Moral Hazard and the Financial Crisis Research Paper

Moral Hazard and the Financial Crisis - Research Paper Example In the present business phenomenon, moral hazards have emerged as a major issue of concern which needs enthusiastic initiatives to develop awareness among the industry participants. Moral hazards normally occur when people file more claims or stick longer to a particular claim irrespective of the consequences likely to occur due to such perseverance causing massive disruptions to the smooth functioning of the industry operations (Butler and Gardner 1). Contextually, it has often been argued that moral hazards have been one of the fundamental reasons for the recent financial crisis where various operations conducted by the financial institutions were observed to disregard their ethical responsibilities towards the various community groups. As stated by Dowd (1), policy measures adopted by financial institutions practicing free markets were the underlying causes to the financial crisis witnessed in 2008. Based on this context, the paper will intend to discuss the moral issues related w ith the occurrence of the financial crisis in 2008 signifying the importance of ethical concerns when designing and implementing policy measures at a country-level. Theoretical Explanation of Moral Hazards as a Cause of Financial Crisis Moral hazards are said to occur when the interests and rights of one party is compromised for the benefits or interests of the other party(s) engaged in the process In the current day context, critiques often argue that moral hazards have today become a persistent and unavoidable occurrence in the financial system of any country that in turn severely affects the stability of any economy. It is worth mentioning in this context that moral hazards are the apparent consequences of intentional or unintentional ethical misconducts by decision makers associated with the various business dimensions. However, in common instances, unethical behaviors conducted at the organizational level by company executive are scrutinized for the critical assessment of the f inancial and social positioning of a particular brand. Although in the context, ethical misconducts may also occur at country level policies fundamentally those which are directed with the intention to manage industry operations in monetary terms (Nowak and O’Sullivan 147-150). In the country-level assessment, occurrences of moral hazards have often been considered to play a prominent role in financial crisis situations. Historic evidences have also revealed that moral hazards within the policy making dimension have caused serious disruptions in the regular business functioning in a particular economy (Isard 193-200). These evidences can be further assessed from two perspectives, i.e. the social perspective of moral hazards and the economist perspective of moral hazards. From a social perspective, moral hazards are criticized as the fundamental causes of systematic risks in the business context. It is in this context that socialists have often depicted their concern towards t he role played by moral hazards in causing industrial threats for systematic risks which is recognized as an initial