Financial crisis and the dilemma of business ethics by focusing on the element of trust - Essay Example

Full Lang and Jagtiani (295-316 indicate that the desire to avoid a financial crisis is one reason that the economists tolerated ongoing financial crisis for years and continues to play its role by shifting the level trust of individuals. Meanwhile, financial crisis was caused by increase in government purchases and the massive mobilization of the resource caused by lack of corporate governance. Failure of corporate governance caused many banking institutions to lack transparency and accountability that caused the turndown of the economy.

As result, the risk management and financial firms were functioning without any regulatory mechanism due to the failure of corporate governance responsibility. Prassas (40-44) claims that the reason for the crisis was caused by the distortions and incentives caused by the poor regulatory mechanism that affected the individual mortgage because banks changed the balance sheet mortgage securitization. Reinhart and Rogoff (1676-1706) claim that the investors and mortgage rating agencies failed to accurately price the risk attached with the mortgage products that resulted in the financial crisis.

The reason for the current financial crisis is as result of prolonged credit expansion in most of countries that caused the increase in cyclical fluctuations in the economy market. In additional, the extravagant lending of banks that allowed greedy borrowers to purchase overpriced properties that they could not afford was one reason for financial crisis. Therefore, when these borrowers were unable to pay back their mortgage, the delinquency and foreclosures rates would not be avoided by lenders.

As result, this affected the mortgage market that lead to the failure of fundamental organizations like Bear Stearns, Fannie Mae and Freddie Mac. According to Akay (260-273), this demand led to effect on the various metropolitan places that violated the microeconomic