarce. They pulled back from venturing into new investments. These effects were as a result of investors losing their trust in the banking system and financial institutions.
A good indicator of the state of the investors' confidence in the market was the movements in the LIBOR. After maintaining a firm ground for almost three months, LIBOR reacted spontaneously after Lehman Brothers became bankrupt in 2008. Its reaction portrayed the unwillingness of banks in lending one another (Ivashina and Scharfstein 2010).
The recession significantly hit the banking sector. Many banks went bankrupt in this period due to the alarming credit and loan granting, even to customers with a poor credit history. The governments were compelled to intervene and bail them out. In a bid to survive the wave, the rest of the banks merged with reliable partners.
The UK Banking Regulations and its Effects
Before the crisis, the banking regulations in the UK were light-touch. However, after the recession, aggressive regulations were proposed, and the effects are different across the board. In the recent past, however, the sector has been hit by harsh regulations that have slowed down its robust growth. The law has left investment banks struggling with a reduction in productivity and increased capital and compliance costs (Helleiner 2014, p.24). These tough rules are likely to result to reduce issuing of loans hence closing major financial markets. Consequently, capital for the development sector will drastically reduce, shying away from potential investors. To keep running efficiently, firms will also be forced to lay down jobs to reduce overhead costs and increase the prices of goods and services to create a favourable business environment for themselves. The increase in the prices of goods and services has a direct impact on the consumers, who have to dig deeper into their pockets to maintain their lifestyles. To keep their way of life, they are compelled to work harder to earn more, which results in economic growth (Helleiner 2014, p.23).
Banks are obliged to reduce their losses by giving more attention to profit making businesses and significantly regulating their investment units. They have led to cutting down jobs in the investment banking sectors. For instance, Barclays stated that it would lay off approximately four thousand employees to give room for a major reorganization. This laying off of employees is a worrying trend in the employment sector. However, as some banks exit the market, others may end up benefitting. They are not settling on job cuts as the solution but applying regulatory modifications to survive in the industry. Nevertheless, these rules will re-establish the discipline and restore the faith in the banking sector in the long run. The increase in the price of essentials such as housing and goods will motivate loan acquisition to cushion them and work tirelessly to earn more. The loans granted have to be paid on fixed dates which result in the people on toes, working to achieve quick returns. The long term result is positive continuous economic growth which is good for the compact majority in general (Helleiner 2014, p.23).
The Unethical Operations of Banks
In view of Maxim 1, all the banks acted in the same manner. They were driven by greed. The managers worked to accrue high bonuses resulting from sales targets. They took advantage of the deregulation and the freedom at their disposal to stretch their arms and give more than they could recover in the long run. The banks became more generous in lending, and there was increased competition for the available customers. The bankers were unable to control their desire for success and acquisition of immense wealth. In other terms, they took advantage of the situation to fatten their pockets.
In the context of Maxim 2, top bank officials were egocentric and only considered their perspective. Some bank managers, after knowing the events that were unfolding, shied away from making some tough decisions that would endanger their careers. Pride and arrogance had also crept in among regulators, economists, and financiers. None was willing to submit to the other's authority, and they all considered themselves superior. They were ready to do anything to achieve wealth, glory, and success, rather than working on virtues and suppressing their desires (Ivashina and Scharfstein 2010). These actions led to injustice in manners such as false advertising, churning and misleading information so as to generate greater commissions. The primary virtue of a banker is prudence. However, it's hard to practice this in an environment that has numerous chances for making profits, coupled with reduced interest rates, which results in a diminished sensitivity to risks (Farrell 1978, p.174). This laxity leads to poor management.
Considering maxim 3, the results were portrayed in the global economy. There should not be an establishment of contradicting ethics in a public setting. An ethical breakdown results in the failure of the human being who is emotivist in his private life but utilitarian when it comes to social life. These characters bring about the desire for visible results and denial of personal responsibility for actions. The economic system requires a regulatory regime as it is not self-regulating (Ivashina and Scharfstein 2010). The stakeholders are obliged to play by the rules for the common good of the majority, rather than working towards their satisfaction. The bankers worked so hard to satisfy their desires at the expense of the compact majority. The results are evident. They plunged the world into an unnecessary economic crisis, which was preventable, had they stood to the occasion and suppressed their greed.
The uncontrolled lending by banks led to bankruptcy, and the governments were forced to step up and support these banks. The cushioning by the government resulted in a sovereign debt crisis. The effects trickled down to the consumers who had to pay increased taxes to support the government in stabilizing the banking sector (Ivashina and Scharfstein 2010). Ethics are inseparable from economics. Therefore, there is no distinction between an economic or ethical decision. Any decision made, whether political or economic, has to be ethical. The application of economics without ethics is what resulted in the crisis. The banks are responsible for playing unethically (Farrell 1978, p.174).
Effects of the Financial Crisis on Human Rights
The financial crisis threatens the enhancement of human well-being and right to development. Many people have not been able to access affordable food, water, housing, jobs and other necessities, following the financial crisis. Children, women, marginalized and vulnerable persons have been the most affected by the crisis (San 2009, p.28). The bank bailouts that occurred after the crisis reduced the regimes' expenditures on social welfare, human rights, and development at a time they were needed most. The ability of citizens to exercise human rights diminished. Stern measures implemented after the crisis result in growing rates of unemployment and slow economic recovery. The right to social security dictates that the state should protect those unable to secure employment. Austerity measures put in place after the crisis reduced government expenditure and had adverse impacts on ethnic minorities, HIV/AIDS patients, elderly, women, the disabled, refugees, and children (San 2009, p.27).
Consequently, the Committee on Economic, Social and Cultural Rights advice nations to utilize their resources and address cultural, economic and human rights even during a crisis. Among other things, regulatory reforms, which are right based, should be implemented to replace the austerity regulations. The latter is a legally accepted approach that stems from the inalienable human rights for all. If this type of reforms is implemented, they will lead to better health, education, social security and improved job creation and training policies.
Austerity measures threaten social, economic and cultural rights in general. The root causes of the recession portrayed the faults in the international finance and national level finance organizational design. The main factors that contributed were the lack of coherent international human rights obligations, lack of accountability and transparency (San 2009, p.33).
Normative Theories Related to the Financial Crisis
Virtue Ethics
It is without any doubt that ethical reasoning is very crucial in business and finance operations. Following the crisis, financial principles insist on evaluating the qualities and virtues of the practitioner. In virtual ethic, good character is crucial. The cause of the crisis was the fall out of the attributes of various actors, leading to greed and financial deregulations. This has caused renewed doubts about the moral principles and traditions of the society (Goodpaster 1993, p.36). The crisis is believed to be due to human mistakes that resulted in system failures. Some individuals and firms acted irresponsibly, not considering how their actions would affect the global economy at large (San 2009, p.236). Managers in significant banking companies failed in their obligation to protect customers, shareholders, and employees, risking the world financial system. The most affected institutions had low integrity management, poor risk management, and corrosive cultures. Also, banking systems created an environment characterized by high competition, cheap money, and light touching rules. Financial systems are successful when they work in an ethical manner, whereby the arrogance of the powerful is controlled, and protection is given to those that are vulnerable.
Discourse Ethics
When faced with a dilemma, the affected parties gather and discuss it to come up with a solution. They focus on a common and reasonable ground that is ethical and considerate. In this case, the banking sector, being a major stakeholder in the propagation of the crisis, failed in its objective to engage discourse ethics. According to (Goodpaster 1993, p.36), major drawback of discourse ethics is that the ideas and proposal are laid on the table. Therefore, what the group agrees upon is what becomes morally accepted. Even the bank executives would have engaged discourse ethics; the odds are that they would major on satisfying their personal objectives at the expense of the global economy. This argument is justifiable, given that they were motivated by sales bonuses and controlling the ugly situation would trim their incomes in the long run. The national governments were forced to intervene to control the situation. The UK Government was compelled to draft tight regulations to monitor the sector to avoid a repeat of the same.
References
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