We know that the wildest and most moving dramas are played not in the theatre but in the hearts of ordinary men and women who pass by without exciting attention, and who betray to the world nothing of the conflicts that rage within them except possibly by a nervous breakdown. What is so difficult for the layman to grasp is the fact that in most cases the patients themselves have no suspicion whatever of the internecine war raging in their unconscious. If we remember that there are many people who understand nothing at all about themselves, we shall be less surprised at the realization that there are also people who are utterly unaware of their actual conflicts.
— Carl Jung, "New Paths in Psychology" (1912)
Generally speaking people employ a very primitve model of human cognition and motivation to evaluate the actions of others. Bank fraud is a case in point. The usual assumption about liars and cheaters in the financial system is that they are fully aware of their deceptive actions toward others, that they know exactly what they are doing when they rip people off. But as Duke psychology professor Dan Ariely told the Business Insider's Henry Blodget in the video below—
So we lie in many ways. The standard economic theory is simple, [it states] that people think about cost and benefit. Do we stand to gain? What do we stand to lose? We do a [mental] cost-benefit analysis and we decide [whether to rip people off] or not.
What we actually find when we do experiments, and also when we talk to people, is that this is not the whole picture. It's true that people want to benefit from cheating, but people also want to view themselves as honest, wonderful people.
You do not have to be a brain scientist to see that benefiting from cheating conflicts with viewing oneself as an honest, wonderful person. Therefore typical human behavior in this context and most other contexts involves generous helpings of self-deception. The Wall Street fraudster who asserts his innocence and good intentions typically believes he is innocent and his intentions were good.
To the extent to which the economic system in which the bamboozler operates rationalizes and justifies such behavior—greed is good—he is right about himself. Moreover, when external controls—crime and punishment—are largely absent, as in contemporary American society, nothing contrains the fraudulent behavior which so naturally arises in the mind of bankers or anyone else who spends their days playing with money.
Moral (or ethical) failure must always be understood in psychological terms. The "cost-benefit" analysis of human motivation is laughably primitive and superficial. Such analyses come from economists, who are dangerously wrong about everything they assume about human cognition and behavior. Economists are unqualified to judge how anything works, including the economy, let alone what motivates human action in the economic sphere.
More generally, the most exaggerated manifestation of this primitive model of human cognition comes from conspiracy theorists, who assume as a matter of course that the people fucking us over have sat around some table in a secret room and discussed exactly how they would do it. I'm sure that happens from time to time, but it is the rare exception, not the rule. As Ariely says, there is a strong pyschological requirement to think of yourself as an honest, wonderful person.
I'm sure the Koch Brothers can tell you in very specific detail just honest and wonderful they are. So could former Lehman CEO Richard Fuld. On the other hand, a goodly percentage of those in "financial services" are out and out psychopaths, or borderline psychopaths.
It seems like a long time ago now that Sigmund Freud, Carl Jung and other pioneers of so-called "depth psychology" tried to flesh out how the unconscious works. Most of their work has been forgotten now, or is discounted. This has been and still is a grievous mistake. Ariely mentions rationalization as the main mode of self-deception in his experimental work. This particular cognitive filter is a mainstay on the standard list of psychological defense mechanisms, all of which came to light in the early years of the 20th century.
Think about the mindbogglingly large levels of self-deception that humans must employ to think they can continue to act the way they do economically and not also destroy the very Earthly habitat they depend on.