The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

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From Big Bang Deregulation to Big Bailout 171 Europeans to support the American state bailout of American firms by launching a bailout of the American state by continental European states. On the contrary, the question that has to be asked is whether the German government is not doing too much towards the bank rescue, whether it is not over-rescuing, and bearing too large a share of the international bank rescue packages in comparison to the rescue of American banks. According to the figures given by Sinn, the USA is bearing a 32.1% share of bank rescue packages, whereas Germany is bearing a share of 14%, the second-largest rescue package of the USA. 36 In relation to the populations of both countries, the share of the German rescue package of 43.61%, against a German population of 82.310 million – which is just 27.57% of the population of the USA, which numbers 298.444 million people – is hugely disproportionate and, if anything, too high rather than too low, in view of the fact that the crisis started in the USA and its banks are affected to a far greater extent. Krugman must therefore be challenged as to whether his attacks are scholarship and not part of an effort inspired by American power politics to co-opt Germany into joining a more comprehensive bailout of failed American banks, into cross-subsidizing them, in fact. Such an effort would be doubly suspect because, prior to the crisis, the American banks had been making larger profits than the German banks – and here we are talking mainly about the public German regional banks – which were sold the CDOs that turned out to be distressed. 37 The superiority of the market as a coordination system does not, however, justify a policy of re-regulation of the finance industry, which would be detrimental to the financial markets in any situation. A further drawback of this policy is the lack of a pool of people equipped with superior knowledge to the financial industry’s existing staff and capable of implementing an optimal form of regulation. Politicians – unless they happen to be Minister-President of a German regional state – cannot run large businesses and states simultaneously. Regulation is only justified as a policy which is based on the assumption that markets, and not political direction, are the basic Mark, or nowadays the proverbial San Euro della Germania) and is unlikely to be the last. POSNER (2009), p. 285, talks about Krugman’s “orgy of recrimination against Wall Street”, but the Social Democrat Steinbrück can hardly be called a Wall Street man. 36 SINN (2009), p. 216. 37 Just as dubious, in its own way, is the German reproach leveled at Washington by no lesser dignitary than the head of the German Lutheran Church, Bishop Wolfgang Huber of Berlin, (cf. Wallstreet Journal Europe of 31 March 2009), who accuses Washington of letting the Lehman Brothers bankruptcy happen in September 2008 solely because the affected investors were mainly Germans, who were invested especially heavily in the bank, having been drawn by the German origin of the name Lehman. This same attribute would apply to Goldman Sachs, which was not left to go bankrupt. It seems a more likely explanation that the then US Treasury Secretary, Henry M. Paulson, who took the decision (term of office 3 July 2006 – 20 January 2009) was CEO of Goldman Sachs prior to his appointment to head up the US Treasury. This possible conflict of interest between his affiliation with Goldman Sachs and his duty of neutrality on competition as American minister of finance must at least set alarm bells ringing.
172 10 Disturbance of the Invisible Hand form of economic coordination; but that markets in certain particular situations, and only in these, mainly when they become irrational or exuberant, need support from the state and must get it from the state in accordance with the subsidiarity principle. After the American Financial Overstretch – Have We Reached the End of the Washington Consensus? The gigantic bailout of the financial system that emerged from the deregulatory Big Bang of the 1980s calls into question the foundations of a humane economic system, because it casts doubt on the relationship between work and reward and between work and liability 38 which underpins a capitalist system based on private property. Whitewashing over failure with state bailouts and rewarding bad financial services with high salaries and bonuses breach the fundamental tenet of capitalism that production factors are paid according to the added value they contribute. For the past two decades since the fall of the Berlin Wall in 1989, it was the Washington Consensus that gave direction to all the moves. But since the failure of radical deregulation and the bailout of the financial system in the aftermath, it is a consensus no more. Gordon Brown, Chancellor of the Exchequer of the United Kingdom from 1997 to 2007 (the height of the deregulation era) and British Prime Minister from 2007 to 2010, publicly stated in mid-March 2009 that the Washington Consensus no longer held good: “The 40-year-old prevalent orthodoxy known as the Washington Consensus in favour of free markets has come to an end.” He continued, “Laissez-faire has had its day. People on the centre-left and the progressive agenda should be confident enough to say that the old idea that the markets were efficient and could work things out by themselves are gone.” 39 From what the former Prime Minister says, the Washington Consensus encapsulated the view that markets are rational, markets provide perfect information, and markets are therefore as good as infallible. That consensus no longer exists. 38 PAUL KIRCHHOF: “Der Schaden der anderen. Unsere Wirtschaftskrise besteht darin, dass die Beteiligten für ihr Produkt und ihre Schuldner kaum noch verantwortlich sind. Eigentum kann es nur noch in begrenzter Freiheit geben” [The woes of others. Our economic crisis is that financiers have divested almost all responsibility for their products and debtors.], Frankfurter Allgemeine Zeitung,28May2009, No. 122, p. 31, discerns in the crisis a perversion of the principle of liberty: “Liberty is being used to harm others. But a right of liberty never justifies causing harm to others. The risk of structural irresponsibility is the core problem of our crisis scenario. The banker loses interest in the creditworthiness of the borrower, withdraws [via CDOs] from the responsibility for his original choice of debtor.” (Own translation). 39 GORDON BROWN, quoted in the article: “Kurswechsel in Großbritannien. Wetteifern um harte Regulierung” [U-turn in Great Britain. Vying for tough regulation], Frankfurter Allgemeine Zeitung, 18 March 2009, No. 65, p. 13, reporting comments made by Brown to the Guardian. The original comments can be found at: http://www.guardian.co.uk/politics/2009/mar/17/gordonbrown-recession-banking-regulation.
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THE ETHICS OF BANKING
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The Ethics of Banking Conclusions f
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Preface The crisis in the financial
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Introduction: Is the Finance Indust
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Introduction: Is the Finance Indust
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Contents Part I Foundations of Busi
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Contents xiii 6 The Ethical Economy
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Contents xv After the American Fina
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Part I Foundations of Business and
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Chapter 1 Ethical Economy, Economic
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The Justification of Ethical Duties
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The Justification of Ethical Duties
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Business Ethics and the Fiduciary D
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Part II The Ethical Economy and Fin
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Chapter 2 The Ethical Economy of th
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Purpose and Task of the Credit Mark
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Duties of Banks Arising from the Na
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The Globalization of the Capital Ma
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Values and Valuations in the Capita
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Which Values Should Determine the A
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On the Ethics of Financial Consulti
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Tasks of the Capital Market and Dut
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Tasks of the Capital Market and Dut
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Speculation and Finance Ethics 45 S
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The Functions of Speculation in the
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The Functions of Speculation in the
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Chapter 4 Insider Knowledge and Ins
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Insider Trading as Pseudo-Speculati
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Statutory Provisions Against Inside
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The Abuse of Insider Knowledge as a
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The Abuse of Insider Knowledge as a
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Ethical Duties of the Investor 67 a
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Ethical Duties of the Investor 69 a
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The Finance Ethics of Hostile and F
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Mergers and Acquisitions 75 On the
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Corporate Governance by Consensus a
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Futures and Options 85 They are str
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Variants of Derivatives 87 signific
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Variants of Derivatives 89 the law
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Variants of Derivatives 91 CDO synt
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Hedging and Speculation 93 insuranc
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Hedging and Speculation 95 average
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Chapter 7 Interdependences Between
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The Information and Influence Asymm
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Intangibility of Financial Products
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Intangibility of Financial Products
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Chapter 8 The “Banking Secret”,
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The Swiss “Banking Secret” 107
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Banking Secrecy, the Right to Priva
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Banking Secrecy, the Right to Priva
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Part III Financial Wagers, Hyper-Sp
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Chapter 9 Financial Wagers, Hyper-S
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Page 172 and 173: Easy Credit and the Hubris of the C
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Page 176 and 177: Credit and Credo, Economic Success
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Page 180 and 181: The Financial Market Crisis as a Cr
Page 182 and 183: The Financial Market Crisis as a Cr
Page 184 and 185: From Big Bang Deregulation to Big B
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Page 190 and 191: After the American Financial Overst
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Page 194 and 195: The Failure of Economics and Manage
Page 196 and 197: The Outsourcing of Asset Management
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Page 200 and 201: The Financial Crisis - Systems Cris
Page 206 and 207: The Way Out of Financial Crises 189
Page 214 and 215: References ALBERT,H.:Marktsoziologi
Page 216 and 217: References 199 CASPARI, K.-B.: “D
Page 218 and 219: References 201 HALDANE, A,A.TURNER
Page 220 and 221: References 203 KOSLOWSKI, P.: Ethik
Page 222 and 223: References 205 MESSNER,J.:Das Natur
Page 224 and 225: References 207 SCHMID, N.: “Insid
Page 226 and 227: References 209 WEBER, M.:Die Börse
Page 228 and 229: Name Index Note: Page numbers in it
Page 230 and 231: Name Index 213 N Naughton, M. J., 1
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