In the midst of the recent bank failures and financial scandals, the common explanation is that 'greed' caused the adverse behaviors that precipitated the collapse.
When thinking about this explanation, I couldn't help but consider that in order for 'greed' to be the reason behind the collapse, then people would need to have become abruptly more greedy than normal.
The contrary view is that if greed is a constant function (meaning that people do not become more or less greedy over time...
or that some people are 'always' greedy) then how can greed be a suitable explanation for the financial problems? Is it possible that greed is being used as an 'easy answer' to distract attention away from what really caused the problems? My perspective is that incentives play a very important role in economic activity, and that trying to diagnose the factors causing a financial collapse must begin with a look at the incentives that were put in place by the government.
When factors such as the universal capital gains exclusion for primary residences, artificially low interest rates, and arbitrary rules mandating that financial institutions underwrite loans to high-risk borrowers are combined, I think it begins to become clear how the housing bubble expanded and why it popped.
This isn't to say that 'greed' doesn't factor into the equation, but is it fair to say that a bank loaning at a high interest rate is greedy and the person who clearly doesn't qualify for financing but gets to purchase a house anyway is not greedy? Is it fair to label financial institutions that traded mortgage backed securities as 'greedy' for pursuing profits from appreciating prices, while avoiding the politicians that enacted the lopsided regulations to influence voters? It is very important to avoid knee-jerk responses to problems that lead to easy answers, and dig deeper to find the real causes so that they can be avoided in the future.