Moral Hazard

In: Business and Management

Submitted By kushkiki
Words 1726
Pages 7
Banks have been at the forefront of the financial system for as long as they have existed and have captured the attention of stakeholders on both controversial grounds as well as being undisputed with regards to the many helpful services they provide. JP Morgan & Chase is one such bank, surrounded by hostile news articles and excessive scrutiny but rightfully so as it has of recent been the topic of much controversy as turning a blind eye to the moral codes established by the Securities and Exchange Commission (SEC) and assisting Ponzi Scheme masterminds in swindling unsuspecting investors.
On January 7th, 2014, JP Morgan was accused of assisting its high profile client of two decades, Bernard Madoff, a mastermind ponzi schemer in executing his goal of duping investors into parting with their savings worth a whopping $17.3billion of which included pension funds that belonged to JPM shareholders. The bank was fined a penalty of close to $2billion stemming from two felony violations of the Bank Secrecy Act, which is a federal law that requires banks to alert authorities to suspicious activity. The bank was further required to pay $543million in resolving private claims over losses tied to the scheme. A reported $9.5billion has been recovered whilst almost $4.9billion has been returned to investors. It can be agreed that this by far does not compensate for the losses the investors incurred. The Justice Department and Comptroller’s office is adamant that the JPM case is over and agree that further action will be warranted.
JP Morgan (JPM) however, faced a similar lawsuit in 2008 that accused the bank of assisting another ponzi scheme perpetrated by William Wise, who managed to defraud his customers sums of money worth between $68-$200millon, was dismissed on the grounds that JPM was…...

Similar Documents


...person should have the right to be a self-appointed moral guardian. Everyone has different morals and different aspects on life, if this would happen it would be a dictatorship basically. Every person in the universe is entitled to their opinions and should not have to be judged based off of their opinions. For instance, in “The Possibility of Evil”, Helen Crane has a six month baby girl and spoilers her because that is way Mrs. Crane wants her child to feel, but Miss. Strangeworth (a very opinionated old lady) does not think that her baby should be treated as a princess. By taking someone’s moralities away that person’s one individualism. People who do this are bullies and tyrants. Stephen Vizinczey articulates, ““Dictatorship is a constant lecture instructing you that your feelings, your thoughts and desires are of no account, that you are a nobody and must live as you are told by other people who desire and think for you.” Dictators are a form of a self-appointed moral guardian. They believe that they should be able to have full power of what people do, think and believe in. Totalitarians force people into accepting their morals and what they think what is right and wrong. When Hitler was in charge of Germany in 1939 got people believe that polish people were scum of the earth and people followed him. All in all, no one should have the right to choose what people have to have faith in. If we judge people by their morals or their aspects on life we will never really......

Words: 301 - Pages: 2


...Moral Education Assignment Topics 2012 1. Social service activity Organize a charity visit to an orphanage home, rehab center, old folks home, animal shelter or any welfare home. Write a full report on your visit. You must include charity itinerary and share your experience. You may include pictures, interview scripts with the Principal or any document which is relevant. 2. Bribery The problem of bribery exist and there has been attempt to curb it since the Melaka Sultanate period. Why is bribery an important issue? Write a report on the causes of this unethical conduct and how such problem can be resolved in our country, Malaysia. 3. HIV /AIDS As we are aware of, until now there is no cure for HIV infections and AIDS patients have to face death. Write a report on AIDS and explain the importance of protecting and not discriminating HIV/AIDS patients in our society. 4. Internet Internet misuse may cause harm and pollutes the mental growth of teenagers. Conduct a simple research on the disadvantages of internet for example addiction to social networking websites and the effect of this to users. 5. Bully issues Bullying has taken place for centuries where the stronger abuse the weaker. Write a report on the importance of overcoming bullying in schools. You may support your report with examples. (From newspaper cuttings, magazines, journals etc) 6. Family Institution In western countries, sending aged parents to retirement......

Words: 688 - Pages: 3

Moral Hazard

...But it is difficult to get from youth up a right training for virtue if one has not been brought up under right laws; for to live temperately and hardily is not pleasant to most people, especially when they are young. For this reason their nurture and occupations should be fixed by law; for they will not be painful when they have become customary. But it is surely not enough that when they are young they should get the right nurture and attention: since they must, even when they are grown up, practise and be habituated to them, we shall need laws for this as well, and generally speaking to cover the whole of life; for most people obey necessity rather than argument, and punishments rather than the sense of what is noble. (Aristotle, Nicomachean Ethics, Book X, chapter 10) This is a very important quote coming from Nicomachean Ethics, Book X, chapter 10, where Aristotle tries to explain that most young people don’t tend out of their own nature to act virtuous. But not because they don’t want to, but because they don’t know to act in this way. We need to train, drill, and educate the youth of this generation to act in a virtuous way. Aristotle believes children should be taught at all times whether at school or at home to act in the correct ways. When these children are young they need education and habituation, Aristotle preaches throughout Book X, chapter 10. Virtue naturally brings pleasure at virtuous acts, but its active exercise, as needed for happiness, depends......

Words: 438 - Pages: 2

Moral Hazard Insurance Moral hazard in insurance, value-based cost sharing, and the benefits of blissful ignorance Mark V. Pauly ∗ , Fredric E. Blavin Health Care Systems Department, The Wharton School, University of Pennsylvania, 3641 Locust Walk, Philadelphia, PA 19104-6218, United States a r t i c l e i n f o a b s t r a c t The conventional theory of optimal coinsurance rates for health insurance with moral hazard indicates that coinsurance should vary with the price responsiveness or price-elasticity of demand for different medical services. An alternative theory called “value-based cost sharing” indicates that coinsurance should be lower for services with higher (marginal) benefits relative to costs. This paper reconciles the two views. It shows that, if patient demands are based on correct information, optimal coinsurance is the same under either theory. If patient demands differ from informed demands, optimal coinsurance depends both on information imperfection and price responsiveness. Value-based cost sharing can be superior to providing information (even if the cost of information is minimal) when patient demands fall short of informed demands. An extended numerical example illustrates these points. © 2008 Published by Elsevier B.V. Article history: Received 17 August 2007 Received in revised form 20 June 2008 Accepted 8 July 2008 Available online 18 July 2008 JEL classification: I11 Keywords: Health insurance Moral hazard Value-based cost......

Words: 9082 - Pages: 37

Moral Hazard

...Moral Hazard Critical Thinking Essay Everyday people are faced with challenges, obstacles and important decisions. When forced to address these encounters, a system of options are present. When choosing which option to chose or path to follow, people ultimately have two absolute alternatives. First, people can chose to be moral and just in their tactic, or unfortunately, people may choose a more unethical approach. Regrettably, in today’s world the latter has and is occurring. This seemingly unfair, yet also unavoidable interaction is referred to as moral hazard. Moral hazard occurs when two parties are forming some sort of agreement, contract, etc. and there is a possible risk at hand. Although people normally would be cautious of these risks they are protected. Bluntly, moral hazard is when a party is protected in some way from risk and therefore chooses to act in a way that they normally would not if they were not protected from that risk. While moral hazard may seem to only affect the party who is ignorant of the other party’s protection, it can become a much larger issue with regard to financial markets. Therefore, many financial market observers are aware and cautious of this for a few reasons. When dealing with the financial markets, the issue of moral hazard specifically relates to the Federal Reserve. The Federal Reserve creates a “safety net” for companies in large financial markets. There are two opposing stances regarding this. While some argue......

Words: 1014 - Pages: 5

Moral Hazard and the Mortgage Industry

...Moral Hazard and the Mortgage Industry Moral hazard describes behavior when the party responsible for the interests of another party has an incentive to put its interests first (Dowd, 2009). The possibility of it increases when the party does not necessarily suffer the consequences of its actions and thus becomes susceptible to taking more risk because it knows it would be protected. An example of moral hazard is the subprime mortgage crisis, which preceded and “triggered” (Bernanke, 2012) the recent recession. To a great extent it was caused by excessive risk-taking by organizations “too big to fail”, meaning that “certain businesses are so important to an economy that disastrous consequences would result if they were allowed to fail” (Federal Reserve Bank of Kansas City). Before technological improvements would make it “relatively easy and cheap” (Wright, 2013) to transform illiquid financial assets as loans and mortgages through securitization and to sell them to investors, banks would approve mortgages with a goal of holding them until maturity. They would be carefully screening out possible delinquents and would aim to minimize their own risk and a prospective subprime borrower would not be considered. According to Dowd (2009), this “incentive is seriously weakened” if the bank (or any other financial institution such as a mortgage broker) is only originating the loan and collecting fees for it. The inherited risks involved in such practice are considerably higher......

Words: 776 - Pages: 4

Moral Hazard

...their importance and jeopardized the entire economy That's what Simon Johnson then explained by saying that 鄭nything that is too big to fail is too big to existサ, The main lesson of this crisis is that it's no longer possible to leave as much power in those institutions, indeed it's essential to reduce their size and their influence on the economy so that no futher institution can be ォtoo big to failサ B. How is this concept related to Moral Hazard? Moral Hazard occurs ォwhen a party insulated from risk behaves differently than it would behave if it were fully exposed to the riskサ. In that definition of moral hazard the idea of risk is very present, so we can easily see how this concept is related to the financial system and the banks. Indeed Moral hazard is the idea that banks could take unnecessary risks because they believe they池e too big to fail and would be bailed out in future crises. So moral hazard shows us how dangerous it is to have such important banks. Thus the solution is to reduce the Moral hazard and the only way to achieve that goal is to allow banks to fail but governments can't permit banks to fail because of their side. Thus in order to resolve that dilema we got to have smaller banks with less power so that if one bank fail the systemic risk will be reduce. And if the leaders and managements of banking institutions have to face the consequences of their actions like any other company we can assume that they will......

Words: 424 - Pages: 2


...Chapter 7 : Moral Issues 7. 1 The Environment 7. 2 Life 7. 3 Rearmament and War 7. 4 Business Ethics 7. 5 Sexuality and the Family 7. 6 Discrimination 7. 7 Freedom of Information 7. 8 Science and Technology Chapter Overview This chapter will discuss the contemporary moral issues. There are eight main sub-headings and examined in turn. Students may not only learn about moral facts, principles and theories, but also some important moral issues so that they will kept in phase with current issues in facing the challenge out there. This chapter also encourages students to ...

Words: 28274 - Pages: 114

Moral Hazard and the Mortgage Industry

...Moral Hazard and the Mortgage Industry Would you be more willing to sky dive if you knew you were invincible? Of course you would, who wouldn’t take that amazing trip if you knew you would live to tell about it. When there is little risk or threat of recourse, most would be more willing to take great risks, for the thrill, the riches, or just because they can. These situations can describe the theory of moral hazards. A moral hazard can be described as, when people with insurance take greater risks than they would do without it, because they know they are protected (Kansas City Fed, n.d.). This is exactly what led to the reckless behaviors mortgage brokers and banks took when the housing market shifted, ultimately leading to a financial crisis. This paper will further explore how the mortgage industry increased the moral hazard that contributed to the subsequent financial crisis. During the very early 2000’s the housing market was at an all time high. There was a rapid increase in individuals purchasing homes and home ownership rates increased from 64% in 1994 to 69% in 2005 (Tseng, 2009). Unfortunately with this shift, bankers and mortgage brokers realized there was a great deal of money to be made, and they all wanted their share. This greed is what many believe led to the financial crisis that occurred toward the later part of the decade. With any supply and demand curve, as individuals demanded to purchase homes, home prices increased. Although typically this may......

Words: 758 - Pages: 4

Moral Hazard

...Health Care Moral Hazard “Moral hazard is a term describing how behavior changes when people are insured against losses.” Moral hazard can be entered into all characteristics of life throughout a business in internal and external affairs. Before researching about Moral Hazard we had no idea what it pertained to besides the definition. It is a widespread problem that has been growing over the past decade. We chose a Moral Hazard in health care because we feel that it is a rising dangerous conflict in the United States. In this essay we will be presenting an argument about Moral Hazard in the Health Care profession. Although there are many to discuss we will only examine one. The argument we would like to make is people are using too much medical insurance, and that’s why our costs are becoming too high. What this means is we are accepting insurance that is worth more to us than we spend to obtain it. When we know if we can’t pay the amount of money back that someone else will be paying the bill, we will use more medical insurance because the amount of money to obtain it is far below the amount of the service itself. For example, if we go to the doctors the medical insurance will pay an amount to the doctor and we pay a co-payment way less than the actual amount. In the “moral hazard” case, we’re using care that costs more than it’s worth. It can be argued that the insurer is getting ripped off. The reason this is a concern for financial market observers is, the process......

Words: 1022 - Pages: 5


...MGT2396 - Occupational Health & Safety Assignment #4 - Find the Hazards Hazard #1 Describe the Hazard: There are various electrical wires hanging from the ceiling, one being an electrical outlet. These hanging wires are near various metal and wood beams, we can assume that these wires are live carrying an electrical current. What type of Hazard: Electrical safety. Possible outcome if left unaddressed: If the employees whom work for this company need to use the electrical outlets, they would need to use the ladder to access them as they are hanging from the ceiling. This causes danger as the metal latter and the employee would be perfect conductors for the electricity. The voltage of the electricity and the available electrical current has enough power to cause death by electrocution (Hazards). All electrical systems have the potential to cause harm. Electricity can be either static or dynamic. Dynamic electricity is the uniform motion of electrons through a conductor Conductors are materials that allow the movement of electricity, most metals and the human body are conductors (Warehouse Hazards). If this is hazard is unaddressed it could result in injury, fire and even death. When electrical current travels through our bodies, it can interfere with the normal electrical signals between the brain and our muscles. Hazard #2 Describe the Hazard: Wooden planks are being stored in the ceiling rafters, these wood planks are being held up by other wood......

Words: 903 - Pages: 4

Management Moral Hazard

...Management Moral Hazard and reason for Market Meltdown from 2007-2009: Earning management has been defined as the manipulation of reported earnings by management by using certain accounting methods or using other methods designed to influence short term earning. Moral hazard on the other hand occurs when one of the people involved in transaction does not enter into a contract in good faith. Moral hazard occurs in different fields such as Financial, insurance and management. In management, moral hazard may occur between the managers and the owners. Managers are employed to carry out business on behalf of the owner, but sometimes their interest on the business may differ. The owner’s goal is to maximize profits in order to increase his wealth while the manager’s interest is to increase his salary. Managers sometimes fail to act in the best interest of the shareholders due to lack of a personal stake in the firms well being. There are two common conflicting interests between the owner and the manager; compensation and project selection. Sometimes the managers receive compensation which does not have any incentive for them to avoid risky decisions, other times they are forced to make risky decisions if they are pushed too hard to increase the company’s profits. In such a case, companies have come up with executive compensation packages, these packages are connected to the performance of the company and come inform of bonuses included in......

Words: 268 - Pages: 2


...“Discuss the view that the impact of earthquake hazards depends primarily on human factors (40)”.  I agree to some extent about the statement above and that human factors can affect the impact of an earthquake hazard. A hazard is an object or process that has the potential to cause harm. Ground shaking, ground displacement and flooding are some of the hazards that are produced during an earthquake. In relation to the question above the type and severity of the impact can be affected by physical factors (such as the magnitude and frequency of the quake) as well as human factors (population density and education). I will be discussing the question using the following case studies, Sichuan, Indonesia and L’Aquila. On the 12th May 2008 an earthquake occurred at 2:28pm in Sichuan because the pressure resulting from the Indian plate colliding with the Eurasian was sent along the Longmenshan fault line that runs through Sichuan. The earthquake lasted 120 seconds and reached 7.9 on the Richter scale, one of the deadliest to strike China in recent years and its effects were felt as far away as Taiwan, Thailand and Bangladesh. Although the area has a long history of tectonic activity, it seems it was not prepared for an event of this magnitude. With a population consisting of 87.26m people the death toll stood at nearly 70 thousand along with 374,000 people injured and 5m left homeless. Making this Chinas worst earthquake since 1976 when 240,000 people were killed in Tangshan.......

Words: 1399 - Pages: 6

Hazard City: Earthquake Hazard

...GLG111 Lab 5 Exercise: Thank you, Ms. Leona Graham (mayor), for the opportunity to provide an assessment report for Hazard City. This report will provide an assessment on structural damage of an Intensity IX earthquake, and emergency housing needs. It will also identify actions homeowners can use to help prevent future structural damages, and give more information on possible effects of an Intensity IX earthquake. The assessment report will identify danger of a failing dam, and provide further understanding of the elements which will include an emergency plan. The table that follows is an assessment of the number of people needing emergency housing due to an Intensity IX earthquake. ResidentialNeighborhood | Percentage of HomesUninhabitable | Number of People Needing EmergencyHousing | Downtown | 70% | 70% of 1946= 1362 | Hickory Estates | 8% | 8% of 6412= 513 | Ralston | 8% | 8% of 640= 51 | Riverside | 90% | 90% of 438= 394 | Walnut Heights | 2% | 2% of 2457= 49 | Riverside is a mobile home community that is built on foundation consisting of sandy terrains which result in potential flooding. The mobile home community is located in the valley of the Palouse River. The population of this mobile home community is 438 residents. Due to mobile homes being entirely built of light-weight metal construction or a combination of a wood and steel frame structure, they are subject to greater damage from equivalent amounts of shaking than to......

Words: 1126 - Pages: 5

Moral Hazard

...Introduction Moral hazard arises when an entity protected from risk may behave differently than they would bear all the consequences of risk. Moral hazard increases because individual people and institutions do not assume the consequences of their actions and, therefore, tend to behave less careful than would be the case bear the full consequences. An example is the behavior of the driver of the car, which in the absence of insurance is driving more carefully and ensure that the car is parked in a safe place and, above all, remember to lock the car. A special case of moral hazard is the principal-agent issue, which concerns the relationship between the party ordering the actions (the principal) and the party that is actively executing an agreement (the agent). To perform the contract, the principal entrusts control of your property agent but does not control his behavior fully. This raises the asymmetry of information and the possibility of conflict if the agent will act in their interests, using the resources of principal. The most common example is an employer-employee relationship or owner-management company. In some corporations dispersed owners or shareholders are not able to effectively monitor management actions because managers face the temptation to strive for rapid improvements in business performance and payment of wages at the expense of their development in future years Olympus Case Olympus story begins with the common problems we face the Japanese managers...

Words: 871 - Pages: 4

Communication - 3368 Words | Kapitan Bomba | IMDb: 7 HD The Great Gatsby