Section Days abstract book 2010.indd - RUB Research School ...

FINANCIAL RISK AND RESPONSIBILITY
Simone Heinemann
Institute of Philosophy, Chair of Applied Ethics; Ruhr-Universität Bochum, 44780
Bochum, Germany
e-mail: simone.heinemann@rub.de
Previous philosophical studies on risk have focused primarily on technical, ecological and
medical risks. Very little attention has been given to the question of how to deal with financial
risk from an ethical perspective. Who is responsible for the risks generated on financial
markets? Which aggregate level of financial risk does the community or society have to bear?
These questions have particular ethical relevance – especially in times of the current financial
crisis: Recent months have seen a flood of losses reported by banks, corporations, state and
local governments that took a chance on risk. Such cases symbolize the hazards financial
instruments – especially derivatives – can pose to the financial health of those who trade in
them. If that prospect were not cause enough for concern, derivatives speculation poses an
ethical problem by increasing the level of risk in the portfolios of those to which (mostly risk
aversive) depositors, investors, and pensioners entrust their savings. As empirical evidence
implies, increasing risk rather than reducing it may have a destabilizing impact by spreading
to the real economy, negatively affecting economic activity (employment, income level, etc.).
Consequently, the ones speculating in financial markets aren´t necessarily the ones bearing
the costs incurred.
The dissertation deals with an important policy issue concerning financial derivatives, which
have been involved in most of the recent financial debacles. 1 Derivatives are a particular kind
of tradable contract. Their trade value is tied to the value of other assets, historically
commodities but also corporate shares, currencies, interest rates, etc. Most importantly
derivatives can be used in two different ways against the unpredictable elements of chance
that affect these forms of fluctuating financial risk: They can either be employed to minimize
losses from fluctuations in the underlying asset by hedging or they can be used to speculate on
fluctuations hoping for considerable gains, but thereby maximizing the potential loss. 2 The
derivatives market’s notional value today is estimated at over $614 trillion (compared to $220
trillion in 2004) 3 – amounting to about $100,000 in derivatives contracts for every person on
the planet. Such developments highlight the importance of understanding the risks inherent in
derivatives as well as their effects on society.
1
Cp. Stout, Lynn A.: How Deregulating Derivatives Led to Disaster, and Why Re-Regulating Them Can Prevent
Another. In: Lombard Street 1, 7 (06.07.2009), pp. 4-9.
2
Cp. Dubina, Daniel E. / Unger, David L.: Derivatives: How To Monitor the Risk. In: Outlook 63, 1 (1995), pp.
24-28, p. 2.
3
Cp. Bank for International Settlements: Semiannual OTC Derivatives Statistics in December 2009, Amounts
Outstanding of Over-the-Counter (OTC) Derivatives. In: BIS Quaterly Review (Dec. 2009),
http://www.bis.org/statistics/otcder/dt1920a.pdf (21.10.10).