Wall Street Greed

“It’s not the greed of Wall Street, but irresponsibility of
American home owners that created the financial crisis”

Everyone is blaming someone else

I’ve heard the term “greed” and the phrase “Wall Street greed” many times in the past few weeks. I hear all types of people using it. The media uses it, all four presidential candidates use it, local politicians use it, I hear people at the coffee shop using it, my friends use it, the list could go on… Among these people are both Democrats and Republicans—many with differing political ideals. However there is one thing they have in common: when they speak critically of greed, they are always criticizing the greed of someone else. Funny right?

So I am curious: To these people, what is the difference between being “greedy” and legitimately making/wanting money? Do you think all desires for money are greedy? As you drive to work in the morning are you being greedy? If you accept a pay raise at your job are you being greedy?

Greed is the desire to want more than what is deserved. No matter how much money someone has or makes, they are not greedy if they earn it.

On Wall Street

The purpose of this post is to analyze the accuracy of the phrase “Wall Street Greed” and to examine whether or not this greed is to blame for the ailing US economy.

Before going further, terms must be defined. When people say Wall St greed, to whom or what are they actually referring? Although there are several businesses on the actual Wall St in the Financial District of Lower Manhattan (including a coffee shop or two, a gym, a church, etc), I don’t think people are talking about these businesses. More likely, they are talking about the 3,200 corporations that are traded on the New York Stock Exchange.

Of these thousands of business, most of them do not operate in NY. They operate throughout the US. Some of them are in small towns; some of them in big cities. Inside of these operations are thousands of people that show up to work everyday and work hard to earn a living (you probably know a few people that work of one). Are these people greedy?

My guess is that you’ll say that these people aren’t greedy, but the leaders are...the CEOs. Did you know that most corporate CEO’s make less than doctors, architects, or even pharmaceutical sales reps? The news media would have you believe that because a few hundred (or less) CEOs make an enormous amount of money, that all CEOs do. This is not the case. Many more actors, athletes, and other bogus celebrities make this much money more so than CEOs.

Having said that, there are probably many greedy CEOs. Probably many of them have done shady or dishonest things on their way to the top. But this is a separate and irrelevant issue. It has nothing to do with the state of our economy. The 2 or 3 billion of their aggregate pay is an immaterial fraction of money lost in the current economy.

Another guess I have is that you (along with those making accusations) can’t even name 10% of the business traded on the NYSE—let alone be able to comment knowledgably about their operations or greed.

For example…Of the 3,200 companies listed, a few include:

Schawk Inc (SGK)
The A.O. Smith Corporation (AOS)
The Clorox Company (CLX)
Sauer-Danfoss Inc (SHS)

Besides The Clorox Company (which I added only to make the list readable), you haven’t heard of the other companies. Be honest with yourself, you haven’t a clue as to what they do or that they even existed. If you know so little, how can you take such an arrogant position as to accuse that Wall Street is greedy? If you don’t even know what the companies listed on the Stock Exchange are, how can you comment on their operations…their revenue…their greed?

The banking crisis – the real issue

So if these aren’t the businesses under the umbrella of the “Wall St Greed” accusation, which businesses are? Banks. Big Banks. In the past few weeks, the greed label has mostly been associated with the nation’s largest banks. This is an irresponsible label. Irresponsible because it is precarious to accuse the only people that keep the economy going as being the problem.

The most obvious evidence of the banks not being greedy—which is so simple it’s complex—is the fact that the banks do not have any money. The banks are broke. If they had been greedy, they would—by definition the word greed—have stockpiles of money.

To the contrary, it’s the greediness of all the people that took out loans they could not repay that caused the banks to fail…their personal greed of being living beyond their means.

I’ll elaborate…

As I said in the beginning, it’s not greedy to want more money. This is ambition. This is the spirit that drives you to work everyday…the spirit that runs the motor of the world.

Greed, on the other hand, is the desire of the unearned…the undeserved…the desire to live beyond one’s means.

The reality of the situation is that the economy is ailing because businesses (and consumers) cannot get enough credit to perform their normal operations. Businesses cannot get credit because banks have no money to loan. Banks have no money because they loaned it to customers who didn’t return the money.

The type of loan people aren’t repaying is the mortgage loan. Mortgage loans are loan agreements people enter to purchase a house. Banks do not force people into making these loans; people do this voluntarily.

They enter these long-term, costly loans because the desire to own a house is strong. The desire to own a nicer house is stronger. Caught in this desire to own the “nicer house”, thousands of people entered into loan agreements they could not pay for…thousands of people were living well beyond their means. This has been compounding for 10 or 12 years.

This is the lone source for the bank crisis. For such a complicated result, the cause is actually simple: tt was the greed of the American public taking out loans they couldn’t afford that drove the economy into a recession (not the president, not the democrats, not the republicans). Essentially these people “stole” credit from the banks and then couldn’t pay it back.

The consequences on the rest of the economy.

As the banks loaned the money millions aren’t paying back, the banks ran out of money. Accordingly, they eventually also ran out of money to make new loans, which sends ripples though the entire economy. Once banks have no money to lend, credit gets tight, and the economy slows down.

As the economy slows down, more businesses start to fail because they can’t get credit. Companies on Wall St and Main St alike weaken because they can’t get the assets they need to make money. This is what the “bailout” bill was aiming to fix. It was aiming to put money back into the credit markets so that businesses could start to function again.

In summary

In summary, Wall St has nothing to do with the current economic down turn. The media blames Wall St and the general public joins in the chorus only because Wall St is an easy target. Meaning, the inner workings of Wall Street and the stock market are far away from people’s daily lives. These people take the easy route and blame the unseen (i.e. the stock market). Why blame the cute, new shoe shop or deli on Main Street when the media has made it so simple to blame big business? Politicians reinforce this because they want people to hate business and live off the government. The bigger the government, the more the politicians have to govern, thus giving them more power and influence.

Just like it’s not greedy for you to make money doing whatever it is you do at your job, it’s not greedy for people working in banks or on Wall Street to make money doing their job…even if their pay is higher than yours. I happen to know people that work in banking and some people that work in landscaping. Both put the same amount of time and effort each week into their jobs…none of them do I find “greedy”.

::: helios :::