No, Mr. Gecko, Greed is Not Good
In the movie Wall Street, Gordon Gecko utters the famous line, “Greed is Good.” Well, we all know what happened to Mr. Gecko.
I saw Robert Kiyosaki on Mike Huckaby’s show last week before the election. When asked who we would vote for, he responded that he would vote for neither Obama or McCain. The reason he said, was that we have a global economic crisis, not a political problem. Well, like anything, it depends on your point of view.
Obama probably has inherited the worst economic mess ever. The 750 Billion Barrel Bailout of Wall Street exists with the War in IRAQ, the credit crisis, the energy crisis, 1,200,000 new jobless claims, and oh, by the way, no one’s been talking about Social Security lately, which alone is a 680 Billion dollar a year program. I’ve seen some estimates that the real bailout number is closer to three trillion dollars, which is, lets see 3,000,000,000,000. Thats a lot of zeroes.
I want to make a point that no matter what economic program is devised, the underlying character problems that caused this mess are going to have to be corrected. In my opinion, all the problems can be traced to three main problems: greed, arrogance, and a refusal to embrace change and evolve with the times.
The real estate mortgage meltdown was fundamentally a problem of unregulated greed on both sides of the loan document. Brokers were funding loans to anyone with a pulse on stated income, in order to generate commissions. I have a friend who was an insider and told me that lenders like New Century encouraged brokers to fund as many loans as possible, and that they were given a quota ever month, say of 100 million dollars. If the broker didn’t fund that amount during the month and only funded 80, his allotment might be cut. So instead of qualifying buyers, the brokers turned a blind eye and looked the other way. On the other side of the table were buyers who were easily taken advantage of by promises of, don’t worry about the payment or the interest rate; when your house appreciates 25% in the next year, we’ll just refinance you into a fixed rate loan.” That of course didn’t happen, because the economy started slowing down in 205 when Hurricane Katrina hit and gas prices started going up, at the same time the real estate bubble was starting to burst. People got into loans they couldn’t afford on the dubious hope that they were going to somehow make payments they never could afford. A lot of novice “flippers” who thought they were going to make their fortune in the new gold rush, took a beating because they didn’t understand the concept of debt service. In a business transaction, the parties are supposed to give and receive value. What the brokers sold was a financial time bomb ready to go off, and the buyer’s gave in return a false or illusory promise to pay. The Wall Street melt down because the secondary money market was betting on making a killing on the high rate of return on the packaged or derivative loans. In reality Wall Street was left holding an empty money bag. Was it really that big of a surprise?
At the same time we are “shocked” to find oil prices skyrocketing. Well, not really, because we were warned thirty years ago when the Peanut Farmer from Georgia was President, Skylab was falling, and there was gas rationing. For my senior project in history class, I did a term paper for my final project, and I found out that we were 30% dependent on foreign oil at that time. At that time, there was some discussion about whether the world would run out of OIl by now. In the meantime, there have been new oil discoveries abroad but no new refineries built in this country for thirty years. We have made no substantial efforts to develop alternative energy sources including nuclear power, wind and solar
And now, we are presented with the request for a bailout of the auto industry, which is a cornerstone of American industry. While Toyota and Honda developed hybrid cars such as the Prius, Detroits response was to build bigger vehicles, like the Hummer, the Navigator, and the Chevrolet Subdivision. Weren’t they told to build more fuel efficient vehicles 30 years ago? The automakers should have been working to retool and retrain for the last thirty years. Instead, they only thought about making the sale then, instead of looking to serve the long term interests of the consumer and the country. Why should we feel sorry for them for making a stupid business decision. If I make a stupid decision, I get to pay for it. Not somebody else. Not the government, and certainly not my neighbor. One of the central tenets of free enterprise is that you are free in the marketplace to determine your own degree of success. You are also free to fail. Those who do not provide lasting value, do not look to the future for their companies and their customers, and only look for short term profit are likely headed for disaster.