The Sub-Prime Crisis: An Ethical Failure?

Abstract

Although the empirical research was confined to banking practices and ethical conduct in Australia and Hong Kong, there were distress signals emanating from the United States as early as the end of 2006 and mounting in intensity and frequency as 2007 unfolded, and these would have unforeseen ripple effects on the entire global banking system. The financial events that emanated from America offer a profound and disturbing insight into the conflicts of interest afflicting banks and other lenders. The troubles arose when numerous American homeowners were unable to repay their mortgage loans as interest rates escalated, thus prompting lenders to foreclose on their properties. These loans generally had attractive low rates at the outset but would adjust after a grace period to reflect market rates and the higher risk category of the borrowers, who unfortunately lacked the financial capability to repay larger amounts of debt.