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

moral hazard in finance: what is it, what causes it, and what role it played in the recent financial crisis.. Essay example
Undergraduate
Essay
Finance & Accounting
Pages 3 (753 words)
Download 0
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…

Introduction

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). ...
Download paper
Not exactly what you need?

Related papers

Finance and Accounting Essay: Post Financial Crisis: Role of Audit
The paper highlights expectation gap and the framework of extended audit which could make the auditor’s report more informative for the general public so that they can make more informed decision. Critical Analysis of Extended Audit As per the research commissioned by ACCA it was found most of the readers of the annual report and financial statements were not much interested in the auditors…
Finance Essay Hungarian Financial Crisis
The occurrence of the international financial crisis has forced the financial markets to reexamine their patience to tolerate uncertainty. Day by day as the financial disaster increased, this in turn resulted in reduction of international liquidity and also an increase in uncertainty. On the other hand the shareholders had started to distinguish among the rising markets and judged that the…
the causes that lead to the crisis and discuss how it has affected the New Zealand financial system and economy.
However, even wealthiest governments were forced to declare diverse rescue packages in order to bail out and thereby ensure the safety of their financial systems. The decade witnessed a series of collapses in the American banking sector, which were directly attributed to the crisis. The most challenging issue associated with the global crisis was that the institutions responsible for the financial…
Role of "securitization" and "structured finance products" in the recent banking and financial crisis
The paper describes the role of securitization and structured finance products in the recent banking and financial crisis. Financial institutions cater to the needs of different types of customers by providing relevant financial services. Financial institutions worldwide have been affected by the adverse market environment created by the US sub prime fiasco. Trouble began when the financial…
The Recent Global Financial Crisis
The current study focuses on a discussion and analysis of the recent global financial crisis and the consequent credit crunch in an international financial perspective, including the events leading up to the crisis, the economic and financial consequences, as well as the government responses and lessons to be learnt. Events Leading to the Incidence of the Global Financial Crisis: The global crisis…
Accounting is not a root cause of the financial crisis, but it has an important role to play in its resolution.
The United States of America was the epicenter of this crisis. The sub-prime crisis caused many key businesses to close down and equity markets all around the world recorded tremendous decrease of their respective indices. This financial crisis almost created mass scale unemployment around the world. It is very interesting to study the role of financial accounting in this crisis. Many experts have…
The effect of the U.S. Subprime Crisis to the China commercial banks in 2008-2013
A careful analysis of the sub-prime crisis reveals that it was created from the slump in housing prices that created a ‘bubble’ of expectations among investors. By the end of third quarter of 2007, the prices of underlying assets declined drastically and the value of mortgage based securities was higher than asset. This motivated investors to default on mortgages as they felt that actual worth…