Ethical Examination of the Mortgage Meltdown

Ethical Examination of the owe nuclear meltdownThe subprime owe crisis, jetly referred to as the owe meltdown, unveiled itself after a sharp increase in substructure foreclosures beginning in 2006, which unfolded realityifestly out of control by 2007. Ameri butt end spending declined, the housing trade plunged, foreclosures maintaind to climb and the stock grocery was shaken. The subprime crisis and resulting foreclosures prompted discord among consumers, loaners and legislators every(prenominal) rebound to one an other(a) by a web of complex fiscal engineering. The event represents a turning plosive speech sound in the world thrift and our culture as fundamental societal changes argon needed to remodel the relationship mingled with the U.S. goernment, Wall Street institutions, and the average American. Unhonorable decisions from conf employ parties flip altered the way future business will be conducted as the up-to-date economic and policy-making policies were ineffective to confront the crisis in front it unraveled. This paper is focused on investigating the unfavorable effects of the current monetary outline structure established on un determineable bonds of gene linkage among American communities and fiscal institutions.Initially, more pecuniary experts including the International Monetary entrepot (IMF) believed the crisis would be limited within the argonna of mortgage lenders who had accumulated these subprime loans. hardly as condemnation progressed thither was an evident spread into the prime commercial and residential actual nation markets as rise up as an tint on consumer credit. In an April 2008 Global Financial St index Report, the IMF criticized the excessive risk-taking and enervated downstairswriting undertaken by under-capitalized institutions and recommended measures including military ranks frames re comprise and a change in compensation schemes for managers of pecuniary institutions (Smith, 2009, p. 2 ). According to the IMF, there was a corporal failure by financial institutions for not square-toedly managing risk. The mod York Times columnist Michiko Kakutani (2010) would add there were flawed mathematical models that most(prenominal) financial executives did not reallyly sympathise themselves (Kakutani, p. 1). Essentially, Wall Street firms cancelled subprime mortgages into exotic, toxic financial products by do a fortune laundering and reselling, and they were enabled in doing so by the very ratings agencies that were supposed to police risk (Kakutani, p.1). Even as the quality of the be loans appeared sketchy, few could overhear expected how the severity of the subprime wasteweirout would threaten the U.S. thriftiness to the degree it has so far.The idea behind subprime loans is borrowers who do not chance the credit requirements for prime mortgage loans are required to wage high interest paces and fees than prime mortgage loans. Since a infrastructureifican t great need of untested home ownership expansion stems from buyers with a lower income compared to historic norms, the initial down allowancement is relatively low. This creates more risk for lenders and requires higher(prenominal) interest rates attached to the monthly mortgage payment. The difference amidst the social and economic impact of historical home ownership compared to the subprime steer is the earlier loans created real ownership and wealth, which could be passed along to future generations. The head game of wealth in subprime bestow has led to instability within families and communities as many low-income borrowers were enticed by the ease of becoming a first-time homeowner (Muolo, 2008, p. 277-303).Its burning(prenominal) to consider how subprime borrowers came from lower income families. callable to lower savings, they are unable to pay the typical 20% down payment on a house, thence requiring near 100% financing. This new form of lending allowed families who had previously been excluded from home-owning to inscribe in affordable housing programs. It was even referred to as creative financing. The common question at hand is identifying who is to blessed for allowing the capital market deliverance to create irresponsible home ownership. Much of the subprime homes never yielded real wealth as out mightily ownership of the home was highly unlikely.Subprime lending to low-income pot illustrates how leadership in power are able to raise awareness to followers that home ownership is a moral obligation. The leaders have demonstrated their ability to raise followers consciousness about what is and ought to be all important(predicate) to them (Ciulla, 2003, p. 220). The idea of home ownership even became a political agenda to make tribe feel like they deserve a new home. Comparisons could be made that our giving medication was almost behaving as a Jim Jones leader. Jim Jones appealed universally to impoverished and minority individ uals who felt oppressed and besieged by a hostile world. Similarly, the government allowed subprime lending to target individuals who were historically turned away.ETHICAL ANALYSIS OF MARKET CONDITIONSUnderstanding the ethical behaviors of the subprime fallout is quite an challenging as many dynamics stem from the individual as well as from a societal level. First of all, a new research paper conducted by three respected Irish economists point to a common factor of irrational exuberance among the real estate bubbles experienced in America and Ireland. In some(prenominal) countries, buyers and lenders convinced themselves that real estate prices, although sky-high by historical standards, would continue to rise (Krugman, 2010, p. 2). Consequently, this rife belief cannot be explicitly linked to an individual as confederation collectively accepted these trends. Additionally, the common social viewpoint that rising incomes would continue to accommodate the rising price of homes is not any individuals responsibility. Perhaps, the forecasting models used by economic experts were excessively optimistic, but this does not make them virtuously irresponsible. Robert Shiller (2008) argues the housing bubble that created the subprime crisis in the long run grew as big as it did because we as a bon ton do not understand, or k straight off how to deal with, speculative bubbles (p. 3). It is rugged to affix an ethical verdict to something as uncontained as the market.However, a slice of moral accountability should be ascribed to key leaders who have control in shaping the market. in that location was a form of regulatory imprudence as the people charged with keeping banks safe didnt do their job (Krugman, 2010, p. 2). While many regulators looked the other way, the bigger issue is the political theory base on free-market fundamentalism where deregulation was thought to strengthen the financial system. The national Reserve chairman, Alan Greenspan, was criticized f or maintaining low interest rates that further provoked subprime lending. Due to many stakeholders in the subprime story, blame has been rigid on many factors such(prenominal)(prenominal) as a growing dishonesty among mortgage lenders, increasing voraciousness among securitizers, hedge funds, and rating agencies (Shiller, 2008, p. 4). But, we can identify that Greenspan had direct control over key monetary policies such as interest rates, with foreseeable impacts. averageifying whether scant(p) judgment was made in these decisions illustrates a moral question of his accountability. many a(prenominal) others question how well the government addressed regulation policies and the freedom given up to banking institutions to issue reckless lending.It is also logical to believe the government fundamentally allowed an over inflation of homes in the market. Their openhanded efforts in rescuing weakening financial institutions beginning in 2008 with Bear Stearns, then AIG, and many oth ers may fence a form of duty the government has to help make restitution for allowing in any object lesson many Americans to have a mortgage they are unable to afford. The American financial system is filled with firms that disdain the need for government regulation in good measure but insist on existence rescued by the government in grownup times (Kakutani, 2010, p. 2). Nevertheless, prescribing all of the liability upon the government or Federal Reserve is too unbalanced. The complex nature of the economic conditions related to the subprime crisis is larger than what any exclusive stakeholder could instigate.Helping to fuel new mortgages, brokers sought to attract home-buyers with no bullion down agreements. Some likely acted of the premises that housing values and real incomes would gradually keep climbing to create a win-win situation for both parties. Again, to assign a moral indiscretion to a specific mortgage broker supplied with the best available public information to guide authorisation buyers is unsupported. It is not appropriate to directly attribute their actions to the subprime meltdown. But, as we continue to dissect behaviors we will see how many individuals took advantage of the economic zeal that fuel the subprime crisis (Cohan, 2009, p. 92-108).Much of what has been discussed points to the common belief of increasing prosperity and as well as a general unsupported belief in maintaining such high growth. There is quite a fine line between having sustained optimism for a bright future and a greed-like attitude that tries to cut through the reality of an eventual economic decline. Would it be acceptable to morally blame society as a whole for overlooking the unvarnished signs of riskiness? Not fully. Yet, as more players in the market are outline in the following sections we will see how the rules of the game may have deliberately hurt others.ETHICAL ANALYSIS OF KEY PLAYERSTo expand upon the market condition section previously di scussed the moral responsibility in the transactional loan process is analyzed next. There is a duty for each party to have transparency and truthfulness when completing a deal. Ideally, the consumer is obligated to pay loans they agree upon with the broker. As government leaders portray the omen for all Americans to have prosperity, home ownership became a reality for the most economically impoverished people. We begin to see a fabrication of falsely envisioned subprime loan applications by consumers captivated by these lucrative opportunities to have a new house. It would seem morally wrong for a person to colour information, as most people should on the dot now want to acquire a loan they can manage with financial responsibility. However, the self-interest of satisfying their propensity overcame the normal way of managing finances. There also presents a moral guess to the broker who works for commission by getting people to sign agreements and has no financial liability a fterwards. Is the broker seeking the best interests in protecting customers? We realize the lack of concern by many brokers who unmarked the details. Ironically, as many of the brokers did not fully consider the unethical transactions, they are now the ones out of a job (Andrews, 2009, p. 133-148.).Furthermore, the lenders or banks are presented with ethical considerations as to how well they scanned applicants before providing loans. Were loan requirements not strict exuberant on purpose? It would seem a bad business physical exertion to grant loans knowing customers will have late or no payments towards the principal of the loan. As we have learned, the banks ended up selling the bad loans to investors. The analysis up to this point seems to be pointing toward the idea that owning a home is becoming a morally acceptable idea and a elementary right for everyone. Envision subprime loans as being a prescription drug. When placed in the hands of a diagnosed person in need of the d rug, it can bring about social good, but if given to a teenager, who has no need for it, the drug can lead to destruction. This illustration shows how subprime loans require comely structuring to go forth the most good.ETHICAL ANALYSIS OF FINANCIAL INSTITUTIONS AND INVESTORSContaining the misfortunate subprime loans whole between the lender and consumer could have benefited and alleviated the crisis if the loans were able to be salaried by the new homeowner. But, due to lenders not making any usefulness on the loans they are forced to sell bad mortgages by furtherance them in the form of collateralized debt in hopes of selling to investors who believe the value of the mortgage assets will increase. Again, we are confronted with the moral issue of how transparent these debt packages are represented. Do investors deserve better warning of the extreme risk of buying mortgage debts? Who is ultimately ethically accountable for selling bad debt? Everyone seemed to be caught up in th is euphoria where no one expected anything bad to happen.To break down some of the moral culprits of passing along bad loans, many financial agencies were persuading clients to invest in bad debt, while at the resembling(p) time these organizations sold off the loans to avoid any further losses. The apparent misuse seems morally wrong as they knowingly caused harm to investors. The rating agencies are also tossed into the blame game. Wall Street firms knew how to game the system they knew how to get the rating agencies (which were eager to collect big fees for their services) to ineptly rate dangerous bonds (Kakutani, 2010, p. 2). Who is to protecting the financial stability of the economy by inaccurately rating risky subprime loans? Too many people assumed continue economic growth and overlooked the likelihood of the bubble bursting (Mason, 2009, p. 81-90). Overall, frequently of the adventure of the mortgage meltdown is due to the collective failure of society in a business and government sense to foresee the collapse, making it difficult to assign responsibility.PSYCHOLOGICAL IMPACTSThe various examples presented have illustrated the psychology involved in the real estate bubble (Schiller, p. 4). From Paul Masons (2009) book we not only have witnessed capitalisms tendency to expand the power of the market to push for the maximum freedom (p. 171), but the tendency for a double movement as ascribed by the Hungarian philosopher Karl Polanyi. As free market expansion often reduces the relationships between families, nations, and social classes to a mere commercial level based on money, a counter-tendency arises to defend common human values and community. The dynamics of the economy will require a willingness of ordinary people to overturn limits, standards and sustainability on capital (Mason, p. 172). The current form of our markets have possibilities for limitless growth, provided the often selfish and unequal society in which we live in has created r epeated financial distress.PHILOSOPHICAL IMPLICATIONSAs many people point to banks for significantly contributing to the economic downfall, understanding how philosophers approach the situation is important to further our awareness of the problem. The premise of Immanuel Kants categorical imperative is based on the morality of the act, not outcomes, meaning an act may be through for the right reasons, even if it has bad consequences (Ciulla, 2003, p. 95). So, how can a lending name be judged as unethical for issuing loans to help customers purchase a home? The morality failure, based on this stance would not fall on the bank. But, consider Kants statement that all rational beings stand under the law that each of them should treat himself and all others never merely as a means but always at the same time as an end in himself (Ciulla, 2003, p. 107). If the bank fails to appropriately evaluate the clients ability to pay back debt, then they are treating the client as a means for their own financial benefit and are eventually trail their clients to an ethical failure. On the same token, the brokers who never bothered to properly set background checks on their clients were also satisfying their own financial desires, instead than helping customers make sound financial choices.John Stuart Mills utile approach emphasizes multiplying rejoicing, or making life better for the majority of stakeholders in an organization, a community, or a country (Ciulla, 2003, p. 143). Therefore, Mill would view the lending institutions as providing moral value to the individuals seeking to gain home ownership. The general economy and government polices were allowing and expanding housing programs, in which there was a collective agreement that having people buy homes was a good strategy for the country. We now realize the greatest good often looks different in the ill-judged term than in the long term. In retrospect, too much focus may have been placed on the present and not a bounding concern on potential consequences of too much lending. The multiplication of triumph for those involved in subprime lending only lasted until the foreclosures and collapse of the banking industry began.Just as Kant and Mills viewpoints speak of the moral behaviors among the parties involved, Ayn Rand offers insight by argue that every man is an end in himself, he exists for his own sake, and the exertion of his own happiness is his highest moral purpose (Ciulla, 2003, p. 47). Her position seeks happiness proper to man and does not advise seeking happiness through double-dealing schemes as this approach will lead to frustration. She believes moralitys purpose isnt to command you to resign your interests for the sake of others but rather to teach you the rational values and virtues happiness in fact requires. (Ghate, 2009, p. 3). In hopes of restoring society to the place we were before the collapse, Rand would not place the primary blame on the people, but the immoral system in which they had to act. There should be a reevaluation of what genuine self-interest consists of and whether the credit line for happiness is moral.DEATH PLEDGEAs mortgages have become a norm in the American society, there is an underlying meaning to the origin. The parole mortgage comes from the Latin words, mort and gage. Mort means expiration, and gage means a compact to forfeit something of value if a debt is not repaid.The basics of mortgages have remained the same high value real estate which cannot be funded by most people results in borrowing money to buy property. Many people are enslaved to meet the death pledge they signed. Borrowers should be aware of what they are doing and realize it is not always justifiable to blame the banks, as they ultimately cannot force an individual to take on a mortgage obligation. (Marples, 2008, p. 2)There seems to be a moral dilemma confronting families who still owe more on their mortgages than what their home is worth. Should they sacrifice to pay their mortgage even though their homes value may not recover for several years? Or should they simply walk away (Merrel, 2009, p. 2)? If they made an agreement with a lender to pay the loan, then on the surface it would seem morally right to continue paying for the home. After understanding the significance of a death pledge, we could argue mortgages are not ethical documents, they are legal contracts (Merrel, 2009, p. 2). So, if a person decides to stop paying their mortgage, they simply pledge the ownership of the home back to the lender. Nevertheless, realize a mortgage contract entails a promise to pay and walking away from a promise in a way leads to a breach of ethics. It seems that determining whether it is morally justifiable in walking away has to be examined on a case to case basis.In respect to the people who lost their homes due to unemployment or other valid reasons, they have a right to be upset for how the regardless decisions of others hurt the ir American Dream. It has turned into just that, a dream, as society allowed people to believe they deserve a home they cannot afford. John Rawls, a Harvard philosopher, offers insight to the economic and moral issues societies confront regarding distributive justice. He argues as self-interested rational beings governed by principles that oppose discrimination, everyone should have equal liberties and fair distribution. He speaks of inequalities among social class wealth as only being just if and only if they are part of a larger system on which they work out to the advantage of the most unfortunate representative man (Ciulla, 2003, p. 158). Why should we be making life better for those who are already well of with nice homes and do nothing for those who are already underclass(prenominal)? Perhaps, as in the case of subprime lending, there was an outreach by leaders to provide equal opportunity to the least advantaged persons.In order to learn from the U.S. financial crisis, we ha ve to enforce action by people who see it as their duty to protect the American people. We have to focus as much on the regulators as on the regulations (Krugman, 2010, p. 2). Financial consumers need protection from being taken advantage of or else we will have failed to learn from our fresh history and can expect to repeat it again.ReferencesAndrews, E. (2009). Busted Life inner(a) the Great Mortgage Meltdown. New York, NY W.W. Norton Company, Inc.Ciulla, J, ed. (2003). The Ethics of Leadership. Belmont, CA Wadsworth.Cohan, W. (2009). House of cards A Tale of Hubris and Wretched Excess on Wall Street. 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