Is Greed Good?
In the 1987 film Wall Street, Michael Douglas’ character, Gordon Gekko, states the ever so quotable line: “greed, for lack of a better word, is good.”
But is that true, by any measure?
The financial crisis of 2007–2008 – considered by many to be the worst financial crisis since the Great Depression - would suggest otherwise.
When tasked with discovering the cause of the crisis, the US Senate laid the blame squarely at the feet of "high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street."
In simple terms, they blamed unfettered greed.
The pursuit of wealth – the ambition to always have more – led investment banks such as Lehman Brothers to take excessive risks. It was these risks which ultimately led to their collapse and in turn brought the rest of the global market down with them in a perverse high stakes game of Jenga.
But what do we mean by ‘excessive risks’? In search of profits, Lehman Brothers took the risky decision to have assets (real estate) of $680 billion supported by only $22.5 billion of firm capital. In this situation, a 3-5% decline in real estate values would wipe out all its capital.
And that’s exactly what happened.
What I find most amazing about this entire situation is how the fallout from the greed of a few detrimentally impacted the lives of so many.
Some of the worst impacted were those in developing countries as strong economic growth was replaced with significant slowdowns. Growth forecasts in Cambodia fell from 10% in 2007 to nearly 0% in 2009. At the same time, Kenya’s growth fell from 7% to 3-4%.
Moreover, unemployment rates shot up across the globe. More than 354,000 Irish citizens signed up for unemployment benefits in February 2009 – an increase of 87% over the previous year.
Even I, a child at the time, was not left unscathed. I remember sitting at home, half the world away from Lehman Brothers, watching the news as panic spread. My parents were unsure about the future and it left me with a distinct sense of insecurity and unease.
So when I rhetorically ask if greed is good of course my answer is no.
Ambition can often be a force for good - but when the pursuit of wealth comes at the long term harm to millions, then ambition becomes an aberration.
Gordon Gekko was wrong. Greed, isn’t good.