“GREED IS GOOD”

This was the the philosophy espoused by the character played by Michael Douglas in the iconic 1980s film “Wall Street.” Ultimately, the message was that it isn’t, but like most human characteristics greed is a sword with two edges. When tempered by solid values and compassion, it is a force for good, fostering innovation and growth and having a beneficial ripple effect on the economy. In its raw, uncontrolled state it leads to corruption and abuse. The problem is knowing when that line has been crossed, and having effective systems in place to deter this. In my opinion, that is where legislation can do the most good, if those involved in penning it haven’t themselves already been corrupted by the very demon they’re trying to tame. Assuming the righteous in the ruling class have not all been consumed by the inferno of power and greed, let’s continue with the steps needed to reign in the abuses of the private sector.

One of the major contributors of the collapse of 2008 was the system of credit default swaps, also known as derivatives. Basically, these are a form of insurance provided by those who purchase the CDSs to protect themselves against default on loans they have outstanding. A clear, colorful (warning: brief profanity alert) description of this can be found here. Unfortunately, unlike traditional insurance, it is unregulated. An excerpt from Wikipedia summarizes this nicely: “Credit default swaps are not traded on an exchange and there is no required reporting of transactions to a government agency.During the 2007-2010 financial crisis the lack of transparency became a concern to regulators, as was the trillion dollar size of the market, which could pose a systemic risk to the economy. So, as one important step in legislating out the corruption in the system, I propose we have as least as strict regulatory oversight of this aspect of the economy as we do for other forms of insurance.

Another major contributor to the 2008 fiasco was the collapse of the real estate bubble. This is not strictly a private sector issue as the ruling class stuck its pudgy fingers into the pudding through the quasi-governmental agencies Fannie May and Freddie Mac in a ham-handed attempt to provide “housing for all.” The legislators primarily involved, amazingly, are still in power. In any case, the government institutionalized the granting of bad loans. As I understand it, these loans are typically packaged with myriad others and sold and sold again as bulk debt instruments to creditors. It all seemed to be working fine until the bubble burst, and these creditors (including banks and huge investment funds) found themselves overloaded with tons of bad debt that was difficult to even sort out.  I propose we make the packaging of these debt instruments illegal, or develop rational ways to regulate it so it is transparent. And while we’re at it, let’s ban high-risk no-money-down mortgages and keep the government out of the private mortgage sector, except as an intelligent regulator (yes, I recognize this may be an oxymoron).

Next: A stick and a bone for the private sector.

Advertisements

Tags: , , , , , ,

One Response to ““GREED IS GOOD””

  1. Clint Slaughter Says:

    I wholeheartedly agree (no pun intended). Human nature and history shows that greed and power have corrupted values and compassion time and time again. Add to this the incredible levels of detachment that have developed with globalization, and corporate oppression and corruption is almost inevitable without proper regulation.

    I would offer that most if not all of government regulation (with the exception of that influenced by industry) is intended to curb corruption, pollution (the cleanup of which is paid for by the taxpayer anyway), oppression, and the other problems that greed causes. While this regulation is often inefficient, burdensome, expensive, etc, the GOP seems to have detached themselves from reality by pushing the message that all regulation is bad and it’s stifling business and economic growth. Democrats don’t seem to understand that regulation needs to be not only effective, but practical. The GOP approach clearly represents a lapse in logic, so how do you propose that we get regulation back on track in a reasonable fashion?

    I can’t figure out which GOP candidate is less crazy – Rick Perry recently called upon “the Living Jesus” in a sermon-like address to an evangelical crowd and want to kill most regulation, Bachman want to destroy the EPA and make the U.S. a “Christian Nation”, Ron Paul thinks that all environmental regulations should be repealed and that individuals affected by industrial pollution can just sue big business if they want (really?), they all firmly deny scientific data on climate change and even evolution, and the list goes on. I can’t believe that people this out of touch with reality are actual candidates to running our country.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: