Moral Bankruptcy
Moral Bankruptcy
Image by elycefeliz
motherjones.com/politics/2010/01/joseph-stiglitz-wall-str…
— By Joseph E. Stiglitz
IT IS SAID THAT A NEAR-DEATH experience forces one to reevaluate priorities and values. The global economy has just escaped a near-death experience. The crisis exposed the flaws in the prevailing economic model, but it also exposed flaws in our society. Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed—a deficit that is larger, and harder to correct.
One of the lessons of this crisis is that there is a need for collective action, that there is a role for government. But there are others. We allowed markets to blindly shape our economy, but in doing so, they also shaped our society. We should take this opportunity to ask: Are we sure that the way that they have been molding us is what we want? We have created a society in which materialism overwhelms moral commitment, in which the rapid growth that we have achieved is not sustainable environmentally or socially, in which we do not act together to address our common needs. Market fundamentalism has eroded any sense of community and has led to rampant exploitation of unwary and unprotected individuals. There has been an erosion of trust—and not just in our financial institutions. It is not too late to close these fissures.
. . . The investment bankers would like us to believe that they were deceived by the people who sold them the mortgages. But if there was deception, they were part of it: They encouraged the mortgage originators to go into the risky subprime market, because it generated the high returns they sought. It is possible that a few bankers didn’t know what they were doing, but they are guilty then of a different crime, that of misrepresentation, claiming that they knew about risk when clearly they did not. Exaggerating the virtues of one’s wares or claiming greater competency than the evidence warrants is something that one might have expected from many businesses. Far harder to forgive is the moral depravity—the financial sector’s exploitation of poor and middle-class Americans. Our financial system discovered that there was money at the bottom of the pyramid and did everything possible to move it toward the top. We are still debating why the regulators didn’t stop this. But shouldn’t the question also have been: Didn’t those engaging in these practices have any moral compunction? . . Consider, too, that the business community spends large amounts of money trying to create legislation that allows it to engage in nefarious practices. The financial sector worked hard to stop predatory lending laws, to gut state consumer protection laws, and to ensure that the federal government’s ever laxer standards overrode state regulators. Their ideal scenario, it seems, is to have the kind of regulation that doesn’t prevent them from doing anything, but allows them to say, in case of any problems, that they assumed everything was okay—because it was done within the law.
. . . The country as a whole has been living beyond its means. There will have to be some adjustment. And someone will have to pick up the tab for the bank bailouts. With real median household income already down some 4 percent between 2000 and 2008, the brunt of the adjustment must come from those at the top who have garnered for themselves so much over the past three decades, and from the financial sector, which has imposed such high costs on the rest of society. But the politics of this will not be easy. The financial sector is reluctant to own up to its failings. Part of moral behavior and individual responsibility is to accept blame when it is due. Yet bankers have repeatedly worked hard to shift blame to others, including to those they victimized. In today’s financial markets, almost everyone claims innocence. They were all just doing their jobs. There was individualism, but no individual responsibility.
. . . The failures in our financial system are emblematic of broader failures in our economic system and our society. That there will be changes as a result of the crisis is certain. The question is, will they be in the right direction? Over the past decade, we have altered not only our institutions—encouraging ever more bigness in finance—but the very rules of capitalism. We have announced that for favored institutions there is to be little or no market discipline. We have created an ersatz capitalism, socializing losses as we privatize gains, a system with unclear rules, but with a predictable outcome: future crises, undue risk-taking at the public expense, and greater inefficiency.