Wall Street greed and lax regulation are routinely blamed for the economic crisis now sweeping the world. But to identify the real culprits behind this tragedy—and so prevent another—we may need to start scrutinizing basic American values.

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The financial tsunami that began in the United States has begun to hit the real economy, with widespread and devastating consequences. Most of the world's economies—developing and industrial alike—are expected to contract this year, and virtually all are anticipating a drop in growth compared with last year. In the months ahead the governments of the world will have their work cut out trying to create jobs while coping with deteriorating government finances and a rising wave of protectionism. But they will also confront the need to rethink the systems and mechanisms that led to this financial meltdown in the first place. Tighter regulation of the credit-rating firms whose haphazard incompetence was exposed by the subprime mortgage crisis, new tools for the regulatory agencies whose oversight stopped short of the investment banks' off-balance-sheet assets, and a hard look at auditing firms and accounting methods will doubtless be on the agenda not only in the United States, the epicenter of the crisis, but around the world.

The Real Culprits

In truth, however, the problem does not stop there. It seems to me that we need to dig deeper to isolate and analyze the real root of all these problems. As I see it, that means shining a harsh light on the values and behavioral principles at the heart of American capitalism and finance and trying to understand how they created the mess in which we find ourselves today.

Opinions will diverge on this question, but I believe that the two key culprits are the American cult of material success and neoliberal market fundamentalism.

American society judges its members almost solely on whether they are "a success," and money is the yardstick by which it measures success. In such a society, financial success becomes an all-consuming goal toward which people strive relentlessly, as if pursued by Furies. We know that the average American CEO's income is hundreds of times higher than that of the average worker, but more shocking still is the fact that even the CEOs of the investment banks that helped create the current crisis see nothing odd about their astronomical compensation and feel no shame at receiving it. A few years ago, when Enron and other corporate scandals triggered a general outcry, Federal Reserve Board Chairman Alan Greenspan blamed "contagious greed." It would have been more accurate say "structural greed," for this is a problem that it is built into American society.

The "social Darwinism" that subscribes to the law of the economic jungle is a deeply entrenched and defining feature of American society. Unless we can shed light on the role this ethic plays in guiding human behavior and seek ways to mitigate it, the same kinds of problems are bound to arise again.

The Fundamentalists' Fallacy

The second culprit in the current financial crisis is market fundamentalism, the monster created by neoliberal economics. This is the view that free economic activity is fundamentally good and regulation fundamentally bad, that we can solve any and all problems with maximum efficiency by entrusting them to the market, and that government should accordingly intervene as little as possible.

I cannot but think that the proponents of this ideology view the world as a test tube in which all variables can be controlled, down to the conditions under which people live.

Consider for a moment the person who graduates from a fine school with good grades and lands a plum job at a top investment bank. Think of all the people who worked to get him where he is. Parents, family, teachers, community leaders—all helped to shape this person into a successful member of society. Can the market mechanism accomplish the same thing? The truth is that market principles taken to their logical extreme can only divide and destroy the communities that spring up naturally in a healthy society. And these communities are where human beings acquire ethics and morals.

A brief consideration of such issues should suffice to convince most people how half-baked the market fundamentalists' thinking is. But the problem goes beyond that, for these theorists work from the premise of a perfectly competitive market in which all individual participants have complete information and behave with total independence, like grains of sand. While such a premise may be useful for building academic theories, it has almost no bearing on the world in which we actually live. This disconnect is vividly illustrated by the failure of financial products developed with the mathematically informed principles of financial engineering to function as intended in a real-world environment, where participants exert an influence on one another.

Of course, all this raises an even more fundamental question: What made it possible for this Frankenstein of an ideology to amass such power and influence? As of this time the investigation is ongoing, and we cannot assign guilt absolute confidence, but so far the evidence points to two prime suspects: the Anglo-Saxon concept of individualism that began taking root as early as the medieval period and the doctrine of predestination that the Puritans brought with them when the migrated to the New World in search of "freedom."