Greed, Capitalism and the Financial Crisis

Steven Suranovic

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: As the world entered and suffered through the recent Great Recession, certainly the worst economic slowdown in a generation, people naturally asked: what went wrong? Although many answers have been suggested, one thing many observers point to is the decisive role played by unmitigated greed. Greed by the managers of financial institutions led to easy loans with little to no down payments. Greed by homeowners led to purchases of houses they couldnt afford. Greed on Wall Street led to the creation of clever new financial instruments like mortgage-backed securities and credit default swaps. Greed by CEOs led to corporate extravagances and ridiculously high executive compensation packages. Greed by consumers led to excessive use of credit cards to buy things now, rather than wait till they earned the money to pay for it. Greed by companies led to offshoring and the substitution of lower cost foreign labor for higher cost domestic labor. John Steele Gordon, author of a book on financial history wrote there is no doubt at all about how we got into this mess. Greed, as it periodically does when traders and bankers forget the lessons of the past, clouded judgments. Ralph Nader said pure greed was clearly the cause of the crisis. Dr John Sentamu, the Archbishop of York, attacked exploitative money lenders who pursued "ruthless gain" and urged banks not to "enrich themselves at their poor neighbours' expense". Pope Benedict in his 2008 Christmas message said, if people look only to their own interests, our world will certainly fall apart. The Dalai Lama asked, what is the real cause of this sort of economic crisis? His answer: Too much speculation and ultimately greed. Steven Pearlstein noted in October 2008 that a clip search of major publications during the previous month turned up about 2,700 stories that contained the words "Wall Street" and "greed." One month earlier there were less than 200.

Pages: 17 pages
Date: 2009-09
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