Introduction to the Special Issue on “Ethics, Global Finance and the Great Recession” (original) (raw)
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The global financial crisis raises ethical as much as financial questions. During the crisis, much public anger was centered on the imbalance between those profiting from excessive risk-taking in good times (banks) and those suffering the costs of that behavior in bad times (taxpayers). This phenomenon will be analyzes in terms of ethical theory in this paper. The focus is on both sides of the state–bank relationship and contains two central questions. First, do states have a moral obligation to bail out banks? Second, do banks have a moral obligation to prevent states from having to bail them out? The paper develops a rights-based framework to answer these questions. The first question is answered affirmatively. The second question is more difficult. A ‘standard argument’ about insurance holds that moral hazard is not a moral, but a purely economic problem, which can be solved through economic means. This would lead to the conclusion that banks do not have a moral obligation to prevent bailouts. I will criticize this standard argument and show that we have to think differently about moral hazard. The crux is that moral hazard arises between states and banks in the context not dictated by normal economic contracting, but best characterized as a social contract. As a consequence banks do have obligations to honor the terms of that social contract. The final part discusses how we can think about the justification of the implicit terms of the social contract in the run up to the financial crisis.
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In this contribution, I begin with the Luhmannian, sociological approach to ethics as a reflexive theory of morality. Ethics as reflexive theory is a key theoretical issue to systematise the lessons derived from the financial crisis with regard to the relationship between cognitive and normative expectations for both individuals and systems (Section II). In this framework, highly fixed normative expectations tend to over-impose a simplistic whether-or-not model of selection on cognitively-driven social systems whose basic decisional structure relies on a somewhat contingent either-or model of selectivity. The unreflexive pressure of the norm upon the complexity and contingency of the world leads to crises (Section III). This can be analysed in the case of the financial crisis by considering, first, the complexly inter-connected cognitive structure to manage uncertainties, risks and opportunities developed by the financial system (Section IV), and, second, by taking into account how the highly-fixed normative political expectation of an “affordable home” for non-creditworthy clients triggered a generalised operational illiquidity in the system and caused the subprime mortgage crisis (Section V). A first lesson from this problematical setting is that, in spite of complex risk management structures and multi-layered calculability procedures, the financial system, as a cognitively driven system, operates always close to the edge, that means beyond any certainty of future events (Section VI). A second lesson deals with the conflictive relationship between normative and cognitive expectations in modern society. By elaborating on Luhmman’s approach to ethics as a reflexive theory, I argue that an ethic of contingency may contribute either to a cognitive openness of the norm to the contingency of the world, or to prevent the normativisation of cognitive expectations in cognitively driven systems (Section VII). Finally, I present some concluding remarks (Section VIII).
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It has often been said that the financial crisis in which the world economy has been immersed since mid-2007 is an ethical crisis. By studying the behavior of the agents who made the decisions that led to the crisis, we do find evidences of many unethical mistakes. But bad conducts were also present before the crisis and in countries not affected by it: the fact that the crisis has an ethical dimension does not mean that this is its only cause. In this paper, we argue that this crisis is a crisis of leadership or governance in a wide range of institutions, and this, in turn, reflects the failure of an economic and social model grounded on certain anthropological and ethical assumptions, and it is these assumptions that have failed.
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In this paper, I discuss how a Working group on ethics dealt with the question whether the collapse of the Icelandic banks and related financial setbacks can to some extent be explained by morality and work practice. I describe how the Working group delineated its subject matter by evaluating practice in the financial sector, the administration, the political sector and the social or cultural sector. I demonstrate the approach used by the Working group by discussing some important examples which throw light on some aspects of its manifold analyses. The examples show how different aspects of morality are of importance in an analysis of the events that took place.