Wednesday, September 17, 2008

Greed is Not Good

"...Greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind. And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA." - Michael Douglas as Gordon Gekko in "Wall Street"

The Catholic Church divided sin into two classes - venial sins, which were relatively minor, and the more serious cardinal sins, which became known classically as the 'seven deadly sins'. These were said to "destroy the life of grace" and brought the threat of eternal damnation on those who practiced them, unless absolved through a formal confession or forgiven through an act of perfect contrition by the offender.

One of these was the sin of 'Greed', which is seen as a sin of excess, and is applied in particular to the acquisition of wealth. It is closely aligned to avarice, which can manifest itself in bribery, robbery or theft by means of violence, trickery, betrayal, and even treason. It also covers the scavenging and hoarding of materials, as well as manipulation or abuse of authority.

In the film 'Wall Street', Michael Douglas' character Gordon Gekko delivered the above now-famous speech at a shareholder's meeting. Gekko was trying to woo shareholders to accept a bid that his company was making to takeover the Teldar Paper company.

Gekko's sales pitch highlighted that the current Teldar management was bloated, wasteful, and borderline incompetent. Either that, or they were intentionally abusing their positions to ensure their own personal gain, and those shareholders be damned.


Gekko flat out says in his speech that the management was not greedy enough. They were not nearly as interested in turning a profit for the company, and increasing it's value for the shareholders, as they were in enjoying, as he put it, "steak lunches, hunting and fishing trips, corporate jets, and golden parachutes."

But while Gekko painted himself as a "liberator" of companies, the fact is that his greed was every bit as dangerous for the company and the shareholders as any inappropriate or incompetent acts of the current management.

The film highlights the many subjects in play in recent corporate scandals such as the Enron Corporation and Arthur Anderson accounting firm debacle, and today's collapses and bailouts involving Fannie Mae & Freddie Mac, Lehman Brothers, AIG, and Merrill Lynch.

Big business, finance, mortgage, and insurance companies playing fast and loose with what is often other people's money, thinking that they have the system so securely managed that nothing can burst their upwards bubble, and not concerned if the bubble does burst because either they will be bailed out by the government, or be able to personally escape with few ramifications as individuals, or both.

Fact is that financial speculation comes with risks. If a company or individual manages their finances well, and makes good, sound, stable decisions, they will usually come out ahead in both the long and short terms.

If decisions are made on a more short-sighted basis, this can result in high financial rewards for both individual loan and account managers, as well as for customers. But it may also expose all involved parties to greater risks. The fact is that if the worse case develops everyone is going to take a financial hit.

In fact, history would say that in such speculative periods the more appropriate word would be 'when' the worse case develops, not 'if'.

So lots of bad loans were made, many speculative investments were made, over a number of years, and finally, inevitably, these markets have not been able to hold up, at least not in the short term.

Companies and institutions are being sold or folding, or the government has been forced in to prop them up or outright take them over with public money.

We the taxpayers have become the owners of mortgage and insurance companies. Much as in the mismanagement of the fictional Teldar Paper in the film "Wall Street", the poor decisions of these very real companies are coming home to roost.

And much as the fictional Gordon Gekko, many of the big money men have proven too big for their britches. But most of them will soar off into the sunset without individual responsibility, some with those golden parachutes that Gekko spoke of in the film.

In the end, it will be you and me, the regular tax payer, who will foot the bill for their poor business decisions, and that is not how our system is supposed to work.

You can debate the importance of these institutions and their solubility from now until doomsday. The fact remains that the winners are supposed to take it all, and the losers are supposed to take the fall, based on their business decisions.

If it takes a few big businesses going under, if it takes a ton of money being lost, to straighten out what has ultimately become a house of cards, then so be it.

Incompetence and greed, which despite what Gekko said is not good, should never be rewarded. The results of both deserve to be left to suffer the consequences, as educational for both the participants and for the rest of us.

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