Moral hazards in financial system

Loans and the Housing Bubble Burst A moral fortune in economics is where someone scratchs a risk that they wouldnt normally take because they know that the consequences of that risk not paying off allow for be paid by somebody else. The issue we will be discussing will be the housing eruct burst and it relates to the topic because lenders took great risks lending bills to people that could not afford it knowing their banks were too fine-looking to fail and he government would have to bail them out.To begin this case we must first give a brief summary. After the dot. Com bubble burst of 2000 and the attacks on the US on September 11 the US economy was at a great risk of going into a recession. Central banks around the world including our federal reserve tried to come alive the economy by reducing interest rates. This made a dispense of people see the opportunity to guide money and they started taking on riskier investments like for example buying houses that they knew they couldnt afford hoping to flip it in a couple of years and make a great deal of money.Lenders maxim this as an opportunity to make money as well by lending all this money but they did It with high risk affirmative people with supreme credit that would normally never get authorise for these loans. Consumers kept this trend going and every year more and more supreme mortgages were being Initiated until 2006 when the housing bubble anally burst.The result was more foreclosures per year than had ever been seen before in the US and many lenders and hedge cash in hand having to declare bankruptcy or emergency government ball outs. moral hazards in financial system By caricaturing this as an opportunity to make money as well by lending all this money but they did it more supreme mortgages were being initiated until 2006 when the housing bubble need government bail outs.