Social Change and Corporate Responsibility
Since the ancient times when people started to exchange goods and introduced the notion of barter that was later substituted by money, the world of profit is at risk. The financial system is the heart of the economy and it is responsible for its development or decline. It should be noted that a few people may be in control of the financial system. However, judging from the experience, the system cannot really be controlled. In this regard, derivatives markets are an important matter for discussion. According to the analysts, the problem with financial markets is that they lack supervision. Others state that markets do not require control and there is no need for additional intrusion. This paper discusses the role of social corporate responsibility as a significant element of derivatives markets and how it should be implemented. The analysis is based on the documentary The Warning.
The documentary distinguishes a few individuals who were considered to be the leaders of the financial processes in the United States of America in the past and practically single-handedly regulated the Wall Street deals. Among these people are such geniuses as Alan Greenspan, the wizard of economy, Michael Greenberger, who used to be an official at the Commodity Futures Trading Commission (CFTC), and Arthur Levit, an expert in financial markets. These are the men that were in power behind the multimillion operations performed by the CFTC. On the opposite side of the influential trio was Brooksley Born, a former chairperson of the CFTC. The title of the documentary refers to Born and her attempts to warn the publicity about the danger of the shadow economy run by Greenspan, Greenberger, and Levitt. According to Born, people need to be aware of business activities that are not authorized by the government and the dangers of those deals.
Born raises the issue of corporate responsibility. In this context, the CFTC presents a form of self-regulatory organization that functions based on mechanisms independent from the government. In other words, the economic activities performed by the CFTC are not regulated from the outside. As a matter of fact, the CFTC has to comply with the norm and laws issued by the government. However, the government has no authority to check the company’s implementation steps. The obscure federal regulatory agency that reports directly to the president tried to gather information about the business functions of the CFTC in an effort of clarifying some points. For example, the economic indicators were increasing but people did not understand the basic principles that brought higher incomes and more instability of the system. Frankly, few people have correct ideas about the work of the CFTC. However, Born states that the people who control the derivatives markets without any regulations and corporate responsibility endanger the economy of the United States and the individual income of every American. She predicted the possible crisis and was worried that the CFTC would not have resources to protect investments.
Moreover, Born emphasizes the patterns of the economic theory of social change, according to which, the CFTC is not a separate economic object and has numerous interconnections. Therefore, the government needs to be aware of the natural processes that go through a change in derivatives markets. It is Born’s belief that derivatives markets should not be operated in secret. Born suspects that fraud and instability stem from the shadow economy and present a great threat to the financial system. For these reasons, it is advisable to regulate the activities in the derivatives markets and make them transparent. However, such suggestions meet strong resistance.
On the one hand, Born claimed that the concept of corporate responsibility applies to the derivatives markets that are undergoing social changes. On the other hand, Greenspan, Greenberger, and Levitt have persuaded the government and people involved in the regulation and corporate responsibility that derivatives markets present no danger. They stressed the positive economic indicators and noted that there was no need for the regulation. Thus, derivatives markets were known as “foolproof money machine”. It is worth mentioning that there were no known predicaments that could testify and prove Born’s fear to be right. Her words were no more than a warning. Only weeks after the main hearing this warning became a prophesy and derivatives markets began to face a crisis. The CFTC aimed at increasing long-term profits but because it was avoiding government regulations, the business risk increased. The commission could not take full responsibility for the corporate actions that almost took the market economy down.
Presently, the situation has not changed and derivatives markets are still unregulated. The economic and social peculiarities change constantly, and thus derivatives markets must adapt for more effective business transactions. Politicians try to avoid the subject and tend to ignore the mess in the market as long as there is profit. However, some people agree with Born that the activity of the markets should be regulated. This is a significant issue that involves the matter of corporate responsibility which could prepare the banks for social and economic changes and help avoid possible crises. The situation that happened a few years ago can repeat because without proper regulations danger increases. The responsibility should be shared among the markets due to the fact that their activity affects the economy of the country. Additionally, investors are considering derivatives to be less reliable than before. Judging from the documentary, it may be concluded that the government needs to start regulating the derivatives markets as soon as possible.