The Unpunishable Moral Failures that Helped Cause the Financial Crisis, and How to Address Them in the Future by Hilary J. Allen Loyola University New Orleans College of Law, October 6, 2013

“Five years after the financial crisis of 2007-2008, the public is still angry that the big financial institutions (and their senior managers) have not faced any criminal charges. This Article argues that, however dissatisfying this might be, it is the right outcome. Some level of demonstrable moral culpability is required to justify a criminal law sentence, and while moral failures certainly helped cause the Financial Crisis, the moral failures in question are too indeterminate to justify any type of criminal sanction.  This Article explains that financial instability results from a combination of cognitive and moral failures, and that the most salient moral failure in the financial stability context is not dishonesty or untrustworthiness (which provide the justification for criminalizing most white collar offences), but the more indirect failure of other-regarding behavior. Failure of indirect other-regarding behavior by financial institutions can have devastating consequences, but it is hard to identify offending behavior with any precision and its consequences are diffuse, and so criminal law cannot prevent or punish financial institutions’ destabilizing behavior. This Article also explores limitations on the ability of market discipline, private civil litigation and financial regulation to reign in such destabilizing behavior. This Article therefore stresses the importance of addressing failures of indirect other-regarding behavior by inculcating a more other-regarding culture amongst financial industry personnel, and explores ways in which such cultural reform might be achieved.”