Financial system and ethical challenges

Won-Yong Oh

Chapter 2 in Market Capitalism and Social Responsibility, 2026, pp 21-38 from Edward Elgar Publishing

Abstract: This chapter examines the paradoxical role of the financial system, focusing on credit creation, financialization, and recurring crises. Banks expand the money supply through lending beyond deposits, stimulating growth but also fueling bubbles and instability. Credit creation enhances investment and productivity yet can generate asset inequality and moral hazards, particularly under “Too Big to Fail” structures. Financialization intensifies reliance on asset-based wealth, encouraging practices such as share buybacks and speculative investment, which prioritize short-term gains over long-term competitiveness. The leverage cycle illustrates how expanding credit and rising asset prices reinforce each other, but collapse leads to contraction and crisis. Historical episodes, from the Great Depression to the 2008 global financial crisis, highlight the cyclical nature of instability. Ultimately, credit creation is both an engine of growth and a driver of inequality, raising profound ethical and social justice concerns.

Keywords: Credit Creation; Financialization; Asset Price Bubbles; Inequality; Moral Hazard; Financial Crises (search for similar items in EconPapers)
Date: 2026
ISBN: 9781049409207
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