Capitalism, Ethics, and
the Financial Crash
In the wake of financial crashes, most postmortems tend to focus on poorly designed economic or regulatory systems. Explanations of the great crash of 2008 have been no exception, and we are all now familiar with such causes of the meltdown as cheap money, lax government watchdogs, and shady financial engineering. Inevitably, as well, there is a fair bit of moralizing that follows periods of greed and speculation, and this time around has been no different. Wall Street figures such as Richard Fuld have been demonized, and the investment bank Goldman Sachs has been cast as something of an evil empire. Also demonized have been over-leveraged Americans who bought homes that they can’t afford and the front-line mortgage brokers who signed people up for mortgage time bombs.
What has been missing, though, is a more serious probe into how the ethical climate emerged that fostered and legitimized all the bad behavior that led to the crash. This is no small gap in our understanding. If it is true that the crash can be traced as much to a decline in ethics as to any other cause, then it suggests that even the most ambitious regulatory reforms will not prevent future crises. Instead, we’ll have to deal more fundamentally with those factors that are responsible for a deterioration in ethics.
This is not as hard it sounds. Because, as it happens, any probe into what’s wrong with America’s ethics leads inevitably back to familiar terrain related to the overreach of markets and the failures of regulation. Recent scandals illuminate a growing conflict between market values and human values. Indeed, the great moral struggle today is not between traditionalism and modernism, or between faith and secularism—the