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

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Purpose and Task of the Credit Market 21 resources available at normal or high risk for their lending business. Banks must mediate risk on behalf of their deposit customers who are their indirect lenders-, and they must mediate risk on behalf of their credit customers, their debtors or borrowers. Schuldverhältnisse: Relationships of Schuld, of Guilt, Debt, or Obligation. Excursus with Reference to an Equivocation in the German Language In contrast to the English language, German uses the same word for guilt, debt, and obligation. All are denoted by Schuld. In German, the law of obligations is called the “Recht der Schuldverhältnisse” (“law of relationships of guilt, debt, obligation”). The fact that Schuld is synonymous with guilt, debt, and obligation causes some interesting equivocations in the German language. An obligation refers to every legal relationship or relationship of exchange that entitles a party – the creditor, the vendor, the child or parent and ultimately the state, to demand performance – which may also take the form of an act of omission – from the other party – the debtor, purchaser, parent or child, and ultimately the citizen. Obligations arise from relationships of exchange. Entry into a relationship of exchange and the voluntary consent to an exchange thereby given are the basis of an obligation, be it legally formalized or not. Legal obligations (or Schuldverhältnisse, relationships of guilt, debt, obligation,) are the basis for a certain class of obligations, namely those which are adjudicable or justiciable, meaning enforceable through the courts. According to the German Civil Code (Bürgerliches Gesetzbuch, BGB), obligations in German civil law arise from legal transactions, torts or special provisions (Section 241 BGB). The law of obligations formalizes the law governing such relationships and comprises the legal provisions regulating the formation, the detailed terms and conditions, and the fulfillment of obligations between parties. In German law, the law of obligations is contained in Book II of the Civil Code (Sections 241, 853) and is distinct from property law and from family law and the law of inheritance. The freedom of those involved to conclude and arrange their relationships of obligation, or the contractual freedom of the contracting parties, forms the foundation of the law of obligations. Austrian law regulates the law of obligations as “personal property law” (persönliches Sachenrecht; Sections 859 & 1341 ABGB), whereas in German law, property law governing ownership and possession is separated from the law of obligations as personal law. Swiss law in contrast to German and Austrian law does not use the term Schuldverhältnisse but Obligationen and deals with the law on obligations under the Swiss Code of Obligations. 3 The Swiss legal terminology is distinctive in 3 Cf. articles on “Schuldrecht (Recht der Schuldverhältnisse)” [Law of obligations] and “Schuldverhältnis” [Obligation], “Schuld” [Guilt], and “Verschulden” [Fault], in: Der Brockhaus, computer version, Mannheim (Bibliographisches Institut & F.A. Brockhaus) 2002.
22 2 The Ethical Economy of the Credit Market making use of the concept of Obligation for the obligation or duty arising from a legal transaction, probably reflecting the stronger influence from French civil law, rather than the concept of Schuld used in Germany and Austria, which can also be morally laden. The German and Austrian legal tradition follows a blanket concept of Schuld without a phonetic distinction between the sense of debt or dette (French for debt) on the one hand, and guilt or culpabilité (French for guilt) on the other, and applies the category of Schuld not only to civil law but also to criminal law and morality. Likewise, there is no distinction in Italian and Latin between debito/debitum as an obligation or as a debt; nevertheless, these languages clearly differentiate between obligation as debt, debito/debitum on the one hand, and moral culpability, colpa/culpa on the other. The broadness of the Schuld concept in German has implications for the definition of the term in the German discourse. Schuld is 1) in civil law, the bindingness of the obligee’s commitment to render some service (by doing something or by refraining from doing something) based on a relationship of obligation; 2) in penal law and in ethics, reproachability as an evaluation of human behavior (fault). Of course, a Schuld/dette/debt in civil law can also entail Schuld/culpabilité/guilt in penal law. By the same token, Schuld/culpabilité/guilt in penal law may be associated with a civil law Schuld/dette/debt by way of a compensation payment. The civil law Schuld or obligation and the penal law and moral Schuld or culpability are linked, linguistically and materially, but are not identical. A legal subject is accountable for an obligation because he or she is the cause of it; furthermore, the legal subject is guilty if he or she is not merely a neutral cause but if some reproach also attaches to this causal status because the subject’s causative action comes into the category of morally and legally reproachable actions. Debts are not morally reproachable in themselves. In economic terms, to enlarge the actor’s scope for action as an investor they are not only useful but frequently imperative. Only in the event of over-indebtedness, when the debtor can no longer bear the burden of interest and can no longer service or repay the debt, do they become a legal or a moral problem. The Verschulden (fault) in the sense of the cause of the exchange that leads to an obligation, and the Schuldverhältnis (obligation) that arises from that fault, are not just linguistically associated. The linguistic relationship between Verschulden as fault, Schuld as culpability and Schulden as debt, the outcome of a loan transaction, is also a material one. Not every fault and every debt is a basis for culpability, but culpability always has some connection with fault, and all debts are caused by an act of becoming indebted. The heir who takes over debts with an inheritance consents to becoming indebted by accepting the inheritance. This is also a possible explanation for the underlying assumption of the Christian doctrine of original sin: the transmission of ancestral culpability by inheritance. In assenting to existence by the very act of living, we accept both the good and the bad parts of this inheritance as joint debtors. Culpability, debt and forgiveness are pivotal concepts of Christianity. According to Margaret Atwood, “The whole Theology of Christianity rests on the notion of spiritual debts and what must be done to repay them, and how you get out of paying
Page 2 and 3: THE ETHICS OF BANKING
Page 4 and 5: The Ethics of Banking Conclusions f
Page 6 and 7: Preface The crisis in the financial
Page 8 and 9: Introduction: Is the Finance Indust
Page 10 and 11: Introduction: Is the Finance Indust
Page 12 and 13: Contents Part I Foundations of Busi
Page 14 and 15: Contents xiii 6 The Ethical Economy
Page 16 and 17: Contents xv After the American Fina
Page 18 and 19: Part I Foundations of Business and
Page 20 and 21: Chapter 1 Ethical Economy, Economic
Page 22 and 23: The Justification of Ethical Duties
Page 24 and 25: The Justification of Ethical Duties
Page 26 and 27: Business Ethics and the Fiduciary D
Page 32 and 33: Part II The Ethical Economy and Fin
Page 34 and 35: Chapter 2 The Ethical Economy of th
Page 36 and 37: Purpose and Task of the Credit Mark
Page 40 and 41: Purpose and Task of the Credit Mark
Page 42 and 43: Duties of Banks Arising from the Na
Page 48 and 49: Chapter 3 The Ethical Economy of th
Page 50 and 51: The Globalization of the Capital Ma
Page 52 and 53: Values and Valuations in the Capita
Page 54 and 55: Which Values Should Determine the A
Page 56 and 57: On the Ethics of Financial Consulti
Page 58 and 59: Tasks of the Capital Market and Dut
Page 60 and 61: Tasks of the Capital Market and Dut
Page 62 and 63: Speculation and Finance Ethics 45 S
Page 64 and 65: The Functions of Speculation in the
Page 66 and 67: The Functions of Speculation in the
Page 68 and 69: Chapter 4 Insider Knowledge and Ins
Page 70 and 71: Insider Trading as Pseudo-Speculati
Page 78 and 79: Statutory Provisions Against Inside
Page 80 and 81: The Abuse of Insider Knowledge as a
Page 82 and 83: The Abuse of Insider Knowledge as a
Page 84 and 85: Ethical Duties of the Investor 67 a
Page 86 and 87: Ethical Duties of the Investor 69 a
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Chapter 5 The Ethical Economy of th
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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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Chapter 6 The Ethical Economy of th
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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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Wager or Gambling: What Is Speculat
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The Principle of Shareholder Primac
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Chapter 10 Financial Overstretch: T
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Hyper-Incentivization and the Hubri
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Easy Credit and the Hubris of the C
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Easy Credit and the Hubris of the C
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Credit and Credo, Economic Success
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Credit and Credo, Economic Success
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The Financial Market Crisis as a Cr
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The Financial Market Crisis as a Cr
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From Big Bang Deregulation to Big B
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After the American Financial Overst
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After the American Financial Overst
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The Failure of Economics and Manage
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The Outsourcing of Asset Management
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The Outsourcing of Asset Management
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The Financial Crisis - Systems Cris
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The Way Out of Financial Crises 189
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References ALBERT,H.:Marktsoziologi
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References 199 CASPARI, K.-B.: “D
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References 201 HALDANE, A,A.TURNER
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References 203 KOSLOWSKI, P.: Ethik
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References 205 MESSNER,J.:Das Natur
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References 207 SCHMID, N.: “Insid
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References 209 WEBER, M.:Die Börse
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Name Index Note: Page numbers in it
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Name Index 213 N Naughton, M. J., 1
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