A WVU Grad Student Blog

So… for the past couple of posts, we have been discussing the subprime loan crisis that occurred in the early 2000’s. Banks were approving millions of primary and secondary mortgages and refinancing mortgages for individuals with subpar credit history and unsubstantiated income left and right. Billions of dollars were handed out with these subprime mortgages, and when ARM interest rates increased, borrowers found higher payments that they couldn’t make and lower home equity that they couldn’t sell to get out from under the mortgage. By 2007, over 20% of the loans were seriously delinquent. (Gilbert, 2011, pg 90) Additionally, the loans were sold to secondary markets, leaving a borrower dealing with an unknown lender who only cared about getting their money.

The banks were fortunate in that the government bailed them out of the debacle. However, the homeowners were left with devastated lives and destroyed credit. Something had to be done.

subprime crisis burst

Firstly, it must be understood that it’s the financial institution that makes the mortgage loan, but “the authority to decide whether or not to make a loan is vested not in the institution as a whole but in a cred or loan officer or committee” (Gilbert, 2011). Furthermore, giving a loan to someone who may be questionable in the ability to repay is not necessarily against the law and may even be in accordance to a banks’ standards if it is that lenient. But there are times the potential borrower should be told “no” by the loan officer. Therefore, it is up to the institution to set the standards and tighten the requirements. Additionally, potential borrowers should be required to prove their personal income through verifiable documentation such as payment stubs, W-2s or income tax returns. These types of checks and balances help eliminate careless lending.

As for federal government involvement, in 2008 the U.S. Treasure Department announced proposed regulatory reforms. These reforms involved both short-term as well as long-term suggestions which included “federal oversight functions and the creation of new federal agencies to carry out these functions” (Dickey & King, 2008).

Investigations into what really happened and who caused the crisis was also a focus of the federal government. To better understand the collapse would inevitably assist with preventing it from happening again as well as holding the right people accountable. The Enforcement Division of the Securities and Exchange Commission (SEC) called the “Subprime Task Force.” Additionally, the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) became involved with investigating “potential criminal aspects of the subprime meltdown” (Dickey & King, 2008).

So the repercussions were great, reaching from the individual loan officer all the way up to multiple federal government agencies involved with investigations and reform. Through self-imposed standards at the organization level to governmental developed and enforced standards, hopefully the banking industry will not see such a mishap in the future. And hopefully, individual borrowers who are approved for mortgages will be able to handle the payments and maintain equity in their home. Through these steps, the economy will see an improvement both financially and ethically.

 

So we just summarized the concept of the subprime loan and the risks involved for both the lender and the borrower.  At the end of the discussion, you were left with questions regarding the leadership….

Who would you blame for the crisis?

  1. The loan officer
  2. The bank itself
  3. The borrower
  4. All of the above

To some extent, it’s probably safe to say that “4” is correct.  We could even include other reprobates such as internal and external auditors and the credit rating agencies who “failed to limit themselves to expressing an opinion on the creditworthiness” on newly designed investment products (Verschoor, 2007).

Because there were so many involved with the crisis, let’s just focus on the banking leadership and the role they played in decision making during the crisis.

There are theories revolving around ethical decision-making (EDM) of leadership. These theories suggest that “leaders first recognize ethical problems and then apply their moral code or principles to ethical situations” (Thiel et al., 2012). One theory, developed by Sonenshein (2007) revolves around the idea of sensemaking, in that business leaders struggle with EDM more from the result of their inability to “make sense of the dynamic business environment or other cognitive limitations” (Thiel et al., 2012). This means that leaders may be making unethical decisions because the dilemmas they are facing are excessively challenging.

Perhaps the leadership of the banks that were handing out the subprime loans in the early 2000’s just couldn’t see the big picture. Although they knew how risky it was loaning large sums of money to borrowers with less-than-acceptable, subpar credit and unsubstantiated income, did they realize that they were a part of the collapse of the entire mortgage system?

foreclosuressmall

The banks were making big money from the subprime loans. The target market was huge, and why shouldn’t they be afforded the opportunity to have the finer things in life? This train of thought further feeds the Goldman Rule which suggests “the greater the profitable opportunities, the more likely individuals and organizations will engage in behavior without regard for the broader consequences” (Watkins, 2011).

Regardless as to who was to blame or finding excuses for why they did what they did, the fact remains that individuals were hurt in the subprime process. It wasn’t necessarily the banks, as they were bailed out by the government. But the banks’ lack of social responsibility left a lot of people devastated, both directly as well as indirectly resulting from the unethical decisions made by leadership. Countless individuals lost their homes and destroyed their credit due to foreclosure on their mortgage. Even those individuals who were able to maintain their homes saw a lower home values as a result of foreclosed homes that were abandoned and not maintained within the neighborhood. But the banking industry’s resolve to follow the Goldman Rule instead of the Golden Rule of “Do no harm” hurt not only individual borrowers, but society as a whole. Perhaps it was difficult to see the forest for the trees, not realizing that giving a mortgage to one questionable borrower would become two, then three then thousands resulting in billions of dollars loaned out to individuals who couldn’t pay it back.

As a result, some measures had to be taken to ensure this debacle wouldn’t happen again. One collapse was one too many, and the thoughtlessness and carelessness needed to be curbed. Would the banking industry be capable of learning from their lesson and self-regulate? Or should government step in with rules and regulations? These are questions we will review in our next post….. The Subprime Crisis: Repercussions.

Let’s talk corporate responsibility…. specifically in the banking industry…. even more specifically relating to subprime loans crisis that hit the US mortgage market in the early 2000’s. It’s an interesting point of discussion that we will cover over the next three blog entries. We’re going to look at the role leadership played in the subprime crisis of the early 2000’s as well as evaluating subprime loans with the notion of social responsibility. We’ll wrap up the discussion by reviewing what measures have been taken since the crisis to ensure it doesn’t happen again.

But before we explore these nuances, it behooves us to better understand what subprime loans are as well as the risks they pose to the lender and borrower. So, our first task will be focused on briefly summarizing the concept and risks of subprime loans.

Ultimately, subprime loans are intended for borrowers who do not meet the set standards for a normal loan because they have a “blemished or limited credit histories” (Gilbert, 2011, pg 89). Because of the increased risk of the targeted borrowers, the interest rates are set higher interest rate than normal, or prime rate loans. The are multiple types of subprime loans, but the specific one involved with the subprime crisis involved the home mortgage.

The banking industry saw a 520% increase between the years of 2001 and 2006 in the rate of mortgage subprime loans. In 2005, only “16 percent of subprime mortgages were used for home purchases” with the remainder of the loans being used for refinancing or second mortgages. Additionally, nearly 70% of the subprime loans given in 2006 were adjustable rate mortgages (ARM) in which the interest rate would change in specified time frames, typically increasing. (Gilbert, 2011, pg. 89)

The risk issues involved can be concerning for both the lender as well as the borrower. For the lender, banks increased their risk exposure when they decreased the required down payment. This created less equity in the home, and therefore, acted as a reduced incentive for the borrower to continue making payments. (Johnson, Roerts & Trybus, 2010, pg 116)

The risk for the borrower is the potential for ARM payments to increase and making future payments too high to financially manage. This difficulty caused homeowners to either take another mortgage to refinance their home, thus loosing additional equity in their home, or through foreclosure.

Now that you have an idea as to what a subprime loan is and the risks involved for both the lender and borrower, let’s move on to the next discussion where we look at the leadership involvement with the crisis.  Who would you blame for the crisis?  The bank manager, the bank itself or the borrow?  Who should be held accountable for loss of money for the industry and the loss of homes for the homeowner?

I know what you’re thinking . . . branding is for big, international companies like Tide, Chevrolet and Target.  That’s not the case in today’s world.  Small business, non-profits and even individuals use branding as a way to give the company and organization a personality, a persona.  It’s a way to give your small business a human characteristic so that consumers can better relate to the company.

So how can a small business brand itself?  First, it’s important to understand how consumers currently perceive your company.  Do they think you sell cheap products or high-end products?  Do they perceive your business as classy and trendy, or cheap and dingy?  Conducting a short survey with customers will help you better understand how they perceive your business or organization.  If you’re a small retail shop, you can ask customers a couple of questions as they check out and record the answers.  Or, you can supply them with a post card with a few short questions that can be filled out and left at the store, mailed back in or returned at the next visit.  Offering the customer an incentive (say, 10% off their next purchase) is a great way to encourage customers to participate.

Once you have an idea of your customers’ perception of your business or company, then you can determine if you need to make changes or continue with the strategies you have been using.  This also allows you to start incorporating visual, digital and auditory elements into your marketing to help improve or enhance your brand identity.

One of the first things that I feel is important when it comes to branding is the company’s mission statement.  An effective mission statement will be customer centric and explain how the company will meet the needs and wants of the customer.  Oftentimes, companies will use a mission statement that says something to the effect of “We will provide quality products to our customers to increase sales and market share.”  When you stop focusing on the customer, the customer will stop focusing on your business.

Additionally, everyone in the business should know that mission statement.  When I worked for a national nursing home company, we held a meeting with all department heads every morning at 9:00.  The first thing we did was recite the mission statement.  The mission statement not only became the goal of the company, but the goal of the employees as well.  Print your mission statement on the back of business cards, post it in the staff lounge, frame it and put it in your lobby, tape it onto the cash register.  Keep it readily visible for everyone to see and help them keep on track.

Once you get the foundation of your branding started . . . that is, understanding how people perceive your small business and writing a customer-centric mission statement that everyone knows by heart . . . you can begin creating brand awareness and developing a personality with which consumers and stakeholders can relate and will want to interact.  Keep your branding goals in mind as you develop marketing strategies to deliver consistent messages across all media to avoid confusion.  If you want to be classy and trendy, all of your print, radio, TV, online, social and mobile media should resonate with a classy, trendy look, feel and sound.

It may take a little work, but in the long run developing a brand perception for your customers and prospective customers will allow your company to grow and be successful.  Asking for help from a marketing consultant will cost some money, but they can help you get on the right track and will end up being an investment in your small business instead of another bill to paid.   How do people see your business?  Do you want to change their perception to improve your company’s image and ultimately the bottom line?  Sure you do!!

For the first time, I had the opportunity to attend WVU’s IMC Conference, or a.k.a. Integrate 2011.  This conference is so unique and one-of-a-kind, it is a must-attend event for anyone working in the marketing field.  If you missed it, well you really missed it!!  You may want to bookmark the WVU IMC website to watch for next years conference and plan to attend.  Trust me . . . you’ll be glad you did.  Here is a blog post of one of my dear friends and colleagues (and former PR professor) Karen Freberg to help support my statement. 

I know what you’re thinking . . . “Why attend a conference on integrated marketing communications?  What makes this conference so great?”  Let me start my sharing a conversation I had with several of my former classmates as we talked about our careers in the marketing field.  I shared the fact with my friends that I love the job that I currently have, however I’m concerned because I don’t have the opportunity to utilize my marketing skills and talents.  You know the old saying . . . “If you don’t use it, you’ll lose it!”  That couldn’t be more true in the marketing industry, and things change so fast a marketer can be left behind for the wolves before they know it. 

The IMC conference is one way that I, and other professionals who may not currently be practicing marketing as much as we would like can catch up on current trends.  Heck, even those who are in the field can learn more about what’s going on and what new trends are peaking around the corner as well.  The best part of the conference is that actual practitioners are the ones conducting the sessions, and they are right there, knee-deep in the marketing mire and muck and can tell you exactly what’s going on, what to expect and recommend which step to take to keep you out of the quicksand.

Over the next few posts, I plan to share some insight from what I gleaned during the conference.  I’ll talk about social media, public relations, branding and more.  I hope you will come back and visit my blog to see what was discussed during the conference, and perhaps learn something new that you can use in your career, your business and your personal life.  I’ll leave you with a video that gives you a little more detail about the Integrate 2011 conference.

Yesterday, I marked off another item on my bucket list . . . getting my Master’s Degree.  It took two years to finally finish, a lot of late nights and cups of coffee, long days at work with little sleep, anxiety over what a final grade would be, and endless researching and reading.  But it was all well worth it.  There are a lot of people I want to thank for all their help and support.  First, I thank the faculty and staff at the WVU Integrated Marketing Communications program.  The professors are absolutely amazing, intelligent and patient.  Their ideas and recommendations never failed to help me think further out of the box and inspire me to find that Big Idea.  I learned more than I ever imagined and I give them so much credit.  If you’re considering a graduate degree in the marketing field, you really need to check out this program.

I can’t close this chapter of my life without thanking my friends and family.  To all of the folks with whom I’ve worked over the past couple of years that felt pity on me because I “looked so tired” and kept telling me I could do it, thanks so much.  You helped me make it through long days at work just so I could go home and hit the books for another evening.  You were always willing to help and were so patient when I was brain-dead on nearly every Friday.

Finally, and most importantly, thank you to my sweet, loving family.  They have truly been patient with me over the past two years and have been so supportive.  They’ve helped me clean house, fix dinner and clean laundry while I was trying to finish projects by a deadline.  You had faith in me and my abilities when I felt I had bombed every assignment and then would say “I told you so” when I got a good grade.  And you cheered for me when I was hooded at the graduation ceremony.  I love you and am so thankful that God blessed me with each of you. 

My daughters and I all graduate this Spring.  I received the MS IMC from WVU.  Brittany has her BA in Secondary Ed (Math/English) from Glenville State College and Katie will finish high school at Braxton County High School.  She leaves for Navy boot camp in October and will be studying Nuclear Engineering.

I hope to start posting thoughts and ideas about integrated marketing communications more often on this blog now that I have some time.  I plan to continue researching, learning and sharing what I find.  I will stop by other blogs to learn from you and share your ideas as well.  I hope you will leave a link to your blog with me so I can include you on my blog roll.

Thanks for following, and stop by again soon. 

kim c

Texture is another method used to capture the attention of the viewer, aid in organizing the visual into regions, identifying objects, creating the pop effect of visuals, and “providing cues for depth perception.” (Malamed, 2009, p. 58) This 2009 print advertisement created by Voskhod ad agency from Yekaterinburg, Russia  for Brighton Language School effectively utilizes texture to bring their message to life.

        This advert shows the word “Espanol” trimmed out in bushes with part of the leaves missing from the first half of the word.  The sand that surrounds the bushes offers texture in the foreground of the visual and depth perception for the viewer.  At the bottom of the picture, or what is perceived as the foreground, the sand appears grainier and coarser and gradually becomes denser and finer as it moves toward the back of the picture.  This gives the picture a more two-dimensional effect as if one could reach into the picture and touch the bushes or pluck a leaf. 

        In addition to the use of texture, the position of the wording allows the reader to follow through the ad.  By placing the copy at the top left-hand corner of the page, followed by the word “Espanol” in the center, to the bottom right-hand corner to the watering pail, the viewer captures the message of the advertisement and the answer (i.e. Brighton Language School) to the proposed problem (i.e. refresh your forgotten Espanol).

        Using texture aids the brain with segregating sections of a visual.  One is able to distinguish between foreground and background, “perceiving shapes and eventually identifying objects” and is “key to understanding the meaning of a graphic.” (Malamed, 2009, p. 58)  Had the texture of the sand not been used in this visual, it would look as if the bushes were floating in mid air, which may confuse the viewer.  Instead, by grounding the bushes in the sand, this allows the viewers’ long-term memory to assist working memory to recognize the visual as a picture of bushes.  By allowing the viewer to quickly comprehend and understand the visual, the viewer can then place their focus more on the message and less on the graphic.

        The whole of the picture is that, by taking lessons from Brighton Learning school, a student can refresh their latent, dormant foreign language skills.  Brighton claims to accomplish this goal just as the water from a watering can will bring life to the branches of bushes planted in the desert.  By using texture in this graphic, the viewer immediately recognizes these images to give deeper and more precise meaning to the modicum of copy included.

 

Malamed, C. (2009). Visual language for designers: Principles for creating graphics people understand. Beverly, MA: Rockport.

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