The Financial Crisis of 2008

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The actions of mortgage lenders in the mid-2000s led to the most economically devastating financial crisis since the Great Depression. We believe mortgage lenders should shoulder much of the responsibility for creating such a crisis. The lenders took several specific unethical actions, which will be defined in this report. First, the lenders failed to act in good faith. Conflicts of interest were created when they sold pre-packaged mortgages as securities to investment banks at a profit. Complications arose when borrowers began defaulting on their loans, and the investment banks faced little or no consequences. Next, the lenders used predatory practices to attract potential borrowers. The types of loans made available included: originate-to-sell, adjustable-rate, NINJA, and interest-only. Borrowers were either not completely informed of all the potentially harmful terms and conditions of their mortgages, or they were informed, but not in a way they could fully comprehend. The lenders also failed to faithfully represent the borrowers by manipulating loan application information or not verifying that the information was accurate and complete. Mortgages were being approved for applicants with poor credit history. Lenders had no right to approve loans for applicants in such feeble financial circumstances. All of this led to lenders failing to live up to their fiduciary responsibilities. As professionals in the financial industry, the lenders, or fiduciaries, are bound by law to put needs of their beneficiaries ahead of their own self-interests. They failed to carry out the fiduciary duties of loyalty and care and did not act in the best interest of the borrowers.

Moral Hazard
The first factor, that contributes blame to the lenders, ...

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...f incentives, created moral hazards for both lenders and brokers. Next, complicated lending agreements and information asymmetry created a lack of transparency. Lastly, mortgage lenders failed to act in good faith and instead, were fueled by greed and the desire for increased profits. All of these factors demonstrate the fiduciary failure of subprime lenders. The reason for learning history is because it often repeats itself in various forms. The 2008 Financial Crisis hit America much like the stock market crash of 1929, which lead to the Great Depression. While the events happened almost eighty years apart from each other, there are vast similarities that connect the two. In both cases, there was too much positive speculation in the market, which played a major role in how these crashes took place. Hopefully, history is not doomed to repeat itself in the future.
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