Abstract
In this chapter we agree that greed is certainly an important element in understanding the financial crisis of 2008–2009, but ending the analysis by citing greed as the cause is too simplistic. The fact that people refused to recognize and in some cases even seemed to endorse conflicts of interest is especially troubling. Even more troubling is the fact that some people and some financial institutions abused information asymmetry and deliberately sold products to an unsuspecting public-products that they had reason to believe would fail. Thus we moved from greed-a vice- to conflict of interest, deception and fraud that are unethical and illegal. How did this happen? Our larger thesis is that this happened because people forgot that self–interest must be constrained and it happened because many financial institutions and the individuals who managed them lost sight of the larger purpose of business in general and of financial institutions in particular.
Some turn every quality or art into a means of getting wealth; this they conceive to be the end, and to the promotion of the end they think all things must contribute.
–Aristotle, Politics, Bk. 1, Ch. 9.1258a13-14
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Notes
- 1.
Schenk, Robert. htpp://ingrimayne.com/econ/Financial/Overview%ma.html
- 2.
All three Stiglitz quotations in this paragraph are from Stiglitz, Joseph E. (1993). “The Role of the State in Financial Markets,” Proceedings of the World Bank Annual Conference on Development Economics, 21.
- 3.
Duska, Ronald. (2007). “The Why’s of Business Revisited” in Contemporary Reflections on Business Ethics. Dordrecht: Springer.
- 4.
Partnoy, Frank. (2003). Infectious Greed. New York: Henry Holt and Co., 184.
- 5.
Ibid., 19, ft nt. 24.
- 6.
Ibid., 53.
- 7.
Jaramillo-Vallejo, Jaime. (1993). Comment on “The Role of the State in Financial Markets,” By Stiglitz, Proceedings of the World Bank Annual Conference on Development: Economics Supplement (Washington, DC) Downloaded from http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1994/03/01/00265_3970702134931/Rendered/INDEX/multi_page.txt, February 25, 2012.
- 8.
Bank for International Settlements BIS 77th Annual Report June 2007. Downloaded from http://www.bis.org/publ/arpdf/ar2007e.htm, February 25, 2012.
- 9.
Brown, Dr. Ellen “Credit Default Swaps: Evolving Financial Meltdown and Derivative Disaster Du Jour,” Global Research April 11, 2008 Downloaded from http://www.globalresearch.ca/index.php?context=va&aid=8634, February 25, 2012.
- 10.
Buffett, Warren. (2002). Berkshire Hathaway Annual Report.
- 11.
We would suggest that in this matter we can see similarities between the twentieth century philosopher Ludwig Wittgenstein and Aristotle. Two central claims for which Wittgenstein is famous are the claim that “The meaning is the use” and the claim that there are “forms of life” which constitute sociological relationships. According to Wittgenstein, we know what something is by knowing its use—what it is for, and that use constitutes a “form of life”. Max Weber, in Christianity and the Spirit of Capitalism, talks about the spirit of capitalism as being an ever renewed search for profit. To tie these notions of Weber and Wittgenstein together, let us suggest that such a spirit (Geist) as Weber refers to constitutes for Wittgenstein a “form of life”. The identification of form (formal cause) and purpose (final cause) is not only manifested in amorphous social organizations, it is also manifested in individual human beings. A person’s purpose or ends are, in a sense, his or her soul, since those ends define what the person is. A person’s mission (a collection of his or her ends) is the result of the person’s commitments to particular projects and ideas. The mission one chooses defines their identity in a more meaningful manner than a description of their aggregate physical characteristics.
- 12.
Smith, Adam, An Enquiry into the Nature and Causes of The Wealth of Nations, I, ii, 2. Hereinafter referred to as WN.
- 13.
Smith, ibid.
- 14.
Weber, Max. (1958). The Protestant Ethic and the Spirit of Capitalism. New York: Scribners, 17.
- 15.
Aristotle, Politics, Book I, Ch. 9, 1258a.
- 16.
- 17.
- 18.
Morgenson, Gretchen and Louise Story. (2010). “Clients Worried About Goldman’s Dueling Goals,” New York Times, May 18.
- 19.
http://www.scribd.com/doc/30032645/Goldman-Sachs-complaint, April 16, 2010 11:22 EDT. For more on this we recommend three books: The Big Short, by Michael Lewis; Reckless Endangerment, by Gretchen Morgenson and Joshua Rosner; and Money and Power, by William D. Cohan, among others.
- 20.
- 21.
- 22.
WN, IV, ix, 51.
- 23.
Downes, John and Jordan Elliot Goodman. (1985). Dictionary of Finance and Investment Terms (Barron’s Finance and Investment Handbook). Woodbury: Barron’s, 148.
- 24.
Ibid., 174.
- 25.
Ibid., 175.
- 26.
Ibid., 352.
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Bowie, N.E. (2013). Ethics in Financial Services: Systems and Individuals. In: Business Ethics in the 21st Century. Issues in Business Ethics, vol 39. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-6223-7_9
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