2. “Create a self-sustaining system by allowing companies to
regulate each other and ultimately themselves through
spontaneous order and social pressure.
Governments should act as facilitators and not as players in
order to avoid policy resistance”
Call to Action
3. Agenda
1. The Highest Order Issue
2. Stakeholders
3. Feedback Loop
4. Solution to the Main Issues
5. Recommendation
4. GOVERNMENT
MEDDLING
Need for more
SECURITY
OVERCONFIDENCE
GREED
DISTRUST
FEAR
1929: Stock Exchange Crash
1999-2001: Internet Bubble
2007-2010: Financial Crisis
Highest Order Issue: Government Meddling History repeats itself
Emotional Forces in a Fragile Economy
PATH
DEPENDENCY
MORAL HAZARD
INFORMATION
ASYMMETRY
Forces
LACK OF
TRANSPARENCY
5. Stakeholders ImpactMotivations
Government
Desire for Economic
stabilization
Lobbies Exert political pressure for
private interest
Federal Reserve under
Alan Greenspan
Desire for Economic
stabilization
Wrong fiscal policies
Lack of control
“Wall Street” Maximize clients’
portfolio return
Maximized “elites” profits
Rating Agencies
Give assessments on the
financial strengths of
Companies and Governmental
Entities
Misleading information to the
Public
“Voluntary” Stakeholders: did they act according to their “public” motivations?
Injects Stimulus Packages
&
Amends the Reinvestment
Act
Actions
Repeal of
Glass Steagall
(1999)
FED lowers interest
rates to 1%
(2003)
Subprime Mortgages
and CDOs
Gave an increased
amount of biased ratings
Open the doors for
“opportunistic” behaviors
Increase the power of banks
6. “Involuntary” Stakeholders: how were they affected?
Stakeholders
Externalities
affecting them
“Main Street” &
Entrepreneurs
Homeowners
Tax Payers & the
Public
Unemployment
Distrust
Bearing the cost of bailing out the
whole system
Devaluation of Houses
Housing market crash
Increased uncertainty
Demand stagnation
Less accessibility to credit
Layoffs
7. Feedback Loop: what are the main issues?
Government
intervention +
Gov’t Debt
Interest rates
-
+
Housing
Market’s
Lending
Subprime
+
+
Defaults
Investments
+
+
STAGNATION
+
-
STABILITY
- +
Increasing effect
Decreasing effect
Economic instability
Lack of Innovation
Breach of Public Trust
Main issues
+
Stimulus Package
Demand for
houses
+
+
TRUST
Economic
slowdown
+
-
+
8. New Role of
Government
Why not: Displayed inertia toward path
dependency
How: Facilitating and stepping into the field in
instances of “Black Swans”
Spontaneous Order
How: Involving Institutions’ diverse interests by
interaction on Supervisory Board
Why: Increasing accountability and reciprocal
check & balances
Social Pressure
How: Spreading an increased sense of
responsibility and accountability
Why: Social Pressure & Public Opinion
reinforces necessity for transparency
Economic Stability
How: Allowing constant and spontaneous
self-adjustment
Why: Rigid-rule based system promotes
path dependency
“Create a self-sustaining system by allowing companies to regulate each other and ultimately themselves through spontaneous order
and social pressure. Governments should act as facilitators and not as players in order to avoid policy resistance”
HOW do we tackle the main issues? And WHY?
9. “Create a self-sustaining system by allowing companies to regulate each other and ultimately themselves through spontaneous order and
social pressure. Governments should act as facilitators and not as players in order to avoid policy resistance”
Media & Public
Government
Government
Government
Companies within a Country
United Nations (UN)
Transparency
Interconnections
Transparency
Transparency
Closed system
Open system
Recommendation: how is the System Globally Sustainable?
10. Members of the Supervisory Board of the Institution
Government
Government
Government
United Nations (UN)
Transparency Transparency
Transparency
Recommendation: Increase diverse Stakeholders’ participation
Union Representative
Main Street Representative
Wall Street Representative
Member of Federation of industries
…
Board Members of the Company
11. GOLDEN GATE TEAM 8:
ARIANA RIZZATO, FREDY ANDRANGO, ISRAEL NAVA, SIMONE SCHMALZBAUER, SHEKHAR
BHARAT SINGH, SUGAR EVELYN BITONGGA
“Create a self-sustaining system by allowing companies to
regulate each other and ultimately themselves through
spontaneous order and social pressure.
Governments should act as facilitators and not as players in
order to avoid policy resistance”
Call to Action
Editor's Notes
Thank you for allowing us to present in front of you today.
As the United Nations, you have the power to change this failing system.
We, as representatives of Main St. feel deprived of our hopes, robbed of our dreams, and we demand change!”
And this is HOW we are going to do this…
by creating a self-sustaining system allowing companies to regulate each other and ultimately themselves through spontaneous order and social pressure.
Governments should act as facilitators and NOT as players, in order to avoid FURTHER policy resistance.
Today we will be guiding through our recommendation by addressing the following
SO NOW LETS START BY UNPACKING THE HIGHEST ORDER ISSUE....
PEOPLE ARE AFFECTED
Because we have seen that history repeats itself, and we know that GOVERNEMENT MEDDLING LEADS TO FURTHER FRAGILITY OF THE SOCIAL ECOSYSTEM:
Because of a path dependent approach, driven by past solutions, the government fails to see the underlying causes of crises.
This information asymmetry leads the government and the public to be blind to the actual actions leading to collapse.
There is a moral hazard when the government creates over reliance on government, allowing banks to greedily fail without ramifications through a lack of transparency.
Creates a false sense of security.
Government meddling in times of crisis creates a short term sense of security but in the long run can breed overconfidence, greed, distrust, fear and in turn comes back to further government meddling.
But Governments’ decisions are moved by Public’s feelings.
WHO ARE THE PLAYERS?
AND did they act according to their public motivations?
INTRODUCE the stakeholders, WHAT were their public motivations, WHAT did they do, and WHAT were the results.
Government: as with all governments they want economic stabilization,
so they inject stimulus packages and amend the reinvestment act opening the doors to opportunistic behavior
AND who was affected?
EVERYONE
And what happened?
Answer: externalities
WHAT were the ISSUES?
More government intervention leads to these three issues:
instability, breach of trust, and stagnation ultimately leading to a plunge into recession.
WE START with the stimulus package,
which led to an increase in government debt,
then the federal reserve lowered interest rates in order stimulate the economy,
THIS sent signals to the market which increased the demand for houses
increasing housing market lending
sending MORE signals to the market to further lending
however, after a time delay, there are no more buyers,
SO THEN they created subprime mortgages.
who were underqualified and unable to pay...
INCREASING defaults
leading to economic slowdown
and a decrease in investments
which led to loss of trust of the public
which FURTHER slows down the economy,
leading to uncertainty of the market,
which stopped people from spending,
adding to stagnation and decreasing stability
and THUS leading back to government intervention.
As seen in the case, these are the issues that led to the collapse of the housing market, from there we see that there were additional issues that reinforced the economic collapse.
HOW do we tackle these issues?
Our Feedback Loop displayed three main Issues: INSTABILITY, STAGNATION and LACK OF TRUST
How can we tackle these issues?
First, we promote the creation of an Socio-Economical Environment which nourishes a self-adjusting SPONTANEOUS ORDER aimed at increasing accountability of companies and creating a check and balance system among them by encouraging diverse Institutions to address their differing interests.
We will use SOCIAL PRESSURE to keep the companies in check, as the Public - through social media - will be the watchdogs, relating what they know to increase transparency.
This will create an Antifragile System to avoid the stagnation stemming from Path dependent approaches.
Ultimately, in order to achieve this we need to create a new role for Governments. They should act as facilitators…referees rather than players.
How will this System be Globally Sustainable?
By creating an german style of governance.
We put the companies in the driver seat, creating checks and balances by which companies regulate each other, rather than relying on the government which can foster opportunistic behavior.
In this system, the United Nations would work with governments to give a uniform framework of governance.
Individual governments would act as an additional monitor, only intervening as a safety net and also working with an entity to enforce transparency and prevent fraud.
Encompassing it all would be the media and the public, guiding the process and creating the ultimate transparency for these systems.
WHO would constitute these boards?
Our ideal Supervisory Board would consist of diverse institutions with diverse interests, in order to create a balance and facilitate unbiased checks.
Closing the gap between the interests of government and companies, companies and people.
BY
