In addition to the session on “Reason in Hayek and Rand” at the APEE conference to be held April 11-13, 2010 in Las Vegas, Nevada, I am organizing a session on “The Ethics of the Financial Crisis.”
Rationale: Many conferences and debates are focusing on the economics and politics of the crisis, but much less attention is being focused on the core ethics issues involved. So I have solicited papers from several scholars on topics such as the following:
* Whether greed is a good explanation for the crisis.
* The role of altruism in justifying Fannie Mae, Freddie Mac, or legislation such as the Community Reinvestment Act.
* The ethics of paternalism as a justification for such political institutions and legislation.
* The actions of political versus market entrepreneurs in the mortgage industry and/or financial sectors.
* Whether the mortgage industry and/or financial sectors were, prior to 2008, free markets, lightly regulated, or heavily regulated.
* Moral hazard in the regulated industries and sectors.
* The ethics of regulatory capture.
* The ethics of BB&T’s, Wells Fargo’s, and US Bancorp’s decisions not to pursue subprime mortgages.
* The Community Reinvestment Act as an affirmative action program for housing.
* The CRA as a housing welfare program.
* The moral difference between lobbying proactively versus in self-defense.
* The (im)morality of rent-seeking in general with application to the bailouts.
* The ethics of the government’s use of coercion, direct or indirect, to get banks to accept TARP funds.
* The ethics of the government’s accounting methods in administering the bailouts.
* Ethics and responsibility for unintended consequences.
When the session’s panel is finalized, I’ll post it.
Altruism, not greed, is the explanation for the crisis.
“When the mortgage giant Fannie Mae recruited Daniel H. Mudd, he told a friend he wanted to work for an altruistic business…But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.
So Mr. Mudd made a fateful choice. Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more treacherous corners of the mortgage market, according to executives.
For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy.
http://www.nytimes.com/2008/10/05/business/05fannie.html?_r=1&scp=3&sq=Daniel%20Mudd&st=cse
Mudd was not alone. The crisis was already set up by HUD during the Clinton administration. One of the proper functions of government is to prevent fraud. But Cisneros, Clinton’s HUD secretary, wanted more poor people to afford homes. So he simply threw out fraud prevention.
“SAN ANTONIO — A grandson of Mexican immigrants and a former mayor of this town, Henry G. Cisneros has spent years trying to make the dream of homeownership come true for low-income families.
As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.
Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices…
While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”…
Homeownership has deep roots in the American soul. But until recently getting a mortgage was a challenge for low-income families. Many of these families were minorities, which naturally made the subject of special interest to Mr. Cisneros, who, in 1993, became the first Hispanic head of the Department of Housing and Urban Development.
He had President Clinton’s ear, an easy charisma and a determination to increase a homeownership rate that had been stagnant for nearly three decades.
Thus was born the National Homeownership Strategy, which promoted ownership as patriotic and an easy win for all. “We were trying to be creative,” Mr. Cisneros recalls.
Under Mr. Cisneros, there were small and big changes at HUD, an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans. Families no longer had to prove they had five years of stable income; three years sufficed.
And in another change championed by the mortgage industry, lenders were allowed to hire their own appraisers rather than rely on a government-selected panel. This saved borrowers money but opened the door for inflated appraisals. (A later HUD inquiry uncovered appraisal fraud that imperiled the federal mortgage insurance fund.)
“Henry did everything he could for home builders while he was at HUD,” says Janet Ahmad, president of Homeowners for Better Building, an advocacy group in San Antonio, who has known Mr. Cisneros since he was a city councilor. “That laid the groundwork for where we are now.”
Mr. Cisneros, who says he has no recollection that appraisal rules were relaxed when he ran HUD, disputes that notion. “I look back at HUD and feel my hands were clean,” he says.”
http://www.nytimes.com/2008/10/19/business/19cisneros.html?pagewanted=1&sq=Cisneros&st=cse&scp=1
If you will accept that “Morals” are that grouping of obligations (the sense of “ought and ought not”) having commonality in the societal organization (and in its supporting subsidiary organizations); and,
if you will also accept that “Ethics” represent the commonality of evaluating the means of adhering to or meeting and performing those obligations and resolving the conflicts amongst them;
then, your conference will concern itself with determining the nature of, what the obligations are, who has them, and how they arise – out of what relationships; and whether the supposed “commonality” truly exists to create a morality for the ethics to be operative.
Thanks, Bob, for the links to the two NYT pieces. They’re excellent, and I’ve been using them in my class when I talk about these issues.
In response to R. Richard Schweitzer: I like the sound of your consequent clause, as I do want our conference session to move in the direction of the fundamentals of ethics, for that is where I think the root cause of the issues is to be found.
I am not sure that I agree with your two antecedent clauses, as they seem to make morals and ethics a first a matter of social relationships. I think ethics is first a relationship of the individual to reality, and one subset of those relationships involve social relationships.
Important meta-ethics issues there, so perhaps you could clarify?
No, not “social relationships.” I (like Hayek?) have a problem with the category “social” (which to me implies limitation to “groupings” of humans) in the case of relationships. The sense (or lack thereof) of obligations appears to be highly individuated both in kind and degree, but the same sense, or lack, is commonly shared but again varying in kind and degree.
Since, at 85, I am only a student, and not a philosopher, I have a wee problem with the uses made of the term reality. Perhaps we are at the stage in Philosophy where, following the Romantic Movement each individual “creates” their own “reality.” If so, then I am on the wrong track, and there are no “Morals.”
That said, after 30 years of reading and listening (I started late) for guidance in understanding the deontic, the individual deontic and its many differentiations, this has not led me to grasp how the commonality arises that forms the basis for what are accepted as “Morals” ( or “Virtue”) at any given era, amongst any particular grouping of peoples, or their inter-relations.
If “reality” is the whole of the individual’s perception of everything (including one’s own physical being and sensations) external to the “self,” then that “reality” is where my study to date has led me think one’s obligations run; consciously or not.
So, perhaps for your approach, we might consider that what are considered “Morals” are the relationship to that type of “reality;” and, that relationship forms from the deontic.
Reading over. I am not sure digging this hole deeper is “clarifying,” but thank you for asking.
i would like know ethical issue about the global financial crisis that happened in 2007-2008