In "The End of the Financial World as We Know It" and "How to Repair a Broken Financial World" (The New York Times, January 4), Michael Lewis and David Einhorn argue that the problem wasn't that no one knew the deals that brought down the economy were bad, but that no one had much incentive to put a stop to them. As long as there is no real cost to evaluating risk incorrectly—and as long as we continue to effectively guarantee the performance of financial institutions—financial firms will continue to make unwise bets, knowing they are playing with house money.
The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. "Greed" doesn't cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn't the greed of a few but the misaligned interests of the many.
Another blogger chimes in on the best essays of the year, and this one seems worth looking into. Click through for all the recommendations from this writer at Big Think.
The second part of Robert's picks, and the third.