A ética e a crise

Ethics alone will not prevent financial crises. Por Philip Booth.

Nearly all financial market “busts” are preceded by monetary “booms” and this one was no exception. When central banks hold interest rates down, credit spreads become depressed, economic activity and asset prices boom and bad risks begin to look like good risks. Whether you have a moral compass or not, it becomes very difficult to distinguish between good and bad risks.

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Financiers responding to price signals drive wealth creation in financial markets. Ethical behaviour may – indeed will – promote more stable and effective markets. The problem is that, once governments interfere to the extent they have, we do not know what behaviour creates wealth and what behaviour feeds the boom. A moral compass might help someone wade through that environment but it would not help very much.

While some may argue that a return to ethics is needed to salvage a market economy it can also be argued that an unfettered free economy encourages virtue. The period from the late Victorian era to the 1970s has lots of examples. Stock exchanges were entirely self-regulating, based on trust and simple rules, until the advent of a statutory basis for regulation in 1986. Life insurance companies used to compete on how conservative they were until statutory regulation and the Policyholders’ Protection Act changed their focus. Before financial regulation and state guarantees, conservatism was a commercial selling point, including among banks.