I watched Wall Street 2 late yesterday. In the movie, Gordan Gekko (Michael Douglas) gives a speech at a university. This speech is our quote of the day.
Oliver Stone is the director of this movie. I have to think Gekko’s speech is Stone’s speech to America. Stone does a great job at defining the angst most of us are feeling today due to the meltdown a few years ago.
But is Stone correct? Let’s read Gekko’s words before answering this question.
“You’re all pretty much fucked. You don’t know it, yet. But you are the NINJA generation. No income – No jobs – No assets. You have a lot to live for, too. Someone reminded me the other evening that I once said, “Greed is good”. Now, it seems it is legal. But folks, it’s greed that makes my bartender buy three houses he can’t afford with no money down? And it’s greed that makes your parents refinance their two hundred thousand dollar home for two-fifty. Then they take the extra fifty and go down to the mall. They buy a plasma TV, cell phones, computers, a SUV, “Hey – Why not a second home while we’re at it? Cause, gee whiz, we all know the prices of houses in America always go up, right?” And it’s greed that makes the government of this country cut interest rates down to one percent after 9/11 so we call all go shopping again. And they got all these fancy names for trillions of dollars of credits, CMOs, CDOs, (something), (something)… You know, there may be seventy five people in the world that know what they are. But I will tell you what they are… WMDs – “Weapons of Mass Destruction”. That’s what they are.”
So, is greed bad? I really do think when people ask this question, they are mixing multiple ideas. Sure, excessive gluttony and hedonism are usually not thought as positive personal attributes. They typically are thought of as sins. In fact, greed is named as one of the seven deadly sins.
But, when the average person seeks to better their position in life is this greed or self interest? When a nurse leaves their career to sell homes, did they leave due to greed or to better their life or the life of their family? Is the nurse reacting out of greed when governmental incentives are valuing home sales over another career or is the person responding to the incentives?
Is this period of history defined by individual personal greed or just self-interest driven by misplaced incentives? Would people naturally leave their careers without these artificial incentives?
Malinvestment can be the result of tinkering with the natural market.
I may address the financial instruments and challenges in another post.
If you want to learn a little about what happened in the housing market, listen to the first 20 minutes or so of this link. Johan Norberg does a great job at explaining the challenges and moral hazard of the situation in everyday language.