TITLE:
Institutional Economics, Risk Management, and Breakdown of Corporate Social Responsibility: Towards a New Architecture of Financial Markets
AUTHORS:
Hans-Georg Petersen, Alexander Martin Wiegelmann
KEYWORDS:
Capital Funding; Corporate Social Responsibility; Financial Markets; Principal Agent Problems; Risk Management
JOURNAL NAME:
iBusiness,
Vol.5 No.3B,
November
8,
2013
ABSTRACT:
The breakdown of the financial markets
in fall 2007 and the following debt crisis in the EU have produced an enormous mistrust in
financial products and the monetary system. The paper describes the background
of the crisis induced by functional failures in risk management and the
multifold principal agent problems existing in the financial market structures.
The innovated nontransparent financial products especially by the so-called
shadow banks have mixed up differential risk weights and puzzled or even fooled
formerly loyal customers. Contemporaneously abundant liquidity on the
international financial market accompanied by easy money policies of the Fed in
the US and the ECB in the euro zone have depressed the real interest rate to
zero or even negative values. Desperate investors are seeking for safe-assets
but their demand remains unsatisfied. Low real interest rates and the
consequently lacking compound interest effect in the same time jeopardize
private as well as public insurance schemes being dependent on capital funding:
the demographic crisis becomes gloomy. Therefore, the managers of the financial
markets have to reestablish CSR and to separate the markets into safe-asset
areas for the usual clients and “casino” areas for those who like to play with
high risks. Only with transparency and risk adequate financial products the
lost commitment can be regained.