1. Is it fine to privatize profits and nationalize losses, is it right for organisational development? As the United States Of America had to suffer sub-prime crisis during 2007-2008. Many home-owners defaulted in their payments causing Freddie and Fannie to suffer multi-billion dollar losses. The share prices tumbled by more than 90% and the investors around the world felt that these two firms might not be able to live upto the guarantees which they have to provide to the public.
It is somehow justified to “Privatize profits and nationalize losses” as the major companies(Freddie and Fannie) which required bailouts were US federal government entities and their guarantee was backed up by the federal government and in case of crisis the US government backed it with a gurarantee. Therefore the mortgage was a very safe option for the public. It is somehow argued that to privatize profits and nationalize losses is not good for the Organisational Development of the companies as this might set up a bad example for the future.
It encourages weak leadership and poor management. The organisations should access the risk associated with their functioning and should adopt a proactive approach to counter such problems. The assured government bailout would affect the organisational working which would otherwise have been different. 2. Was this a result of failure of leadership of these firms ? The downfall of such huge companies is not just a failure of the financial system, but also a huge leadership failure.
Excessive interest in personal financial goals as against the larger interest of the organization is one of the root cause of this meltdown. These days some managers are not that efficient and rely on reward and incentives. They believe that if they hire smart people, give huge incentives for personal results, the management of the firm would take care of itself. Under such circumstances, taking risks to achieve personal goals even if that puts others or organization in danger seems acceptable.
These particular leadership failures have been a major cause of this full-scale meltdown of US financial So, proper approach and tackling problems in advance can avoid such kind of downfall of the companies. For eg. The subprime crises has never been thought off in indian market and the indian companies are not providing sub prime loans and have been only dealing with prime mortgage market so as to avoid future debacles which would prove fatal for the economy. The sub prime market of India is considerably small than the Prime mortgage market.