Those who cannot remember the past are condemned to repeat it.”
– George Santayana
One reason business students look at history and case studies is the chance to reflect on the facts of the case, determine the causes of a (regrettable) action, and through analysis make a recommendation regarding the policies and procedures that would have prevented such a disaster. To start the course, we will look at the 2007-2009 financial disaster. The actions leading up to the crises were not illegal at the time. Yet, in retrospect, they were unethical because the actions were unfair, lacked accountability and transparency, and held few responsible for any negative outcomes.
Financial institutions in the U.S. had governmental pressure to provide loans to potential homeowners. That pressure was intense enough such that lenders were lax on determining whether the borrowers could pay back those loans. At the same time, the availability of mortgages led to an increase in the cost of real estate, leading many investors to choose real estate investment funds. Typically, there are agencies that value all types of investment funds to determine the safety of the funds. Those rating agencies and government regulators did not assess the risk in these shady loans.
Here is a brief video to explain what happened next: