Title: Financial Crisis and the Ethics of Moral Hazard
Abstract:The 2008 global financial crisis raises ethical as much as financial questions.Moral outrage centered on the imbalance between banks (too big to fail) profiting from excessive risk-taking in good time...The 2008 global financial crisis raises ethical as much as financial questions.Moral outrage centered on the imbalance between banks (too big to fail) profiting from excessive risk-taking in good times and taxpayers suffering the costs in bad times.The paper analyzes this imbalance in terms of ethical theory.It first develops a rights-based framework to answer questions about the moral obligations of states and banks towards each other.It then criticizes standard economic thinking, which de-moralizes the phenomenon of moral hazard.Moral hazard between states and banks arises in a context that cannot be interpreted as normal economic contracting, but should rather be characterized as governed by an implicit social contract giving rise to moral obligations.Read More