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All Sides Agree: On Wall Street Greed is Good
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by Tina Kells | February 10, 2009 at 03:19 pm
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While researching information on the economic crisis I have come upon many opinion pieces and editorials about the Wall Street set. Some seek to defend the status quo on Wall Street while others speak to the collective outrage many feel over the circumstances surrounding the financial crisis.
One of the best defenses of Wall Street that I read was written by Professor Roy C. Smith who teaches at New York University's Stern School of Business and is a former partner at Goldman Sachs. Smith paints Wall Street as one of the most misunderstood entities in the United States today; here is a small excerpt from what he had to say and I urge you to click through to read the rest.
"Wall Street" has always been the quintessential, if ill-defined, symbol of American capitalism. In reality, Wall Street today includes many large banks, investment groups and other institutions, some not even located in the U.S. It has become a euphemism for the global capital markets industry -- one in which the combined market value of all stocks and bonds outstanding in the world topped $140 trillion at the end of 2007. Well less than half of the value of this combined market value is represented by American securities, but American banks lead the world in its origination and distribution. Wall Street is one of America's great export industries.
While Mr. Smith makes some very fair points about Wall Street his clinical approach to the situation ignores one very key ingredient of the current economic fiasco... the ignoble nature of human greed. To Smith, "Greed is Good" but in reality there is nothing good about it.
Undoubtedly greed played a key role in the development of corporate policies that led to the current market instability and the credit crunch. Certainly greed played a role in the dwindling presence of the middle class and the near elimination of middle class mobility. Greed definitely had a firm hand in guiding Wall Street executives and the like to make decisions that increased the wealth of the upper 10% of society while slowly eroding that of the remaining 90%.
The high stakes real-life monopoly game known as Wall Street can not be immune to the reality of human greed and it is that basest of human motivators that put all of us in "the worst economic crisis in generations."
Many economic observers have made note of the greed factor. Some have actually suggested that greed is a good thing that drives Wall Street executives to increase their own wealth while the rest of us tag along for the ride. President Obama however, openly acknowledged greed's ugly role in our collective economic demise and in doing so took all the steam out of the pro-Wall Street yay-for-greed sail. hav
No where is the greed on Wall Street more clearly illustrated than in the case of former NASDAQ chair Bernie Madoff. For nearly 50 years Madoff was able to sucker in some very market savvy individuals with an elaborate Ponzi scheme that made some people very, very rich. The returns of Bernard L. Madoff Investments defied market norms but nobody cared as long as the cash kept coming. That was greed.
Then the crisis hit, Madoff was exposed, and suddenly his investors, many of them highly paid Wall Street minds that should have known better, are calling themselves "victims." While some investors may truly be victims others would be better described as collaborators. They comfortably lay down with greed and one day woke up with fleas.
In my search for answers to this very perplexing problem of how astute Wall Street minds could have been fooled by Madoff I keep coming back to one little green thing called greed... and I am not alone. Below I have listed excerpts from four of the most compelling arguments on Wall Street greed that I could find on the web; as with Roy C. Smith's article I urge you to give these all a read.
On Bernard Madoff Whistleblower Harry Markopolos
Harry Markopolos needs to head whatever government agency is responsible for checking up on Wall Street. Period.How could anyone come to any other conclusion after watching the man thoroughly dissect the regulatory failure that allowed Bernie Madoff's alleged Ponzi scheme to thrive? Markopolos not only knew exactly what Madoff was doing, he knew what regulators weren't doing and why. Just when you thought the financial crisis has created nothing but villains, along comes Markopolos, the bookish, humble whistleblower who courageously fought in vain for nearly a decade to get regulators to take a close look at Madoff.
He took Capitol Hill by storm Wednesday, unleashing a double blow of written and spoken testimony that painted a devastating picture of the alleged Ponzi schemer Madoff and unleashed withering criticism of the Securities and Exchange Commission and Financial Industry Regulatory Authority.
On Senator John McCain's Anti Wall Street Campaining
In the past few days, as the economic crisis has deepened, Senator John McCain has been decrying the excesses of Wall Street. At a campaign rally in Tampa on Tuesday, he vowed that he and Alaska Governor Sarah Palin, if elected, "are going to put an end to the reckless conduct, corruption, and unbridled greed that have caused a crisis on Wall Street." He noted that the "foundation of our economy...has been put at risk by the greed and mismanagement of Wall Street and Washington."He blasted CEOs who "seem to escape the consequences." He denounced Wall Streeters who "dreamed up investment schemes that they themselves don't even understand" and who used "derivatives, credit default swaps, and mortgage-backed securities" to try "to make their own rules." He excoriated Fannie Mae and Freddie Mac for gaming the system. And he slammed financial industry lobbyists for misguiding members of Congress.
On the Core of Wall Street's PR Problem
The overweening sense of entitlement and shocking lack of common sense among Wall Street executives is simply incomprehensible to most Americans. It seems no amount of shame and outrage can change their behavior.Giant insurer AIG was blasted around the world last year for spending half a million dollars on a retreat for its executives who had managed to drive the company to the edge of bankruptcy. The government had bailed out the struggling company with a total of $150 billion — that's with a B — in loans, and AIG was still jetting its top folks around the world for spa treatments and hunting trips on the taxpayers' dollar.
This week AIG acknowledged that it was going ahead with $450 million in bonuses for 400 employees who had sold the credit default swaps that put the company in the red. That's more than $1 million for each of those valuable employees who managed to lose $11 billion last quarter.
A Direct Rebuttal to Roy C. Smith - Greed is Good
I hate to break it to the bonus apologists, but scare tactics aren't working. Pay curbs are here for banks big and small. If, as you threaten, we lose the so-called "best people" on Wall Street, then so be it.
If these are the same "best people" that former Merrill Lynch & Co. Chief Executive John Thain talked about in defending the 11th-hour bonus payout he made before his deal with Bank of America closed, then what happens without the best people? Does Merrill lose double the near $30 billion it lost last year?
Maybe the biggest mistake made by the likes of Smith, Thain, Tiger Management's Julian Robertson or former New York Mayor Rudolph Giuliani, when defending bonuses, is they forget that making the rules about pay is part of the right of ownership and an essential part of capitalism and free markets. After doling out more than $350 billion to acquire stakes in investment banks and commercial banks, the U.S. government -- you and I, as taxpayers -- definitely own the biggest banks on Main Street and Wall Street.
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Most RecentMost Recommended Comments (1)
at 19:33 on February 10th, 2009
Here's an opinion that will curl your toe nails ...
Source: ft.com