A corollary of Professor Bhagwati’s argument is that bad hats like Bernie Madoff stand not as evidence of some fundamental fault in our economic system but, on the contrary, as an evildoer whose eventual exposure and repudiation points to the system’s underlying strength.
How does one react then to a phenomenon like Bernie Madoff? Does it not represent the corrosion of moral values in the marketplace? Not quite. The payoffs from corner-cutting, indeed outright theft, have been so huge in the financial sector that those who are crooked are naturally drawn to such scheming. The financial markets did not produce Madoff’s crookedness; Madoff was almost certainly depraved to begin with. The financial sector corrupts morality in the same sense that the existence of an escort service corrupted Eliot Spitzer. Should we blame the governor’s transgressions on the call girls rather than on his own flaws?

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