The main cause of this collapse was due to subprime lending practices that many lending companies used. Adjustable Rate Mortgages (ARM) was one of the most popular methods options. Leaders took advantage of the lower market rate at the time, and offered a very attractive offer of a lower up-front cost. But as it always …show more content…
It mentioned that to pin this crisis on human flaws such as greed and hubris are too simplistic, the appeal of greed and hubris makes it easy to craft an engrossing economic narrative. Greed is typically understood as a personal moral choice. (The Financial Crisis Inquiry Commission)
In addition, many believe that specific firms and individuals acted irresponsibly. They should have known that the roles their institutes have has more than average responsibility for virtue. Responsibility is also thought/associated with the freedom of empowerment and action. This indicates that individuals have the necessary authority and discretion to act in a responsible way. Being responsible in this way means being good or doing good. The concept of virtuousness is one of the best explanations of what is considered. This is a universally accepted standard for the best of human conditions. …show more content…
Board of directors and top managers failed to protect customers, shareholders and even their employees. In this case man of the companies were large enough (like AIG) that they put the financial system of the entire Earth at risk. Smart corporations have regulations and rules in place to prevent this kind of disaster. The incentive of what appeared to be greater returns with no additional risk was too great to ignore. Corrosive company cultures, flawed accounting (internal and external), and hiring people with low integrity have a large impact on the corporation as well. Some leaders ignored risk management in favor of grandiose ideas, often self-serving. The actions include taking excessive risks with other’s money, selling products and services that can harm others (ARMs), and sometimes outright fraud. (Sahlman) (Arjoon)
According to the FCIC and other reports, there were too many households and financial institutions that borrowed well beyond their means. As high as 40 to 1 asset to capital percentage was reported. Mortgage related securities were repackaged and sold to investors. Sometimes several times over. The leverage or risk was often hidden or obscured in “window dressing” of the financial reports. Once the news was out, panic due to a lack of transparency and the interconnections of banks “too big to fail” cause a seizure of the credit markets. (The Financial Crisis Inquiry Commission)