As I have been soaking up the various perspectives on the causes of, and potential cures for, our current economic turmoil, I have gotten the sense that while there exist disagreement on these issues, most people seem to believe that much of the blame relates to corporate greed. Along these lines, Frank Pasquale at concurringopinions has a post about greed. From this perspective, greed appears to be reflected in the willingness to engage in risky behavior without sufficient regard for, or assessment of, the repercussions of that behavior. And hence presumably less greed may have ensured more responsible behavior. This idea that greed played a key role in creating our current crisis reminded me of—and in fact stands in contrast to—the speech by Gordan Gekko (played by Michael Douglas) in the 1987 movie Wall Street proclaiming that “greed is good.” So I went in search of the text, which goes as follows:
The point is, ladies and gentleman, that 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.
To be sure, Gekko’s speech was given as an attack against corporate directors at the fictional Teldar Paper who had failed to make their company profitable, did not have significant stakes in their company, but nevertheless, as Gekko phrased it, benefitted from perks such as “corporate jets and golden parachutes.” In this regard, the speech may have been aimed at suggesting that greed is good because it could serve to motivate otherwise apathetic corporate directors and officers to engage in profit-making activities. And hence that greed, in the form of an active quest for increasing the bottom line, could prove beneficial to shareholders. And yet the current crisis reveals the destructive side of greed, and hence the reason why most people do not look favorably upon the word. Indeed, to the extent that greed represents at least part of the reason why some may have failed to properly evaluate risk, greed has sparked a downward surge that put companies as well as that “corporation called the USA” at risk.
Of course this observation about the negative connotations of greed should not be surprising even in light of the Gekko speech. After all, the Gekko speech was merely a good movie moment; not a philosophy to be adopted by those outside of the world of make believe.
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1. Posted by CJS on September 18, 2008 @ 13:35 | Permalink
Greed defined as an agency problem, because people can profit by taking risks with other people's money?
2. Posted by Jake on September 18, 2008 @ 19:57 | Permalink
Overused terms like "greed" usually stifle rational debate.
3. Posted by fedgovernor on September 18, 2008 @ 23:20 | Permalink
Greed is great if you can figure out a way to get the Federal government buy up your bad debt.
And that's exactly what's about to happen. Banks are calling in their chits with the bribees ... and the government is about to buy up all that bad debt (also known as "illiquid investments.")
Moral hazard just ceased to exist.
Ladies and gentlemen of Wall Street ... start your engines.
4. Posted by J.W. Verret on September 19, 2008 @ 0:36 | Permalink
Greed is good! Because greed is competitive. Greedy traders police other greedy traders, resulting in an efficient reduction of agency costs. Greedy long sellers vs. greedy short sellers, and the most efficient analyst of information wins over the long term. Firms die, this is as natural as the necessity for forest fires to enable forest growth (HT: Schumpeter's creative destruction). The fact that big firms die is in no way an indictment of greed as the most efficient policeman of agency costs that human interaction will ever allow.
5. Posted by fedgovernor on September 19, 2008 @ 6:25 | Permalink
"Firms die."
Firms which make bad decisions do not all die.
Some firms get a resolution trust corporation of their very own with which to raid the US Treasury.
The problem with capitalism is that we don't practice it here in the United States.
6. Posted by Cliff on September 19, 2008 @ 19:36 | Permalink
"The fact that big firms die is in no way an indictment of greed as the most efficient policeman of agency costs that human interaction will ever allow"
So let's stinking let them DIE already, instead of bailing them out with my tax money...
7. Posted by MHodak on September 21, 2008 @ 15:03 | Permalink
Blaming greed for financial misfortune is like blaming oxygen for fire. Greed is a pervasive aspect of humanity, visible on both sides of every trade, and at every level of society, except perhaps for the person sleeping in a box near a steaming grate, although I bet they would hungrily grab a better box or warmer grate if they could find it.
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