Posted on: Jun 16, 2009
In the Josiah Stamp Memorial Lecture which he delivered on January 13, 2009, at the London School of Economics, Ben Bernanke, Chairman of the Federal Reser ve System, listed the causes of the credit boom that led to the current financial breakdown: “widespread declines in under writing standards, breakdowns in lending oversight by investors and rating agencies, increased reliance on complex and opaque credit instruments that proved fragile under stress, and unusually low compensation for risk-taking.”
This is not moral language but the language of the scientific economist looking for explanations rather than making judgments. What Bernanke described was the behavior of many important actors in the financial system. Yet that behavior had a moral dimension, and it can only be described as irresponsible at best. Sir Josiah recognized as much in his 1938 book Christianity and Economics, when he talked about “the reign of law, decency, honour, industry and thrift in which alone a complex industrial system can work” (p. 189). Justified as passing judgment is, however, to understand the roots of our financial crisis we must examine how risk changed from being a morally fraught but unavoidable problem of human existence to being a commodity traded on markets like wheat or copper. The neglect of the moral reality of risk is a recent phenomenon that lies at the bottom of our problems.