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Anatomy of Greed
Written by Alice Poon
Saturday, 04 October 2008
This post is not about the financial crisis - it's about greed, one of
the seven deadly sins in Catholicism. I was inspired by Barry Eichengreen's
comment in the last paragraph of his piece written for Project Syndicate: "We
are not going to change human nature. We cannot make investors less greedy."
(If anyone is interested in an insightful analysis of the root causes for the
current US financial crisis, Eichengreen's article titled "Anatomy of a Crisis"
is worth a read. He is Professor of Economics at the University of California,
Berkeley.)
What is greed? According to the Wikipedia definition, "Greed denotes
desire to acquire wealth or possessions beyond the needs of the individual,
especially when this accumulation of possession denies others legitimate needs
or access to those or other resources." "Essential to the concept of greed is
the awareness that the needs of others are denied." "Greed also often involves
using wealth to gain power over others, sometimes by denying others wealth or
power." "Greed typically entails acquiring material possessions at the expense
of another person's welfare."
Diehard laissez-faire capitalists have always argued that greed, even
unrestrained greed, is a necessary foundation for the capitalist system. But it
seems time and again, periodic financial booms fed by reckless greed and
inevitable subsequent busts in the US and around the world have shown that
unrestrained greed, as opposed to "self-interest", is indeed bad, very bad, for
societies generally.
In Adam Smith's first major work, "The Theory of Moral Sentiments", he
made it clear that "self-interest" is synonymous with the Stoic notion of
"self-reliance", which is quite different from selfishness or crass greed,
according to analyst R. M. Morgan. Such "self-reliance" is at odds with actions
that harm others, and limited by what can be achieved fairly. This Stoic notion
of self-interest embodying moral constraint in mind and allied to
self-reliance, works to mutual advantage and provides the moral foundation of
the market economy.
It can be seen therefore that the literal meaning of "greed" is quite the
antonym for "self interest". The sad thing is that free-market disciples have
often conflated the two and conclude that "greed", in its literal sense, is
good, which unfortunately is the last thing that Adam Smith would have wished
to flourish.
The post-boomer generations, many of whom worked their way up to become
high-flying financial professionals in the US and elsewhere in the last couple
of decades, have been immersed in a culture that idolizes greed, as is
epitomized in the famous line "Greed is - for lack of a better word - good.
Greed is right. Greed works." by Gordon Gekko in the 1987 film "Wall Street".
When greed becomes one's "religion", the concept of "self-interest" as
perceived by Adam Smith is twisted so out of shape that it is indistinguishable
from larceny.
Greed shows itself in many forms of human behavior in different
societies.
The CEO of a leading financial institution who, in trying to drum up
profits and thus his own bonus and his company's stock price (which also
benefits his options holding), and oblivious to probable investor losses,
devises an elaborate scam whereby high-risk collateralized debt obligations are
bought, split and mixed and then sold to trusting investors - (US). The
directors of a milk-powder manufacturer who, out of crass greed to line the
company's pockets, decide to allow milk stations to add poison to milk powder
to make it appear more nutritious, knowing full well that the melamine-laced
products would harm or even kill babies - (China). The executives at the
financial rating agencies who pass junk bonds as triple-A investments, in
return for personal or other favors from client companies - (US). The bank
managers who, in the hope of getting a salary raise or promotion, tell
front-desk staff to persuade customers to buy what they know are high-risk
securities but purposely evade disclosure of the risk factor - (Hong Kong). The
heads of government regulatory agencies who, not wanting to jeopardize their
symbiotic relationship with real estate developers, turn a blind eye on the
rampant predatory lending practices in the home loan industry - (US).
Eichengreen's assertion that greed is an innate and incorrigible human
trait would seem to be a death sentence on any hope of salvation from
self-inflicted doom in societies every now and then. But his point is that even
though we cannot change human nature, we can still correct our government
policies so as to try to prevent disasters from recurring in the future. One
problem with this is that when any action is taken to change policies in
response to a crisis, it will be post-mortem and the pain will already have
been inflicted.
Perhaps what we really need in this age of unrestrained greed is to
somehow find a way to rebuilding the moral foundation in our societies, even if
it means, in part, putting in place more stringent, preventive regulations.
While I keep an open mind on free-market principles, I do tend to agree with
Eichengreen's point that you cannot eliminate greed as it is human nature. The
answer to this problem may lie in the saying of Martin Luther King Jr.:
"Morality cannot be legislated, but behavior can be regulated. Judicial decrees
may not change the heart, but they can restrain the
