Is greed the fundamental cause of all financial crises?

Is Greed the Root Cause of All Financial Crises?

Hello, regarding this question, my view is: Greed is the gunpowder, but gunpowder alone won't explode.

Attributing financial crises entirely to "greed" is the simplest, most intuitive, yet somewhat "lazy" explanation. Greed is inherent in human nature; it's a constant that has always existed. However, financial crises don't happen every day; they are variables. Therefore, besides greed, there must be other more crucial "switches" that are flipped.

We can look at this from several levels:

1. Greed is indeed the "fuel"

There's no doubt about this. Whether it's the Great Depression of 1929, the 2008 subprime mortgage crisis, or the earlier Tulip Mania, there's a clear pattern behind them:

Pursuit of excessive profits: Bankers, fund managers, and even ordinary investors all want to make more money from their existing capital, ideally getting rich overnight. This desire drives them to buy, design, and sell complex financial products (like CDOs, CDSs, etc.) that they might not even fully understand themselves.
Amplifying risk: To earn more, one must leverage. It's like having only 1 unit of currency but wanting to do 10 units of business, so you borrow 9. If you succeed, the profit is several times your initial 1 unit; if you fail, you instantly lose everything and are saddled with debt. The entire financial system operates this way.

Greed makes people "hot-headed" and forget about risk, creating a breeding ground for crises.

2. But More Importantly, "Systemic Flaws"

If you only have a greedy driver, but the car has a speed limiter, there are police on the road, and the brakes work well, then at most, they'll just speed, not crash and die. Financial crises often occur when the entire "traffic system" breaks down.

Lack or Lag of Regulation (No Police): This is the most crucial point. When financial innovation outpaces regulation too rapidly, a huge regulatory vacuum emerges. For instance, before the 2008 crisis, regulatory bodies either didn't understand the dazzling array of financial derivatives or believed that "the market would regulate itself," adopting a laissez-faire attitude. This is akin to allowing a group of people to play soccer on a field without a referee, using any means necessary, which will inevitably devolve into a brawl.
Perverse Incentive Mechanisms (Reward for Speeding, No Punishment for Accidents): The compensation systems in many financial institutions are "short-term oriented." A trader who closes a large deal can receive a huge bonus that year. Whether this deal will blow up in a few years is largely irrelevant to them; they've already got the money. This mechanism overtly encourages risk-taking and the concealment of risks, passing them on to the future and to others.
"Too Big to Fail" Implicit Understanding (The Government Will Save Us Anyway): Many large financial institutions are well aware that they are too big; if they fail, it would destabilize the entire national economy. Therefore, the government dares not let them go bankrupt and will ultimately intervene to save them. This is like giving a rich kid who loves to speed an "unlimited full insurance" policy; they will only drive more recklessly.
Herd Mentality and Irrational Exuberance (Everyone Goes Crazy): When you see your neighbors making a fortune in stocks or real estate, it's hard to stay calm. Immense social pressure and the "fear of missing out" (FOMO) drive countless ordinary people to rush into the market, becoming the last ones to take the fall when the bubble bursts. At this point, greed is no longer an individual act but a collective, unconscious frenzy.

Conclusion

Therefore, rather than saying greed is the root cause, it's more accurate to say it's a necessary condition.

The true root cause is a system that tolerates, or even rewards, greed while lacking effective constraints.

To use an analogy:

Greed is your desire to eat an entire cake.
Systemic flaws are: the cake shop offers unlimited supply, no one cares if you dine and dash, someone will treat you for free if you get sick from eating too much, and there's a huge prize posted on the wall for the "Fastest and Most Cake Eaten Contest."

In such an environment, almost no one can resist the temptation.

Therefore, when reflecting on financial crises, merely condemning human nature is far from enough. More importantly, we need to go back and examine and repair our financial regulatory systems, incentive mechanisms, and risk warning systems, putting a sufficiently strong leash on the beast of "greed."