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Is Greed Good? For Whom?

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Back in 1987, the movie Wall Street introduced the central meme of the 1980's and after to the general public: "Greed…. is good." Christoph Uhlhaas, writing for Scientific American, wondered about that bold and unsubstantiated assertion, claiming that the large number of successful transactions on sites such as eBay refutes the common wisdom regarding "Homo economicus (economic man)" being "a rational, selfish person who single-mindedly strives for maximum profit."

Studies led by economist Axel Ockenfels of the University of Cologne in Germany, conducted with economist Gary Bolton of Pennsylvania State University, tend to support that doubt. They found through their studies that a sense of fairness is the largest determinant in the conduct of transactions, but that the balance between fairness and selfishness can be manipulated.

Such manipulations are rife within the collapsing home mortgage industry. After share trading of American Home Mortgage was halted by the New York Stock Exchange, American Home Mortgage's lenders (Bank of America Corp, JPMorgan Chase & Co., Bear Stearns Cos, Credit Agricole SA's Calyon affiliate, and UBS AG) cut off their credit, leaving AMC holding worthless contracts for new home loans valued at over $300 million, with as much as another $500 million in existing loans no longer secured.

Other lenders, MGIC Investment Corp and Radian Group Inc, are now tilling the same barren patch, facing the necessity of writing off over $1 billion in loans themselves. New Century Financial Corp. has already filed for bankruptcy protection, and Countrywide is struggling to stay on their feet.

That's what they get for allowing their greed to overrule their traditional conservative practice of not making loans to people who could not document income or assets just because profits were (temporarily) very lucrative when doing otherwise.

Facing up to the inevitable (something the Bush administration should be doing about so many things), American Home Mortgage Chairman Michael Strauss closed the business, terminating over 7600 employees, including over 1400 in Melville, NY and 155 in hard-hit Northern Indiana. In addition, thousands of housing hopefuls are now back in the market seeking sheltering loans in a much harsher economic environment.

Don't cry for these mortgage brokers, who lost their jobs to sub-prime lending. Michael Strauss shares their pain having experienced the loss $42.8 million in 20 minutes the other day before trading was halted. That sense of fairness referred to by Professors Ockenfels and Bolton leads one to feel sympathy for everyone affected by the collapse of American Home Mortgage – until one discovers that Strauss provided for himself to the tune of $1.8 million, an amount that none of his employees can expect to see.

I guess that proves that greed really is good – if you are the sole beneficiary. Otherwise, ask not for whom greed toils, for it does not toil for thee.

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About pessimist

  • Colin Ricketts

    Well played young man.

  • Dr Dreadful

    Certainly areas which are experiencing a boom, as the mortgage industry has been, tend to be fertile ground for greed. Good businesses, however, know that greed (striving for maximum profit) must be tempered by ethics (not cheating your customers). It’s that hoary old admonition: don’t bite the hand that feeds you.

    On an unrelated note, has anyone else noticed how formulaic popular politics books have become, particularly in regard to their titles? Most of them have the format:

    [Eyecatching idiomatic expression]: How [what the book’s really about]

    Thus, just in the Amazon ad above this comment, we have:

    Pigs at the Trough: How Corporate Greed and Political Corruption Are Undermining America
    The Greed Merchants: How The Investment Banks Played the Free Market Game
    Cheating Our Kids: How Politics and Greed Ruin Education
    Infectious Greed: How Deceit and Risk Corrupted the Financial Markets

    And that’s just in the one small sub-category of liberal books about capitalist greed. I see endless titles along the same trite lines every time I go to the bookstore or library.

    I’ve got one: Dim Bulbs: How Unimaginative Authors and Editors Are Prostituting Publishing.

  • Dave Nalle

    I can’t imagine who would shed a tear for mortgage bankers. But just to clear up some of the murkiness perpetrated by this article, experts were decribing the banking industry as being in the best financial condition it had been in since the depression before the recent reversals, so that ought to provide some ability to withstand a bit of adversity. The risk takers and abusers will take a fall, the survivors will pick up the pieces at a profit and we’ll move on, riding the great beneficial wave of greed, perhaps tempered by a bit of responsibility and reasonable caution.


  • Dave Nalle

    Dr. D. you could probably make an excellent article out of the observation you had in that twice-repeated comment.


  • Dr Dreadful

    It would have to be satire, Dave. But after Bambenek’s disastrous bridge collapse stunt, I don’t know how that would go down…!

    Sorry about the repeats. Weird things were happening this morning when I tried to post it. I could have sworn the first time all I tried to do was preview the damn thing. At first I thought my home wireless network was having an electronic brain fart; then I looked at the Fresh Comments page and saw all those phantom comments. I think Clavos posted something that published about three times, too. So something distressing must have been happening with Akismet there.

    Seems to be fixed now, though.

    I know you’ve encouraged me before to submit articles to BC. I’m still considering it. Oddly enough, I suspect that most of my submissions wouldn’t be political, even though this is the section I comment on most.

  • Dave Nalle

    Well, I agree that it would have to be satire, but it’s a very interesting observation nonetheless, and the best satire is founded in truth. And I think it would probably belong in Books or Culture rather than Politics.

    I wish there was a way to have articles listed in multiple primary sections, but it is verbotten.


  • Clavos


    FWIW, I second Dave’s idea that you should write some articles.

    We need new authors to rip apart. :>)

    Seriously, I DO agree – strongly.

  • Dave Nalle

    Clavos took up my suggestion to write some articles and he survived, after all.


  • STM

    The spectacular debacle in the sub-prime lending market in the US led to spectacular falls on the Sydney Stock Exchange last week.

    I reckon it’s a all a US plot to send foreign currencies plummeting on the back of the falling dollar, which fu.ks my holidays up because the $A, which tends to ride along with the $US, has now fallen against the Euro. Bastards.

    Stay strong Yanks – at least until I get my Euro travellers’ cheques.

  • Clavos

    “The spectacular debacle in the sub-prime lending market in the US led to spectacular falls on the Sydney Stock Exchange last week.

    Strange. Didn’t do anything to the NYSE.

  • Dave Nalle

    Stan, you can always come here. We want your lovely OzBucks.

    Perhaps banks impacted the Sydney exchange because they are more international, while the NYSE has more domestic companies which are doing fine to buffer the impact and Australia has a lot fewer domestic industries.


  • STM

    It only has to fart somewhere in the world, and all the nervous nellies on the aussie stock market are selling up.

    And of course, if you don’t sell, you don’t lose anything.

  • Dave Nalle

    Fear is the mindkiller, young Paul Atreides.


  • Baronius

    Realist, I was going to criticize your article’s definition of the term “economic man”. But I followed your link, and read the Scientific American article, and you’re not to blame. The SA article is sloppily written. The author says “selfish” where he means “self-interested”, and really loses the point of the research.

    The self-interested rational actor seeks to maximize personal satisfaction. Whether that happiness comes from increased wealth or the smile of a child receiving a toy, happiness is the central motivation. There’s nothing specifically greedy in that concept. The SA article discusses wealth-building and fairness as two ways of attaining satisfaction.

    Taking it a step further, increasing one’s wealth is not necessarily greedy. Greed is an *inordinate* desire for wealth. By analogy, there’s nothing wrong with wanting to rest on a long journey, but lying on the couch all day eating Doritos is laziness. If you’re Catholic, you know that last Sunday’s reading was about the rich man who tried to store up riches for the future. It’s not the act of earning that’s wrong, it’s seeking security in wealth.

    Sorry if that was too much of a tangent.

  • http://LesPaulisanexcellentguitarplayerwithanadmirablegraspofgoodjazz. bliffle

    Greed? Well, we have a prominent example of the implementation of Greed Nation right in front of us in Iraq. Remember when the invasion was fresh and neocons were proudly promoting the coming flowering of the Iraq economy empowered by privatization, deregulation, low taxes, etc?

    Here’s an accounting from Harpers 3 years ago:

    The honey theory of Iraqi reconstruction stems from the most cherished belief of the war’s ideological architects: that greed is good. Not good just for them and their friends but good for humanity, and certainly good for Iraqis. Greed creates profit, which creates growth, which creates jobs and products and services and everything else anyone could possibly need or want. The role of good government, then, is to create the optimal conditions for corporations to pursue their bottomless greed, so that they in turn can meet the needs of the society. The problem is that governments, even neoconservative governments, rarely get the chance to prove their sacred theory right: despite their enormous ideological advances, even George Bush’s Republicans are, in their own minds, perennially sabotaged by meddling Democrats, intractable unions, and alarmist environmentalists.

    Iraq was going to change all that. In one place on Earth, the theory would finally be put into practice in its most perfect and uncompromised form. A country of 25 million would not be rebuilt as it was before the war; it would be erased, disappeared. In its place would spring forth a gleaming showroom for laissez-faire economics, a utopia such as the world had never seen. Every policy that liberates multinational corporations to pursue their quest for profit would be put into place: a shrunken state, a flexible workforce, open borders, minimal taxes, no tariffs, no ownership restrictions. The people of Iraq would, of course, have to endure some short-term pain: assets, previously owned by the state, would have to be given up to create new opportunities for growth and investment. Jobs would have to be lost and, as foreign products flooded across the border, local businesses and family farms would, unfortunately, be unable to compete. But to the authors of this plan, these would be small prices to pay for the economic boom that would surely explode once the proper conditions were in place, a boom so powerful the country would practically rebuild itself.

    The fact that the boom never came and Iraq continues to tremble under explosions of a very different sort should never be blamed on the absence of a plan. Rather, the blame rests with the plan itself, and the extraordinarily violent ideology upon which it is based.

    Harpers article

    So, how’s the Greed Is Good policy working out in Iraq?

  • Sajjid Manuel

    In a world that revolves around the imperfect it is crucial that people who are employed by such a circumstance should be more attuned to risk factors.

    A plan ‘B’ wouldn’t hurt. There’s no point in cribbing about unchangeable situations. They just have to work around it to be able to survive.

    Don’t you think they get a little comfy in thinking that yes, this is going to be my job in the long run?

    It’s a real world we live in. So, real things happen. If one was to understand the law of life and nature we could possibly live in harmony.

    If one we’re to dream all the time, when we’re they ever going to wake up!

    You see, the way that this has been the same pattern over and over again, should have given them time enough to realize that it was necessary to buckle up.

    People have been laid off for decades. So what? If one falls down, they have to pick themselves up.

    In my opinion, it is better to pick oneself up before you fall down.

    Learning from ones own mistakes can be very stressful and painful. But, learning from someone else’s mistakes can most probably be a wise take.

    Best Regards,

    Sajjid Manuel

  • http://LesPaulisanexcellentguitarplayerwithanadmirablegraspofgoodjazz. bliffle

    Greedy people are simply parasitic, and that’s why the neocon Greed plan for Iraq failed: there was no healthy host for the parasites to leech off of. Not in Iraq anyhow, so they leeched off the USA treasury.

  • Baronius

    Bliffle, the neocon plan wasn’t for greed. Just because Harpers said so doesn’t make it true.

    If you want a study in greed, look at much of Europe’s policy toward Iraq. They really didn’t seem to mind the Baathist government’s slaughter of innocents as long as the oil kept coming. A good chunk of the world signed off on Food for Oil – or should I say Kickbacks for Oil? Actually, it was Blood for Oil. The “neocons” put an end to it, thank God.

    There’s no part of the world that’s mastered the profit motive like the old Silk Road. Up in Afghanistan, greed is the problem. They’re growing opium for the money. The mideast needs a little more religion and a little less greed, if you ask me.

  • Iron Duke

    Neocons didn’t go into Iraq for greed. They went there to try to carry out an experiment in social engineering and nation building. They wanted to wipe the slate clear and start over again and build their ideal society. They forgot that you can’t suddenly erase the past of 26 million people. In many ways the Neocons are just plain idiotic. This is why they’re not a threat to anyone anymore. Bush gave them their chance. They embarassed him, and they’re not going to have another.

    You should really be glad that they got to have free reign for that first year in Iraq, because you’ll never see them in a policy making position again. If they hadn’t been given enough rope to hang themselves they might have stuck around for years and years.

    The oil was certainly the least of their concerns. It was intended to finance Iraqi reconstruction under their plans, never to profit the US in any way except for the benefit we get from more oil being pumped.

  • STM

    Bliff: “The honey theory of Iraqi reconstruction”

    This where the giant honey badgers come to the fore.

  • STM

    “Fear is the mindkiller, young Paul Atreides.”

    And the profit killer.

  • http://LesPaulisanexcellentguitarplayerwithanadmirablegraspofgoodjazz. bliffle

    “If they hadn’t been given enough rope to hang themselves they might have stuck around for years and years.”

    Oh but they ARE still around, many employed at popular magazines like TIME in place of real reporters. Why would anyone ever again pay attention to Kristol, Krauthamer, etc.? And Wolfowitz, Perle, Feith, etc., have gone on to bright new jobs, where, one might guess, better men have been displaced.

    Whenever I see those guys on TV I turn my attention to other matters, for what could they say that a reasonable man would give any credit to?

  • Baronius

    STM – It always comes back to the badgers, doesn’t it?

  • AshcroftB

    Our current economic atmosphere is undisputedly a result of massive greed and corruption on the part of governmental and financial institutions.
    So why is this viewed as a crisis instead of progress if, in fact, greed is good?

    The problem is we hold onto the myth that greed is integral to the success of Capitalism.
    The reason this myth hasn’t been universally denounced is because it is caught up in language and how we choose to define greed.

    Ambition is defined as a desire for rank, fame, money, power, or to achieve a particular end.
    It does not speak to the motivation for that desire or one’s intentions after having achieved the desired end.
    It is neither good nor bad, but is generally regarded as a virtue and the driving force fueling competition.

    Greed is often defined as an excessive desire to acquire and possess more than one needs or deserves.
    The key element (the element distinguishing from ambition) is ‘more than one deserves’ since what one actually needs is arbitrary.

    By one interpretation, greed offers the most practical incentive for people to work harder than the next guy, get a good education, invest in a business, and acquire wealth. This implies hard work, ability and determination and is, by definition, not really greed. This is actually just ambition and can be good and healthy and a necessary component of our economic system.
    Another flavor of greed is being the motivating factor to lie, cheat, scam, and do other unethical or illegal things in order to achieve one’s ambitions. This form of greed defies the tenets of the free market.

    The blanket statement “Greed is good” ignores such distinctions of interpretation enabling cheaters and, in turn, degrading the free market system. As a matter of common sense, we can say “Love is good”, but when we further qualify it to love hurting people or loving a child sexually, it no longer holds water. So the legitimacy of the statement “Greed is good” is more a matter of language than of ideology.

    In the most basic sense, a Venture Capitalist is just another job in the free market system.
    The responsibilities are to analyze and speculate as to the actual value of commodities, stocks, etc. and invest accordingly thus driving the free market. If you do your job well you should make a profit, but this alone does not imply greed. I think we can all agree the system works when properly checked and balanced, but the effectiveness of the system is perpetually hamstrung by greed (2nd form).

    In short, Gekko was wrong. Greed is NOT good.

    Where do we go from here?

    We may or may not sympathize with home-owners who have been foreclosed as they did take their chances and hopefully understood the conditions of their loan contracts, but we all agree the burden of this catastrophe (if that’s what it is) should not be borne by Main Street.

    To quote Michael Josephson, “If you have an unregulated arena, cheaters win”.
    That isn’t to suggest that the answer is more regulation, but perhaps better regulation – simpler and more transparent regulation.

    The legal system in the United States is by far the most complex in the world and each year it only grows larger and more convoluted, especially in economic policy and tax legislation. This ensures that fewer and fewer people are capable of understanding and vetting proposed legislation before it goes into effect.
    Our uneducated congressmen, let alone our citizens, have almost no chance of catching bad legislation in time to prevent the inevitable exploitation by those who have the resources and foreknowledge to take advantage of the changes.

    Then we have the Federal Reserve, the hidden power-players who are accountable to no one.

    We all realize the game is fixed, but we still play because no one truly believes that systemic change is possible and we figure, “Hey, at least we know the rules well enough to gain some ground this year.”

    I daresay if you go back to one year ago we, as a nation, had less faith in the American Dream than anytime since the war in Viet-nam so it came as no surprise when last years’ presidential election boiled down to one word. Change. The same rhetoric that is guaranteed to work at least once per generation. In pessimistic times change is a surefire bet and Obama was a shoe-in. We, as a populace, suffer from the battered citizens’ syndrome, telling ourselves that “this time will be different.” Why? Because we need to believe again.

    Don’t get me wrong, I am an Obama man. I’m not sure if we ever had a candidate that exuded so many of the qualities we all look for in a leader: intellect, empathy, composure, integrity, and even moderation in divisive times. Also, not enough can be said about boons that come with being in the right place at the right time.

    It’s way too early to pass any judgement, but the pledges to introduce more transparency to the legislative process are inspiring. Sure, the bailout is more of the same, but it was on the table even before the election and it’s just too early in his term as president to try anything too radical. The jury is still out and will be for some time, but I truly think there is a sense of optimism in the minds of the people these days, despite the continual doom n’ gloom overtones. Obama is still managing expectations in anticipation of more bad news. You can’t start selling optimism if things are about to get worse. The one thing I think we can all agree on is that these are some interesting times in which we are living.

  • chloe

    Greed. It’s how the majority are programmed to function. To consume. And with an ever increasing population, who are getting “bigger”, our propensity to consume is spiraling. Thank God for OPEC and inflation! Just don’t mention liquid hydrogen, shhhhh.

  • Igor

    We have this zombie thread to thank for Dave Nalles glorious gaffe:

    3 – Dave Nalle
    Aug 05, 2007 at 7:29 pm

    … just to clear up some of the murkiness perpetrated by this article, experts were decribing the banking industry as being in the best financial condition it had been in since the depression before the recent reversals,…The risk takers and abusers will take a fall, the survivors will pick up the pieces at a profit and we’ll move on, riding the great beneficial wave of greed, perhaps tempered by a bit of responsibility and reasonable caution.

    That was 5 years ago. How suddenly things changed, in spite of Nalles sunny forecast.