Abstract
The global financial crisis (GFC) sparked by the collapse of the investment bank Lehman Brothers has entered a new phase, namely that of sovereign debt. It is not simply investment banks and other financial institutions that are insolvent or bankrupt and in need of government bailouts, it is now whole economies that are actually or potentially insolvent and in need of bailouts by other governments and/or organisations such as the IMF. Most recently, Greece has made the headlines and there is media speculation and market jitters in relation to Ireland, Portugal and Spain. Moreover, this all comes in the wake of the sovereign debt crises very recently faced by Iceland and Dubai. As with the first phase, the crisis has been revealed to have been due in large part to gross financial over-leveraging, regulatory negligence (e.g., of German banks) and a host of other unethical practices such as, in effect, ‘cooking the books’ in the case of the Greek government. Moreover, this new phase is related to the first, in that a significant increase in sovereign debt has been incurred as a consequence of bailing out failed or failing financial institutions to the tune of trillions of dollars. This ongoing GFC is evidently the worst since the Great Depression, and the second phase is in some respects more alarming than the first, given that while governments typically can bail out banks, it is unclear whether ultimately they can or are willing to bail out other governments.
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Notes
An earlier version of some of the material in this section appeared in Seumas Miller, ‘Financial Service Providers, Reputation and the Virtuous Triangle’, in I. MacNeil and J. O’Brien (eds), The Future of Financial Regulation, Oxford: Hart, 2010, pp. 387–400.
Paul Krugman, The Return of Depression Economics and the Crisis of 2008, New York: Norton & Co., 2009.
Justin O’Brien, Redesigning Financial Regulation, Chichester: Wiley, 2007; and Engineering a Financial Bloodbath, London: Imperial College Press, 2009.
Peter C. Fusaro and Ross M. Miller, What Went Wrong at Enron, New York: John Wiley & Sons, 2002.
See Seumas Miller, ‘Corruption’, Stanford Encyclopedia of Philosophy, Winter 2005 for an account of corruption and its divergence (at times) from illegality.
Frank Clarke, Graeme Dean and Kyle Oliver argue as much in Corporate Collapse: Accounting, Regulatory and Ethical Failure, Cambridge University Press, 2003 (revised edition).
See, e.g., Trevor Sykes, The Bold Riders, Sydney: Allen & Unwin, 1984.
James B. Stewart, Den of Thieves, New York: Simon & Schuster, 1992, p. 20.
Timothy Geitner, ‘The Current Financial Challenges: Policy and Regulatory Implications’, Speech delivered at the Council on Foreign Relations Corporate Conference, New York, 6 March 2008.
A. Turner, ‘A Regulatory Response to the Global Banking Crisis’, London: Financial Service Authority, 2009, http://www.fsa.gov.uk.
Seumas Miller, ‘Institutions, Integrity Systems and Market Actors’, in J. O’Brien (ed.), Private Equity, Corporate Governance and the Dynamics of Capital Market Regulation, London: Imperial College of London Press, 2007.
For the developed version of the material in this section, see Seumas Miller, The Moral Foundations of Social Institutions: A Philosophical Study, New York: Cambridge University Press, 2010. Some of the material in this section is drawn from that volume.
Jonathan Turner, The Institutional Order, New York: Longman, 1997, p. 6.
The following teleological model of social institutions is elaborated in more detail in Seumas Miller, Social Action: A Teleological Account, Cambridge University Press, 2010. See also his ‘Social Institutions’, Stanford Encylopedia of Philosophy, Winter 2006.
Amnesty International, Clouds of Injustice: Bhopal Disaster 20 Years On, London: Amnesty International, 2004. While Bhopal was a case of negligence rather than intent to do harm, in terms of actual loss of life and damage to health, this was a much worse disaster than, e.g., 9/11, where 3,000 died in the attack on the Twin Towers. However, the response to the Bhopal disaster on the part of the US authorities was far from adequate and in June 2010 (25 years after the disaster) the India Supreme Court finally delivered its verdict convicting a handful of local managers of criminal negligence and handing out two-year jail sentences. The Chairman of Union Carbide at the time, Warren Anderson, who had been arrested by Indian police back in 1984 but had then somehow managed to leave India, was convicted of absconding but has evaded extradition and has otherwise escaped sanction.
This claim might be regarded as controversial. However, normatively speaking, it is difficult to see what the end of auditing could be if not to provide a true and fair record (see, e.g., Tom Campbell, ‘True and Fair to Whom: A Philosophical Approach to Auditing’, in Tom Campbell and Keith Houghton (eds), Ethics and Auditing, Canberra: ANU Press, 2005, Chapter 5). At any rate, if this is rejected as the normatively appropriate end or purpose of auditing, then let some other preferred purpose be substituted. Either way, my point in relation to institutional and occupational ends, purposes or functions will be unaffected.
Jon Elster, Cement of Society, Cambridge University Press, 1989, Chapter XV.
Amarty Sen, Rationality and Freedom, Cambridge, MA: Harvard University Press, 2002.
See, e.g., Milton Friedman, ‘The Social Responsibility of Business to Increase its Profits’, New York Times Magazine, 13 September 1970.
See, e.g., David Rodin, ‘The Ownership Model of Business Ethics’ (2005) Metaphilosophy, 36, 1–2, 163–81.
The term is used by George Soros in The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, New York: Perseus Books, 2008.
Kenneth E. Goodpaster, ‘Business Ethics and Stakeholder Analysis’ (1991) Business Ethics Quarterly, 1, 53–71.
The Australian Consumer and Competition Commission, for example, is concerned among other things with the traditional professions, but appears to place little or no focus on the distinctive ethical ends of the traditional professions, such as legal practitioners, as compared with other occupational groups. See Andrew Alexandra and Seumas Miller, Professionalisation, Ethics and Integrity Systems: The Promotion of Professional Ethical Standards, and the Protection of Clients and Consumers, Report for the Professional Standards Council of Australia, December 2006. Incidentally, I am not here necessarily blaming regulators; they can only carry out the tasks governments give them.
See Susan Rose-Ackerman, Corruption and Government: Causes, Consequences and Reform, Cambridge University Press, 1999, for a variety of types of prescription, including adjusting incentive structures, in relation to corruption.
Joseph Stiglitz, Making Globalization Work: The Next Steps to Global Justice, London: Penguin, 2006, pp. 206–8. Stiglitz has other suggestions in this regard.
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© 2011 Seumas Miller
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Miller, S. (2011). Global Financial Institutions, Ethics and Market Fundamentalism. In: Dobos, N., Barry, C., Pogge, T. (eds) Global Financial Crisis: The Ethical Issues. Palgrave Macmillan, London. https://doi.org/10.1057/9780230306950_2
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