Moral Hazard and Current Financial Crisis Initiated in the US Mortgage Market?

What is really happening?Moral Hazard and Current Financial Crisis Initiated in the US Mortgage Market?What do you mean? There's a concern that this bailout of financial institutions serves as insurance against their own bad acts and practices-- if they are big enough and confident that they won't be allowed to fail even if they deserve to by making poor business choices, then that creates a moral hazard. The moral hazard means that, rather than doing the right thing, correcting their business practices, acting as responsible stewards of their own business, these institutions will feel comfortable acting badly because they will be bailed out in the end. The extent to which such moral hazard choices caused the current financial crisis, as opposed to being caused by the federal government's stepping in to help, is kind of unknown. I don't understand Freddie and Fannie well enough to know, but I believe that their insuring of certain loans, and the market that was created for bundled bad loans created some circumstances where bad actors would target vulnerable people and entice them to buy homes that they wouldn't be able to afford when their loans adjusted because those companies knew they wouldn't be on the hook for those loans. They would get rich quick, sell the loan as part of a package to a bigger institution, and get themselves out of the equation, even though it was their fault that they chose to extend teh credit to people who would clearly be unable to afford the homes they bought if their circumstances didn't change between the time they signed the papers and the time the loan adjusted upwards. So that was a moral hazard problem, too, and is one root of the mortgage crisis. For the bigger buyers of these packages of bad loans, too, there was a huge market that developed around the value of those loans, too, and they were profiting off that marekt, which basically was the equivalent of gambling with chips extended on credit -- representing no real money.



We can blame the ignorant home-owners to some extent because they should have been doing the math and reading the paperwork themselves, but I was amazed by the offers that came my way regardig home loans and how complicatedly misleading they were. For someone who could pay less with a mortgage than they would for rent for several years, but who didn't understand the implications of the crazily-structured loans they got from enthusiastic lenders and brokers who assured them that the loans were in the best interest, I just feel bad for them and angry at the greedy industry that put them in this situation.Moral Hazard and Current Financial Crisis Initiated in the US Mortgage Market?The sky is falling, the sky is falling!!



I don't know, or care, that's why I'm hanging out in the "words%26amp;word play" section of Answers : P



you might what to ask in Gov. and Economics section.Moral Hazard and Current Financial Crisis Initiated in the US Mortgage Market?Blame Bush, he has spent a lot of money on wars, trying to take the resources from the countries in conflict. He sent his people to die for no reason, lots of american passed away as well as other countries' people.Maybe he feels pleasure about this cause he is still doing it. It's a shame.