Personal Ethics & the U.S. Financial Collapse of 2007-08

The seeds for the 2007-09 financial collapse were sewn over many years and nurtured by ill-advised governmental housing policy, the presence of pervasive fraud both large and small and the widespread failure of personal integrity. A chronology of bad choices made by individuals and the daisy-chain of complicit truth-bending and fraud at many levels of the mortgage loan origination and securitization food-chain is presented. This paper contributes to the accounting, banking, business and personal ethics, economic, mortgage lending, regulatory and policy making literature in several ways. First, it identifies about 20 different precipitating causes scholars have attributed as being responsible for the financial crisis. Second, this paper identifies about another 20 categories in the economic flow-chart of mortgage lending and securitization where fraud and facilitating payments of some sort constitute a lapse in personal ethics that contributes to the crisis. Next is a discussion of how governmental policy and lack of prosecutions may set the stage for a future replay of the 2007-08 experience. Finally, a discussion is presented of how psychology and behavioral science may help us to better understand the pattern of bad choices by individuals that caused so much economic loss and personal suffering