ABSTRACT
This chapter argues that the culture of risk accentuated the traditional mechanisms of boom-bust cycles and played a key role in the 2007 financial crisis. The origins of the 2007-2008 financial crises lie in a macroeconomic environment marked by low interest rates, rising levels of household debt and inflated housing values. In a broad sense, the notion of culture in a sociological or anthropological framework describes a set of commonly shared attitudes. The chapter also argues that the cultural environment in US financial firms and markets played a critical role in the recent crisis and, more specifically, that the emerging culture of risk exacerbated the mechanisms of boom-bust cycles, such as overleveraging and the underestimation of risk. It then explores the rise and nature of what label the culture of risk, where short-termism, speculation and reckless risk-taking have come to dominate Wall Street and replace the culture of trust.
