Risk Taking, Principal Agent Problems and Breakdown of Corporate Social Responsibility (CSR): How to Reestablish Safe-Assets and Capital Funding for Social Security?

• Authors: Hans-Georg Petersen , Alexander Martin Wiegelmann
• Languages of publication: EN

Abstracts

EN

The breakdown of the financial markets in fall 2007 and the following debt crisis in the EU has 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 have mixed up different 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 divide 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 can the lost commitment be regained.

Keywords

EN

Capital funding; corporate social responsibility; financial markets

principal agent problems; risk management

• Publisher: Instytut Badań Gospodarczych
• Journal: Equilibrium. Quarterly Journal of Economics and Economic Policy
• Year: 2013
• Volume: 8
• Issue: 2
• Pages: 7-30

Contributors

author

Hans-Georg Petersen

• University of Potsdam, Germany

author

Alexander Martin Wiegelmann

• University of Potsdam, Germany