Moral hazard in finance: what is it, what causes it, and what role it played in the recent financial crisis.. - Essay Example

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Moral hazard in finance: what is it, what causes it, and what role it played in the recent financial crisis..

Enhanced roles of government institutions should be geared toward saving countries from the inadequacies and excesses of these institutions, so as to protect the overall standing of the economy (Ile & Lewis, 2013). This paper will examine moral hazard in finance, and what is being done to salvage a dire situation. Moral hazard in finance A moral hazard is a situation whereby one party is largely responsible for the interests of another party, but, unfortunately, the first party has the motivation to put most of their interests first (Ile & Lewis, 2013). The financial system in most regions is marred with situations where one party can take risks that the other party has to fully bear the consequences. One example is a situation where a financial institution can offer members excessive pay out of capital they are managing for other parties. This is just one example, but much more is inevitably happening all around the world. The structure and principles that surround the economic systems around the world are developed or built in a way that they are now responsive to the moral hazards presented in everyday situations (Palley, 2013). ...Show more

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Moral Hazard in Finance Name: Institution: Moral Hazard in Finance The policy landscape in economic powerhouses around the world has been dealt a major blow by the financial crisis. Knee-jerk responses have been seen all around these economic powerhouses as policy makers struggle to identify, resolve, and even curb the strain the economic crisis is placing on citizens…
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