Gordon Gekko was wrong. Greed isn’t always good. In fact, as we have seen this year, greed can be devastating. Don’t misunderstand me; Capitalism is good. Selling a viable product for a profit is good. Corporate takeovers, failures and resurgences are part of our economic system which I wouldn’t trade for anything. But where did we get so left of center that our entire economy is now teetering because of greed?
My brother works for Lehman Brothers. For now. He has a wife, two year old twins and a third due in January. Their world is rocked. He does not buy, sell or trade stock. He does not advise people on which funds to invest in. He does not prepare memos on the liquidity of the company nor shake pom poms for stockholders. He is in another division where he trouble shoots offices and divisions which are not doing well and helps them recover.
In May of this year I asked him about the rumors I’d heard about Lehman and their stake in the sub-prime mortgage investments. He was certain, from what he was told, that their cash position was completely different than that of Bear Stearns who had just been taken over by JP Morgan Chase. I felt better about him and the soundness of the 4th largest brokerage firm in the country.
Fast forward to this past weekend where Lehman stock had lost over 90% of its value. When an 11th hour deal to either be bailed out by the federal government or another institution such as Bank of America would mean life or death for the 150 year old company. As it turned out, neither happened. The federal government used Lehman Brothers as an example of what they aren’t going to do every time an institution who should have known better has its hand out. Bank of America was also unavailable, as they were busy structuring a deal to bail out Merrill Lynch.
And so it ends. Lehman Brothers will probably be broken down and sold for parts. The greed is widespread. There is the greed of the investors to profit on sub prime loan products sold to people who had no business getting mortgages in the first place. Not entirely their fault, however. In fact, their greed was the healthy part of the economic equation; to risk a lot of one’s money to turn a profit. How were they to know their trusted advisers basically put them in the position of selling cigarettes to emphysema patients? Of course, without these investment firms to offer these products in the first place, they couldn’t be lulled by quick riches. Of course these firms had to mislead these investors on how stable the hedge fund investments were. And they also had to “creatively adjust” earnings reports. Oh, and lying to their employees was critical. Follow this trail of greed right down to the throngs of mortgage brokers who sold these products to the faces of their clients, while crossing their fingers behind their backs.
Sorry. Greed doesn’t always work, Mr. Gekko.
