An Investment Lawyer Protects You from Moral Hazard
An Investment Lawyer Protects You from Moral Hazard
The recent economic collapse left a number of people in dire straights as they lost the savings of their lives. The buzzword that emerged out of the collapse was Moral Hazard and why a competent investment lawyer is needed to protect you from moral hazard.
You should first understand what the term Moral Hazard means. A Moral Hazard occurs when a person who is safe from a risk works in a manner different than the one in which he would have worked had he been fully exposed to the risk. As defined By the well known economist Paul Krugman, "A moral hazard is any situation in which one person takes the decision about how much risk to take, while someone else bears the cost if things go badly."
The history is littered with various instances where lending institutions have been bailed out by governments, central banks or other institutions. When the officials of institutions form an opinion that they will be bailed out by someone else if they run into trouble then they start taking more risks. The sub prime mortgage crisis that occurred a few years back in United States is a classic example of moral hazard. The lending companies were working on the opinion that if they grow really big, really fast, they will become too big to fail! As a result, the entire thing ended up in a complete mess and a huge number of investors lost their money.
At its basic level, moral hazard comes because of the lack of accountability. The main task of the Investment Lawyer is to make people accountable for their actions. Despite the best efforts of regulatory and professional bodies like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), there are cases of securities fraud, insider trading and stock manipulation, all of which result in consider loss to investors, both retail and institutional. Billions of dollars were wiped out when the dot com bubble burst, billions more were lost when the housing bubble burst!
The investment lawyer helps investors recover what they have lost and also make sure that no such thing ever occurs again. For this they perform pre-investment advisory and analysis functions. They translate the complex financial and legal jargon of investment instruments to language that other people can understand. The investment lawyer will perform all the necessary due diligence that is required to understand the credit standing and other requisites before the client makes an actual investment.
Despite all this if an investment fraud does occur, the investment lawyer will represent the aggrieved party in a court of law. Today, people live in a fast-paced and extremely complex global economy. The investment lawyer acts as a trusted and reliable voice and eye for investors. The investment lawyer is dedicated to keeping the markets fair and pro actively addressing any issues before they may cause any harm to investors or the markets.
It is necessary for any investor to have at least the basic services of an investment lawyer!
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