Was the 2008 Financial Crisis Caused by a Lack of Corporate Ethics?
Global Journal of Business Research, Vol. 4, No. 2, pp. 77-84, 2010
8 Pages Posted: 5 Jul 2010
Date Written: 2010
During the second half of 2008, the United States financial markets, and eventually all major world markets, were devastated by the aftermath of unethical lending practices by major lending institutions. These bad loans were made at the height of a real estate bubble in the United States. Aggressive lenders engaged in loans called “sub-prime mortgages.” These mortgages were extremely high risk and most of them violated traditional underwriting standards for the industry. Prudence and ethics were pushed aside as greed overcame good judgment among mortgage lenders nationwide. The problem was exacerbated by the packaging, and leveraging, of these loans by Wall Street financial companies. These companies leveraged these bad loans, and sold them to unsuspecting buyers as bundled investments in the secondary markets. When the overheated United States real estate market finally began a severe and protracted correction of fair market values due to these bad sub-prime loans made to questionable borrowers, not only did the real estate markets collapse but it resulted in a domino effect causing the collapse of major banks and a precipitous and protracted market drop in stock values, financial companies, insurers, and eventually the biggest financial crisis since the great depression. This paper will review the 2008 collapse, and evaluate the questionable practices among the various corporate and financial participants that caused a worldwide collapse of shareholder values. This paper will also explore and review the United States government’s various attempts to solve this great crisis including what proper ethical and legal safeguards are being considered to prevent a repeat of this disaster in the future.
JEL Classification: M00, M14, M48
Suggested Citation: Suggested Citation