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Economic slump: Ethics loom large

Compared with previous recessions, the last two downturns can be pinned more on greed.

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It used to be that post-World War II recessions in the United States were the bad part of plain vanilla business cycles – inventories had piled up too high as a result of too few sales, or the Federal Reserve raised interest rates and slowed the supply of new money into the economy to battle inflation.

But the mild 2001 recession and the current slump are a bit different. Their cause, at least partly, has been dishonesty, greed, and weak business ethics. The accounting scandals at Enron, Global Crossing, WorldCom, etc., combined with the bursting of the dotcom stock bubble, pushed the economy down in 2001. Today's sinking economy, to some degree, is the result of sagging real estate values and the bad behavior of many in the mortgage industry and on Wall Street. Losses from today's financial crisis have already reached $500 billion.

In mature, highly developed countries like the US, individual acts of malfeasance are unlikely to have a widespread effect on the economy, notes Frank Vogl, cofounder of Transparency International, a nonprofit group which ranks nations each year by their degree of corruption, as perceived by investors. (Its next report is scheduled for release next week.)

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