Ethical Lapses in the 2008 Financial Crisis

Ethical Lapses in the 2008 Financial Crisis

The financial crisis in 2008 was avoidable and several people saw it coming.

Starting with the issuing of risky mortgages and then spreading to the creation of

securities that were backed by those risky mortgages were two of the key factors of the

economic meltdown. The greedy nature and unethical behavior of many in the financial

sector caused the crisis to occur; ethical lapses were present on both the commercial

and investment banking side.

The banks predatory lending practices have been viewed as highly unethical in

the years following the financial crisis. The commercial banks failure to turn down

risky mortgages to customers who could obviously not afford them was one of the

lapses in judgment that started the economy down the road to collapse. The rise in

housing prices throughout the 2000’s from the flood of money into the market by the

federal Reserve and low interest rates caused many people to believe that they could

afford homes that were clearly out of their price range, and instead of warning these

customers of this fact, banks knowingly led them to believe that these sub-prime

mortgages were a feasible option for the customers, who were not as well versed in

financial matters as the lenders at the banks. These lenders failed in their duty of care

to both the borrowers that trusted their advice about the subprime loans they were

agreeing to, and to their customers that entrusted the bank with their deposits and

believed that the banks would exercise sound judgment before deciding to lend that

money to prospective borrowers. After the banks had exhausted their supply of qualified

borrowers they began seeking less qualified borrowers to make up for their losses.

Banks were making these loans with the express purpose of selling them to Wall Street

firms who would use them to create seemingly stable investments for their clients who...