Tuesday, November 27, 2012

Whistleblowing and Justice

The recent Global Financial Crisis, from which the world is only now recovering, has had a massive negative  impact .Many have seen their savings decimated, those about to retire  or already retired , have suffered immensely. Job losses have been huge The causes of the GFC are debated, but widely attributed to unethical or at least inadequate sub-prime lending practices by financial intermediaries. Yet few whistleblowers came forward to warn the financial community , or the regulatory authorities  of the perverse practices of Lehman Bros,  Goldman Sachs ,etc. who were at the heart of the problems. The CEO of the last mentioned company has publicly argued for a reduction in old age entitlements (here) .

Some writers even attribute the crisis to the growing inequality  between the rich and the poor,  noticeable worldwide but particularly in the US. From 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent. Timothy Noah in The United States of Inequality writes

The United States' economy is currently struggling to emerge from a severe recession brought on by the financial crisis of 2008. Was that crisis brought about by income inequality? Some economists are starting to think it may have been. David Moss of Harvard Business School has produced an intriguing chart that shows bank failures tend to coincide with periods of growing income inequality. "I could hardly believe how tight the fit was," he told the New York Times. Princeton's Paul Krugman has similarly been considering whether the Great Divergence helped cause the recession by pushing middle-income Americans into debt. The growth of household debt has followed a pattern strikingly similar to the growth in income inequality (see the final graph). Raghuram G. Rajan, a business school professor at the University of Chicago, recently argued on the New Republic's Web site that "let them eat credit" was "the mantra of the political establishment in the go-go years before the crisis." Christopher Brown, an economist at Arkansas State University, wrote a paper in 2004 affirming that "inequality can exert a significant drag on effective demand."


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