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Criminology and Global Financial Crisis

By Angelina Matson
May 30th 2012



The first overt indications of the impending global financial crisis manifested themselves in August 2007, when BNP Paribas announced it was severing tieswith three hedge funds specializing in mortgage debt for American real estate properties. The crisis was exacerbated by the immediate freeze on credit by banks to their customers – and to each other.  The crisis came to a head in 2008 when the United States government refused to rescue investment firm Lehman Brothers from financial collapse. Subsequent actions by the American government and by foreign governments, as well as actions taken by commercial enterprises world wide, have been focused on repairing the financial damage to sovereign economies and to individuals thrown out of work – and out of their homes.

It is not unreasonable that everyday individuals failed to comprehend the exotic and opaque financial instruments and transactions employed by companies like Enron and individuals like Bernie Madoff.  Powerhouse accounting firm Arthur Andersen was also taken in by Enron, and paid for its error in judgment by being forced to close its doors after nearly a century  of operation.  Madoff utilized the services of investment firm JP Morgan Chase for years, nearly until the time of his arrest.

However, the general public found itself deceived by Madoff and Enron due to its complete disinterest in financial matters. From a criminologist’s perspective, Madoff, Skilling, and others like them used the greed and disinclination of their victims to question the plausibility of endless year on year increases in earnings to perpetuate their misdeeds in plain sight. The following is a discourse on the criminological underpinnings of the malfeasance that occurred during and certainly had a hand in the onset of the global financial crisis.


The (Im)Moral Climate Behind the Financial Crisis


There is broad consensus that much of the conduct leading to the global financial crisis that opened the 21st century constituted criminal behavior. Nonetheless, to date, only a handful of the most notorious figures have even faced prosecution. While names like Jeff Skilling and Bernie Madoff are now infamous, the vast majority of the wrongdoing associated with the worldwide financial meltdown has gone unpunished, and is likely to remain so.

In many ways, the financial system often rewards ruthlessness, if not outright criminal behavior. The crime of the financial crisis was not so much the inherent conduct of the players involved but rather their unwillingness – or inability – to stop short of wreaking disaster upon those factions of society with the power to impose punishment. In other words, individuals and entities responsible for causing so much widespread economic pain became labeled as criminals only when their proverbial houses of cards crumbled.  Before then, they were admired as “the smartest guys in the room.”

Another factor is the impersonality inherent in the financial system, which encouraged the cavalier handling of financial instruments by individuals within the sector. Mortgages were no longer tied to individual homes, but bundled into exotic “futures” that were allowed to freely fluctuate on the open market because of events far removed from the personal circumstances of individual homeowners. As a result, investors and speculators were not forced to consider what consequences their reckless speculation might have.

This freewheeling mindset and accompanying lack of consequences associated with the global economic meltdown is in line with theories developed by Dan Ariely, a professor of behavioral economics affiliated with the Massachusetts Institute of Technology and with Duke University.  In applying Ariely’s theory to the financial crisis, it could be said that speculators were encouraged in their behavior by a system that imposed few consequences for wrongdoing. Moreover, the speculators were able to tell themselves that what they actually were involved in sophisticated – if  high-stakes –  financial dealings rather than engaging in irresponsible or corrupt behavior that could (and ultimately did) adversely affect the lives of actual people.


The views expressed in this article are the author’s own and do not necessarily reflect The Samosa”s editorial policy.

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