Financial Crisis and the Ethics of Moral Hazard

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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 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.
Original languageEnglish
Pages (from-to)527-551
JournalSocial Theory and Practice
Volume41
Issue number3
DOIs
Publication statusPublished - 2015

Keywords

  • financial crisis
  • banks
  • moral hazard
  • ethics of risk
  • social contract

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