n AfricaGrowth Agenda - Is the 2007/08 financial crisis the epitaph of moral bankruptcy?

Volume 2011, Issue 4
  • ISSN : 1811-5187


The advent of a financial crisis brings turbulence to the economic system. Contagion provides channels through which the crisis can permeate the global financial landscape. Since financial markets of different countries are inter-connected, a disruption in one market can spread to other parts of the world. Mishkin (1991) defines financial crisis as "a disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities." Once the link between lenders and borrowers has been hampered with, the much needed finance for funding investment projects cannot be accessed. Obviously, this has deleterious effects on economic growth. Much research effort has been expended into trying to understand the causes of a financial crisis. Moral vices such as greed feature prominently among the causes of a financial crisis (Suranovic, 2010). However, Bhagwati (2009) tends to argue from a different angle of causality. He contends that "markets affect our morality less than morality affects how we behave when we work in these markets." We attempt look at this issue through an ethical lens to understand the interplay between morality and financial markets. Is the recent financial crisis the epitaph of moral decay or bankruptcy?

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