The global financial meltdown is largely blamed on bonus-hungry bankers playing the markets like a giant casino. Subsequent financial carnage is in turn blamed for the global economic downturn.
But arguments are not right simply because they are widely perceived to be true. There are several good reasons to question the narrative which blames greedy bankers for the downturn.
For a start the rise of complex financial instruments, of the sort widely blamed for the market meltdown, dates back much further than generally assumed. Their origins go back at least as far as the 1980s so they have existed through periods of economic boom as well as bust.
Second, and contrary to widespread prejudice, the impetus for the rise of such instruments was to manage risk rather than to take huge bets. It was more cowardly capitalism than casino capitalism. It is true that you probably need a PhD in mathematics to understand the intricacies of how these work.
But the basic principles can be understood from a simple example – the "securitisation" of mortgages. Essentially this means that mortgage lenders sell their mortgages on to other institutions such as investment bankers or fund managers. For the mortgage lender one benefit of such a transaction is that it takes the risk of a borrower defaulting off its balance sheet. But, with the benefit of hindsight, it has also had the effect of spreading the risk around the financial system. Things certainly went horribly wrong with securitised mortgages but the cause was more paradoxical than the greed narrative suggests.
More fundamentally, with the benefit of hindsight it should be clear that the economy was not as strong as widely assumed before the crisis hit. Only a credit boom maintained economic growth at an apparently sprightly rate.
Finally, the greed narrative has dangerous political consequences. It is a short step from arguing that bankers are greedy to concluding that everyone was guilty of excess. The Age of Austerity quickly becomes justified under such assumptions. Yet austerity is the last thing we need. We should be striving to generate strong economic growth, with all the benefits that entails, rather than indulging in bouts of banker bashing or self-flagellation.