IS GREED GOOD?
With the world economy sputtering, we’ve found a familiar scapegoat on Wall Street. But maybe Gordon Gekko was right all along.
It’s been about 10 years since one of America’s most charismatic white-collar villains walked out of prison a free man and set out to redeem his shattered reputation. Or so the story goes. Gordon Gekko, the fictional corporate raider from the 1987 film Wall Street, who told us “greed... is good, greed is right,” is set to return to the big screen next year in the sequel Money Never Sleeps. Having become one of the nation’s great philanthropists, Gekko is ostensibly a changed man, says Stephen Schiff, the screenwriter tapped by 20th Century Fox to bring the character back to life. “In some ways, he’s a much larger figure now,” Schiff told Maclean’s. “He’s no longer an inside Wall Street bad guy, he’s someone who really asso32
dates with the great and the good.” But deep down, has Gekko really abandoned his wolfish ways? “He’s a complex person, maybe more complex than he was back then,” Schiff says. “It’s a more complex world.”
That’s one way of putting it. Here in the real world, some of Wall Street’s biggest banks are reeling. Tent cities have sprung up near Los Angeles to house hundreds of subprime refugees foreclosed out of their homes. Factories are shutting their doors and unemployment is surging. What started as an abstract credit crunch seven months ago has spread through the arteries of the global economy to become something much bigger. Last week, when billionaire financier George Soros raised the spectre of a Great Depression-style slow-
down, he was merely giving voice to a fear lurking in the backs of many peoples’ minds. But as the debate rages over who, and what, is to blame, there’s widespread agreement on one thing: we wouldn’t be in this mess if some people hadn’t been so bloody greedy.
It’s a popular refrain at the moment. Presidential candidate Barack Obama, in a recent speech, decried the “ethic of greed” gripping America. Countless bloggers and media commentators have pointed the finger at cupidity and avarice to explain the world’s predicament. “I blame the system, I blame greed,” a former director of storied investment house Bear Stearns told a newspaper when it became obvious the bank was failing. “Wall Street is really predicated on greed.” Aside from being the most screamingly banal declaration ever uttered about America’s financial capital, it nonetheless captures a growing sentiment that something in that country’s DNA desperately needs to change.
Yet as calls mount all across the Western
world to curb our money-grubbing ways, we’re apt to run into a thoroughly unavoidable reality. Greed, and its more respectable cousin, ambition, are at the very foundation of Western, free-market societies. Many of the individuals and practices that have received tongue-lashings of late were, until recently, heralded for their innovations and contributions. When times are good, and everyone is making money, we celebrate ambition. Now, peering through the grim lens of the burst housing bubble, mass layoffs and a scary and uncertain future, we’re inclined to look back and say it was a false economy, in which greed and fraud ran rampant. Like Schiff says, it is a complex world, and nowhere is that more obvious than in the volatile love-hate relationship the West has with our own lust for wealth and status. “In cultural theory we approve of ambition, but in individual experience we hate it when it gets us,” says Phyllis Tickle, a religious scholar and author who has written on the sin of greed. “We have a
tendency to approve of greed right up until it slaps us in the face.” But the question is, how do you restrain greed without crushing ambition?
America’s love affair with the self-made man goes back to its very inception, but the unabashed talk about the virtues of accumulating wealth is a far more recent phenomenon. It’s not entirely surprising, though. Since the 1960s, Americans have indeed been getting greedier, and there’s data to back that up. For more than four decades researchers at the University of California have polled college freshmen on what they see as their most important objectives in life. Today, nearly three-quarters listed being well-off financially among their key life goals. Just 47 per cent considered that developing a personal philosophy is as important as amassing a personal fortune. In the late 1960s, says Karlyn Bowman, a public opinion expert with the American Enterprise Institute, those numbers were almost completely reversed. So when Conrad Black lamented in 1982 that greed had been unfairly “underestimated and denigrated,” he was merely putting into blunt terms what economists had been saying since the days of Adam Smith: self-interest is the most efficient motivator for the creation of wealth. A few years later, Ivan Boesky, the U.S. financier on whom the character of Gekko was partially based, delivered a similar message during a convocation speech in California: “Greed is healthy. You can be greedy and still feel good about yourself.” Of course, the fact both men were ultimately convicted of securities fraud and sentenced to time in prison has only reinforced for many the belief that greed can only lead to ruin.
That mayhem is on full display as the subprime mortgage mess unfolds. And those who fuelled the housing bubble of the last few years have learned first-hand just how fast the West’s commitment to the ideals of personal ambition can turn ugly. The story is all too familiar by now. Lower income homebuyers and speculators borrowed more than they could ever hope to repay to buy houses, while mortgage lenders working for commissions were more than happy to oblige. Once the bankers got hold of the mortgages and resold them to investors, scalping off hefty fees in the process, it all spiralled out of control. As John Stumpf, the CEO ofWells Fargo & Co., put it during the heat of the meltdown last fall, this crisis is the result of “froth, unscrupulous lenders, and borrowers who got too greedy.”
But during the boom years when subprime mortgages were gaining in popularity, they were heralded by many for their social bene-
fit. For decades, public policy in the U.S. has emphasized the benefits of homeownership as a way to foster ambition among those living on low and middle incomes. For many in that situation, subprime mortgages, even with all their flaws, were the only way to achieve that. As researchers from the George Mason University School of Law summed up in a paper on the subprime market last month, “homeownership substantially increases one’s propensity to vote, dramatically improves children’s life outcomes, improves labour market outcomes, creates incentives to improve property, generally increases life satisfaction, and is correlated with a reduction in crime rates.” No one’s saying there wasn’t outright fraud in the mortgage industry. But the researchers argue such examples weren’t the norm. Even with the increased rate of foreclosures, they say, the subprime market has resulted in a net increase in firsttime homeownership in the U.S. Were those homebuyers really being greedy for trying to live beyond their means, or ambitious for aiming to better their lot in life?
Selling mortgages to the poor is one thing, but for sheer moral indignation nothing gets peoples’ blood flowing like CEOs’ gargantuan pay packages. Over the last three decades, executive compensation has exploded unchecked. And if corporate governance activists feel like they’ve been shouting into the wind on the issue, they now have the backing of the big chief executive in the sky. Last month a prominent bishop in the Vatican spelled out the modern manifestations of the seven deadly sins, and zeroed in on the excessive accumulation of wealth. Not to be outdone, the U.S. Congress hauled in three
Even an employee of Bear Stearns said, 'I blame the system, I blame greed,’ when it became clear the investment bank was near collapse
top Wall Street executives and grilled them over their hefty pay packages, which came even as their companies tanked. “There seem to be two economic realities operating in our country today,” said committee chairman Henry A. Waxman. “Most Americans live in a world where economic security is precarious and there are real economic consequences for failure. But our nation’s top executives seem to live by a different set of rules.”
Yet even here America’s on-again off-again love affair with ambition is on display. Take,
for example, Stanley O’Neal, the former CEO of Merrill Lynch, who held the job from 2002 until he resigned last October, just days after the bank wrote off a staggering US$79 billion worth of subprime mortgage investments. Back in 2004 Fortune magazine hailed O’Neal as a “turnaround genius.” In a glowing story about O’Neal’s rise from the grandson of a man born into slavery to Wall Street’s first black CEO, the magazine extolled his moves to slash costs and make Merrill Lynch more competitive. It’s also worth mentioning that in O’Neal’s last full year on the job, revenue at Merrill Lynch topped US$32 billion, up from US$18 billion when he became CEO. But when he resigned, O’Neal committed the unpardonable sin of leaving with more than US$160 million in compensation. The backlash was fierce. Fortune pegged O’Neal’s management of the mortgage crisis as number five in its roundup of the 101 “absolutely dumbest of the dumb” moments in business in 2007 Others were even more personally offended. “This man was Wall Street’s Wicked Witch, a much-feared, totally unrespected hatchet man,” raged the always outspoken Jim Cramer of Mad Money. Why did everybody suddenly turn on O’Neal? For the simple reason that Merrill Lynch had fallen on hard times, people were losing their homes, their jobs, and yet he was walking away with more money than he’ll ever spend. Cramer and others called him “stupid” and “wicked,” but what they were really doing was denouncing his so-called greed.
Not that anyone should be surprised by the vitriol aimed at this most recent gang of executives engorged on stock options and golden parachutes. When corporations like Enron and WorldCom collapsed amid rampant fraud in the early part of this decade, the public feasted on salacious details of lavish executive perks. But gradually, as the economy lifted off again and house prices took over where the dot-com bubble left off, the outrage tapered off. It’s a cycle that has played out over and over again. “We’re more forgiving in good times, but invariably the good times turn bad,” says Chris Day, associate director of the Center on Property, Citizenship and Social Entrepreneurism at Syracuse University. “The pay packages get to a certain size when whatever piece of hard-wiring in our brains goes off, and we say this is really greed, this is beyond ambition. I’m someone who likes capitalism and even I was asking, ‘Are there no limits?’ ”
Our perception of greed, then, seems hardwired into our nature, intrinsically tied to our tendency toward envy. When things are going well, we can applaud the success of others. When everything goes bad, not so much. Consider the ongoing love-hate relationship
of New York baseball fans to Yankees’ thirdbaseman Alex Rodriguez. When it comes to being accused of untrammelled greed, professional athletes and Wall Street are neck and neck. In December, Rodriguez landed a US$275-million, 10-year deal with the Yankees, earning him more each year than the entire Florida Marlins lineup. When A-Rod is slamming balls out of the park, he’s a hero to fans—the kid who grew up in a poor fam-
ily in the Dominican Republic and through sheer talent and hard work, fought his way to the majors. But any sign of an enduring slump, and his critics pounce on his massive paycheque. “What are we paying this greedy good-for-nothing for anyway?”
Stanley O’Neal was celebrated as a turnaround genius at Merrill Lynch, until hard times hit, he quit, and was pilloried for his 'greed'
But cracking down on spiralling salaries in baseball is one thing. Calls for regulations to stamp out the self-interest that is infused in Western economies would have far greater ramifications. “Greed is an unfortunate word,” says Walter Williams, an economics professor at George Mason University, “but it’s about people wanting more for themselves and I think that’s a wonderful human motivation. The big danger in the backlash against greed is that it gives encouragement and sup-
port to politicians who are looking for an excuse to control our lives.” The fear that libertarians like Williams have is that greed and ambition are really one and the same, and if regulators go too far in restricting the former, the latter will be stamped out too. It’s happened before. Day at Syracuse University recently penned a study looking at past bubbles through history, going as far back as the Dutch tulip mania of the 1600s. In each case contemporary sensibilities were offended and regulators cracked down, even though Day’s study found speculators played a crucial role in developing efficient markets. “My concern here is that we not over-regulate in response and restrict the creative growth of the market,” he says.
Is the backlash against avarice intense enough for government to attempt to seriously eradicate it from the system? If there is a pendulum in mid-swing, observers say, where it stops will depend on how bad the current crisis gets. And more importantly, whether the majority of people still feel they’re getting ahead. Most in the West are already convinced that the rich have been getting richer, while the poor have grown poorer since the 1970s, even if the census data doesn’t actually bear that out. But the fact is America’s median household income today is no higher than what it was in the late 1990s, while economists say America’s growth so far this decade has been slower than virtually any cycle going back to the 1950s. Some economists fear those factors alone may be enough to prompt an ultimately self-defeating political pursuit against wealth that could actually hobble the ability of the American economy to heal itself, to restart the growth engine, and innovate for the future.
As for Gekko, Schiff expects he’s going to fare just fine through this crisis. “If he was an average Wall Street guy, he’d get caught up in the bubble,” says Schiff, who just finished the first draft of his screenplay. “But if he is the great Gekko, as I think he is, he’s asking what is it that’s always needed, always valued. If money is over, what would be the thing that will save you in bad times as well as good?” Well, if he is still the same Gordon Gekko, even after a philanthropic rebirth, surely he’d know that the one thing that will always pull you out of bad times is a healthy dose of greed. Nl