Since financial institutions are effectively seasoned and equipped to weigh risks and attach a price to these risks, Countrywide should have reduced the information symmetry between market prices. It should not have increased loan incentives like easy initial terms and long-term increasing housing costs, which prompted borrowers to assume difficult mortgages, believing they were in a position to fast refinance at more favorable terms (Thompson, 2008). Consequently, Countrywide was supposed to act in a manner that produced the greatest amount of happiness for the greatest amount of people for it to have acted morally.
There was a need for Countrywide to effectively investigate the shadow banks that masked their leverage levels from investors and regulators by using multifaceted, off-balance sheet derivatives and securitizations. The financial institutions should have been reorganized and their lending capacity should have been investigated thoroughly. All the financial institutions involved in this mortgage project should have been examined to make sure that they had adequate financial cushion to absorb large loan defaults (Christopher, 2006). Additionally, it would have been logical to provide professional guidance and intellectual leadership to the borrowers and everyone involved in the mortgaging deal to ensure that everyone was guided with everlasting ideas like trust, honor, dignity, virtue, and the common good.
Furthermore, Countrywide should have exercised proper diligence and have sufficient appreciation of the risks of all market participants. It should have ensured that strong and effective underwriting standards were used in all transactions and that there were sound risk management practices in the process to prevent the borrowers and everyone else from experiencing the major losses they experienced, which finally led to the crisis. Additionally, regulators and supervisors should have addressed the risks that were setting in within financial markets and considered the systematic implications of domestic regulatory actions and hence, they should have implemented counteractive actions to counter the effects of the regulatory actions. The mortgage process should have been put under strict accountability since ethical policy obligates that all business accounts must be screened appropriately to avoid unwarranted losses (Thompson, 2008).
Countrywide breached its ethical obligations in that it utilized a bait-and-switch system, advertised low interest rates for refinancing loans, and also in that that loans were written into expansively detailed contracts and then were swapped for more costly loan products at closing. Basically, an advertisement may indicate that 1 percent or 1.5 percent interest would be charged (Christopher, 2006). As a result, a customer is placed into an amendable rate mortgage and this allows homeowners to make interest-only payments, yet the interest that is charged is more that the total sum of the interest that is paid. Evidently, this disparity would lead to negative paying off, which the homeowner may not detect until long after the loan transaction has been completed. Ethically, it is evident that Countrywide used the business practice that treats individuals purely as means to an end, which is a predatory lending practice. Such practices display principles of human dignity whenever they mislead, manipulate or treat people without any moral respect.
The government should have instilled various regulatory mechanisms, such as nationalizing main banks and setting up rules, to protect investors as well as financial institutions from systematic risk. On the other hand, Countrywide should have enforced constraints on executive compensation with the aim of rewarding long-term performance instead of the disproportionate risk-taking, setting up resolution mechanisms to handle liabilities of failed financial institutions and hedge bands as well as obligating that the standardized derivative contracts were to be traded on regulated exchanges. In addition, Countrywide should have established agreements with the homeowners basing on authentic trust instead of disingenuous transactions; the mortgage interactions could have had a broader and more virtuous role. The deeply human-centered conception of business should be rooted in moral ethics.