Lost Art of Civility
California Budget

Wall Street: Money Never Sleeps

Greed is back! But now the mantra of the sequel to the movie Wall Street is: “It’s not about the money; it’s about the game.” The game is to be important and accumulate as much wealth as possible by beating the stock market. In other words, greed is still good in the sequel to the 1987 film and the idea of business ethics once again comes into question.

Michael Douglas reprises his role as Gordon Gekko -- the epitome of self-centeredness.  Wall Street Gekko is released from prison in 2001 having served his eight-year term for securities fraud. He writes a book called, “Is Greed Good?,” and like so many “reformed” white collar criminals goes on the lecture circuit to gain fame and regain his fortune but not before predicting the coming financial collapse. 

The movie depicts the fall of the investment firm Keller Zabel that is the fictionalized version of Bear Stearns. Most observers credit the failure of Lehman Brothers and the bargain basement takeover of Bear Stearns to avoid its collapse as the root cause of the financial crisis in 2008. The stock market tanked and the number of unemployed workers soared. Homeowners could not pay their mortgages and many defaulted on their loans. This triggered a crisis in the banking industry and companies such as AIG that insured securitized mortgages was bailed out with $182 billion of taxpayer dollars.

Some people credit the greed is good theme of the original Wall Street for ushering in an era of reckless, over-the-top risky behavior that created the 1990s bubble in telecommunication stocks. Less than ten years later the bubble in housing prices burst and when the dust settled it became all too clear that actions by Wall Street firms had precipitated the financial collapse. We learned that some financial institutions had securitized mortgages held in their portfolios and sold them off to entities such as Fannie Mae and Freddie Mac. The banks held on to some of the mortgages but Fannie and Freddie took on most of the risk. The banks typically insured the mortgage investments they still held by going to AIG and purchasing insurance so that AIG would cover their losses. Once one domino fell it was just a matter of time before they all did.

So, what’s the ethical lesson to be learned? Albert Einstein said that the definition of insanity is doing the same thing over and over again and expecting different results. How true this is in the banking industry as we learned last week when Bank of America and other banks halted foreclosures because “robo-signers” were used to process hundreds of thousands of documents a day without reviewing the details. What were they thinking? Obviously, they weren’t thinking but, instead, failed to consider the consequences of their actions on homeowners, the banks themselves, and our economy.