Is Greed Good for the Goal of Improving Society?

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Remember the infamous quote of villain financier Gordon Gekko in the movie Wall Street…back in 1987?

“I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed–for lack of a better word–is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms–greed for life, for money, for love, knowledge–has marked the upward surge of mankind. And greed–you mark my words–will not only save Teldar Paper, but that other malfunctioning corporation called the USA”.

I guess in this context, Gekko is using “greed” to define the constant desire for more, whether someone else has it or not.  He likens it to an evolutionary drive, that the need for more makes us figure out how to get it faster, more efficiently, and ultimately, easier.  And that this, in turn, results in benefits to everyone.

This is clearly a very particular definition of greed, and if you look at it from that perspective, it is indeed “good” in that it is a simple motivator that derives benefits beyond the individual actor.  In essence, it’s an “ends justify the means” argument.

Though this was quoted over two decades ago in one of the most controversial Hollywood movies ever, it resonates more than ever today… The only difference is that it is occurring at a much bigger scale.

So what do you make of it? Is greed good?

I guess as with any question like this, we need to start with the word “good.”

It is a fault of our language that “good” is most often used in an unqualified way. This is a symptom of our natural preference for dualistic thought. So what does unqualified ‘good’ mean?

Is greed good if your goal is monetary gain?  Absolutely, it’s the prime motivator.  Is greed good if your goal is running a successful soup kitchen?  Probably not.

Is greed “good” for the goal of living a happy life?  It could be, because it motivates you to improve your life in very real ways; on the other hand, there’s a fair amount of research that indicates over-attachment to material belongings draws your focus from other aspects of life that pay higher happiness dividends (personal relationships, self-improvement, etc).

Is greed “good” for the goal of improving society?  I doubt it.  I suppose it could motivate you to amass more resources, which you could then apply to humanitarian causes, but a very greedy person would probably also be unlikely to part with it.

Another way to use the unqualified “good” is as a sort of estimated sum of how effective greed is for helping you meet each of your goals, weighted by priority.  Let’s call this the “all-in-all” meaning.

So, is greed “good” in the all-in-all sense?  Will greed help you live a happier life?

From a wide-scope approach, it might be said that an economy of greedy people is an economy of motivated, productive workers.  This might be true, to a certain extent.  However, a society of extremely greedy people would mean a society of very stingy people; I doubt a country of greedy financiers, sitting on their money would lead to a robust, healthy economy.

But this is all about your average person.  Aberrations exist.  What if you’re not like most people?  What if poverty starvation is a serious possibility in your life?  Well then yes, greed would be a good thing to have.  What if material wealth is the big thing that makes you happy?  The only thing that makes you happy?  What if greed is your only motivator, the only thing that gets you out of bed and drives you to accomplish?  Then yes, having greed would be good in relation to your goals.  You might get better results though from examining your priorities and possibly changing your goals.

So in general, I would say that a little greed is good; it’s nature’s way of getting you to take care of your self-interests.  It’s also one of the major forces that keep societies progressing past the survival point.  Too much greed though poisons you.  There are countless examples of callous damage done to the world by the business community, and the only cause we can point to is human greed.

Bottom Line: I believe greed is ‘good’ only to the extent that it can be channeled productively.  Most of modern greed leads to people skimming money off of the productive and creative members of society; it results in many people with enormous intelligence and capability dedicating their lives to essentially worthless endeavors (such as predicting minor movements in stocks, bonds, currencies, etc.).  It also leads to frivolous lawsuits, ‘gaming the system’, overcharging and overbilling, etc.  It also leads individuals to steal and engage in other criminal activities.  Greed – when it leads one to invent, create, increase productivity, work harder, etc. can be good.  But it doesn’t always or even rarely has that effect.

I have no problem with people that amass large amounts of wealth — but if it pools up, it leads to problems. Wealth, like water, needs to move. Ideally that motion through society will be generated by the heavenly virtue that is classically contrasted with the deadly sin of greed.

Share your thoughts…

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Building a Crisis Resilient Financial System

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I consider the Financial crisis of 2007–2008 to be an inevitable consequence of “Moral Hazard” in the finance industry. Banks made profits on risky investments during the boom but taxpayers shared the losses when the investments went bad, thus encouraging riskier behavior.

In my view:

Capitalism generates wealth by allowing the free market to reward the good and punish the bad. If that can’t happen, capitalism does not work. Ideally, the banks which had lent irresponsibly and the individuals and businesses which had taken loans they could not afford would have all gone bankrupt and everyone would have learned their lesson.

Unfortunately, the financial system was characterized by Moral Hazard. The banks convinced themselves they could write bad loans and still make money, because they had devised complex financial instruments which spread the risk so widely that almost every bank in the world was exposed to it. The system became so interconnected that it wasn’t possible to let the “bad” parts of the system fail because they could not be distinguished from the “good” parts. Faced with the possibility of all their banks going bust or bailing them out, many national governments felt obliged to do the latter. This is textbook moral hazard because the entity bearing the losses is not the entity profiting from the original transaction.

The financial system may well have recovered more quickly if the bailouts hadn’t happened, but the suffering in the meantime would most likely have been unacceptable. Everyone who had savings would have seen them wiped out and a great many businesses would have ceased trading because they depend on credit for their cash flow, resulting in mass unemployment. Military coups in previously stable democratic countries could not have been ruled out and the prospect of extreme left or right wing groups taking control would have been a real possibility. The global economy was able to absorb localized banking collapses such as that in Iceland or of Lehman Brothers, but the human cost of a wider collapse would have been far worse.

The bailouts have been “successful” in the sense that some stability has returned, but they have not solved the underlying problem. Despite commitments in some areas to split up retail and investment banking and to improve capital ratios, the moral hazard remains because banks know they are too big to fail and will be bailed out again should the need arise. Only a total, irreversible disengagement of government from the financial sector could resolve this, and that is politically unrealistic. The main issue remains that the real cost of the bailouts is that they have reinforced the promise which was the root cause of the problem, that governments are there to rescue the banks when they fail.

How can we avoid another 2007-2008 type Financial Crisis in the Future?

I believe:

  • The section of the Glass-Steagall Act of 1933 repealed in 1999 which separated Commercial Banking from Investment Banking and from Insurance must be reinstated, because the Volcker Rule is too hard for regulators to operate/enforce. The bright line rule was much easier to enforce because the lines were very clear. Need to do something special across disciplines? Syndicate it. Money’s too fungible to rely on anything other than legally separate corporate entities, and having Bank Deposit Insurance (i.e. FDIC) on one side of the same house invites cross-subsidization of risk (i.e. abuse, moral hazard).
  • Too big to Fail Financial Institutions must not be allowed to exist – the “living will” requirement is silly nonsense, and will be found to have not been properly updated for a given such institution that gets in trouble in the future. If it’s too big to be allowed to fail, it’s too big to be allowed to exist at all, and the current ones must be cut down to size. This means setting hard limits in law, like the law that prohibits any single deposit-taking bank from having more than 10% of the deposits of the USA (Bank of America is just under the limit, and we might want to think about lowering that one to 5%). The limits must be stated in percentages of economic measures (e.g. GDP) rather than particular dollar amounts. This can be viewed as in the same economic policy vein as Antitrust Law: require a minimum number of entities (prevent cartels, oligopolies, and monopolies) to ensure competition and resultant efficient allocation of capital.
  • Once they’re separate again, Investment Banks must be prohibited from being Public Companies, i.e. selling shares of stock on the public markets to all comers – they must be legally restricted to being Corporate Partnerships. Investment banks walk on the high wire, taking lots of risk, and that risk shifts around much too fast for uninvolved investors to monitor the management – that’s a straight Principal-Agent Problem. I don’t want to restrict their ability to leverage to the skies if they want to – I just want to be able to not care if they screw up & go bust in so doing. If the managers are required to be the owners, the problem goes away. Hell, the managers have every incentive to monitor each other!
  • Credit Default Swaps are insurance, and must be regulated as such. I’m sure that a review of all financial instruments will find very little is actually new under the sun – just the names have been changed to avoid existing regulations (which are usually born out of hard-won experience). That has to stop, which is to say, again, bright line rules for what things are being bought and sold in broad categories, with established regulations on them.

The Dodd-Frank Wall Street Reform and Consumer Protection Act fixed exactly none of these problems – it papered them over. Paul Volcker is a very, very smart economist and legendary former chairman of the U.S. Federal Reserve, and his rule as he states it is the right thing in principle, but the regulations they wrote to define all the terms & conditions are so grey and messy (and probably pliable or go-around-able) that I think the point is probably lost. That’s why I want legally separated corporations in these differently regulated businesses back. Easy, obvious, bright-line rule.

Share your thoughts.

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My Thoughts Regarding Wealth Redistribution

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Much of the rhetoric we’re hearing in the media today talks about the huge gap between rich and poor. Politicians on both sides discuss this issue, but neither seems to get to the root of the problem.

It’s true that the gap between the richest 10 percent of the country and the remaining 90 percent is growing, but from that point on, most politicians get it wrong.

The issue isn’t a matter of “wealth redistribution”, nor is it about protecting current tax rates. The real issue at hand is that most Americans just don’t understand the rules of personal finance. They believe what they hear from friends or people selling them products. It comes down to a lack of financial education.

Schools are turning out students who are not fully prepared for the real world. They might know the basics of history, science, math, and English, but there is no real teaching of money in school. I majored in economics and finance and I spent 25 years on Wall Street honing my skills, so I know firsthand how boring the topics can be. But I’m not talking about the heavy theory or detailed rules. I’m talking about simple personal finance — the money issues that will come up for people in the real world.

It is a sad fact today that when students they break out on their own, they are left unarmed when sellers of credit come calling. To be clear, it’s not that people are dumb — the sly and ingenious credit card companies make handling credit seem easy. But either way, the new consumers don’t see or know that taking on debt at a young age is killing their financial security. Saving at a young age is critical. Simple facts about personal finance are not taught and thus bright people are caught making financial mistakes.

Plans to redistribute wealth take money from those who know what they’re doing financially and give it to people who don’t know basic financial principles. The subprime mortgage crisis was a perfect example of that. Hardworking taxpayers were paying to bail out banks and individuals who made negligent transactions. People who were financially ignorant were allowed to take big loans from equally ignorant (or in some cases, criminal) mortgage brokers. Greed from Wall Street made it worse. Had more people known about simple financial principles, this would not have happened, nor would we be arguing about how to pay for it.

It’s not a matter of fiscal theory or taxation. It’s all about education. I’m not a fan of big government, but this is one place the government can step in and help. If there were mandatory programs for graduation that included personal finance, our economy could be on the right track in a generation or two.

While no politician is doing much to solve the real issue here, I think that we as entrepreneurs can begin to fix this problem. Have lunch with your staff and teach them about personal finance. If you’re not up to teaching the class, bring in an expert. Make sure the expert isn’t selling something or else you could be adding to the confusion. Refer them to the Financial Policy Council and start attending our events.

If we start by educating our staffs, we can work to build a financially intelligent country and get back on track at the same time. Plus, isn’t this a great benefit to give to the people who make your company work? If you invest in their financial knowledge, I’m sure it will help your bottom line.

I strongly believe any redistribution of wealth by the government, in either the executive, legislative, or judicial branches, has no place in a free, democratic society.

Some of our politicians reach for all the favorite conservative buzzwords. But they fail to cite any evidence to refute the simple, and I think quite obvious, assertion that the marketplace works most efficiently when entry of new businesses is a realistic possibility and predatory pricing is outlawed. That’s what the antitrust laws are supposed to accomplish. And business people who compete fairly and squarely need not worry about them for a moment.

You know you are capitalism’s ideal puppet when winning the lottery is your only chance to realizing financial freedom.
Want to change the outcome and start truly learning the process? The Financial Policy Council is the place to be. See for yourself.

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Wealth Takers v/s Wealth Creators Some food for thought

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The natural state of our economy is prosperity. Freedom guarantees that. The only force capable of undermining it is government. It is high time to realize that all important fact.

It is clear that we are still stuck today in the worst economic recovery since the Great Depression. Despite all the disinformation and market manipulation out there, our economic weakness has now become a top national security threat.

Did the market fail or did the government fail? If so, how? I have made my business career by asking the right questions. Are we working on the right problem? Do we have the right people? Are we close enough to the action? My strong suit is to ask questions until the bottom line is found. Are you asking yourselves these questions or taking at face value all what you’re being fed by our supposed “economic and market gurus” out there?

I believe even the most well-meaning government policies have unintended consequences that have harmed the economy. If government policies were held accountable the way private businesses are, the scoreboard would say government is failing to help people. What do you say?

In my humble opinion, there are few problems in the world that economic prosperity cannot help solve. Yet the engines of that prosperity are under fierce attack. The forces that seek power over others have gained the upper hand against those that seek freedom. By harming wealth creation, they cause even more strain on society. Historically, this is nothing new. State domination over its subjects has roots that connect statism, totalitarianism, communism, and socialism to more modern-day variants of liberalism and progressivism. It is a constant fight and we must win.

It is a fact that the forces against wealth creation accelerate when the Progressives are in power. More recently, they forced “Obamacare” and “Dodd Frankenstein Financial Deform” upon us. We now face a perfect storm. One only needs to observe the unrest across the world to imagine what life will become here if we don’t get our economy turned around very soon.

But how? It is not as though people lose sight of simple principles in a complex society as much as it is a Progressive tactic to confuse people. For example, if the world consists of two farmers, and one is paid government benefits, who pays? Exactly. The other farmer pays. Redistribution is a negative-sum game, and people understand that. In another example, if one farmer raises cattle and the other grows vegetables, they are both better off through voluntary trade. Making other people better off is the only way to satisfy your needs. Is it bad that some people make many people better off? Do you deserve a special attack by government if you make millions of people better off? Voluntary exchange is a positive-sum game.

After all, trade and wealth creation is not all upside. It is failure, too. Failure is a necessary component to growth and success. Babe Ruth struck out 1,330 times but also hit 714 home runs. We need to let failing entities fail. Only then will successful people turn these enterprises back into wealth-creating vehicles again. “Too big to fail” is a concept that perpetuates failure and saps vitality from the rest of the wealth creators to do so.

Bottom Line: Wealth creation is not a business suited to those whose skill set consists of voting “present.” It requires decision making, risk taking, hard information, discipline, insight, and intelligence.

We have clearly gotten away from the 10th Amendment. The only equal outcome for all that can be achieved by the federal government is misery for all. It is not that people shouldn’t be helped. It is that in most cases, it is not the role of the federal government to do so.

After all is said and done, in whose hands should you place your trust for improving the economy? An entrepreneur, whose job it is to solve problems for a profit? Or a bureaucrat, whose job it is to cause problems for a profit? I know where I put my trust, and I’m sure 90 percent of us agree.

We outnumber them, so let’s act like it. After all, the American Dream isn’t a house, or any property, or the consumption of any good. It is to be productive creating wealth.

It is real sad that the very people whose policies unleashed the attacks on our economic foundation are today waging a full-blown assault on the true wellspring of business formation, innovation, and job creation: the wealth creators.

When you see how the Washington–Wall Street corridor, which I call the “Chaos Industry”, profits at the expense of average Americans, what are you waiting for to take action?

The turnaround must come from outside of the Washington establishment. It must come from us.

Battle lines have been drawn. On one side of the battle are the fakers and takers. On the other side, all of the wealth creators. Who offers you more opportunity?

The Founding Fathers did their job. I strongly believe we must be the “Defending Fathers”. What do you say?

One of my favorite political lines on the campaign trail comes from former U.S. Senator Everett Dirksen. He once said, “When they feel the heat, they will see the light.”

Share your thoughts….

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Stop Procrastinating and Find a Reason to be Rich

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I believe each one of us has a financial genius in him/her that is asleep and just waiting to be awakened. It lies asleep because our culture has educated us into believing the wrong things about money. We’re taught to be employees and work for money rather than to be entrepreneurs and investors and have money work for us. We’re taught to not worry about our financial future because our company or the government will do that for us.

I also believe the best revenge against liberals and corporate bosses idiots is “obscene wealth”.

The message about money we’re taught from a young age is work hard, earn money, spend it, and when we run short, borrow some more. Unfortunately, 90 percent of the Western world subscribes to the above dogma, simply because it’s easier to find a job and work for money than to make your own way and build your own wealth.

But to those who want to buck the trend, I have 10 ways to awaken your financial genius which I’ll share with you over the next couple months.

The first is Find a Reason.

If you ask most people if they want to be rich, they say “yes.” But then reality sets in. They realize it’s a lot of work to become rich. There is no getting rich quick. Facing these obstacles, they throw in the towel and take the easy route—getting a job and handing investments over to a pathetic broker.

Yet, there are clearly those in life who don’t take the easy route. And there are those who are wildly successful where others aren’t. What separates the successful from the unsuccessful? The answer is found in a reason.

A reason is simply a combination of “wants” and “don’t wants.” My reason for getting rich began with my “don’t wants,” which defined my “wants.”

I don’t want to work all my life. I don’t want what my parents aspired for, job security and a house in the suburbs. I don’t like being an employee. I don’t want to be emotionally absent from my family and friends because I’m always working to make ends meet. I don’t want to have nothing to pass on at the end of my life.

Out of these “don’t wants,” I developed my “wants.”

I want to be free to travel the world and live the lifestyle I love. I want to be young when I do this. I want to be free financially. I want control over my time and my life. I want money to work for me. I want to be a “master of the universe” and say whatever I please to anyone without fear of being fired or looked upon as an outcast. Well, money is the only way to get me there and insulates me from all the dependence crap out there.

Personally, I’ve faced many setbacks in my road to riches. I’ve lost a lot of money and seen many deals fall through. I wanted to be financially free by age 30, but it took me until I was 34, with many learning experience along the way. But through it all, my reasons pulled me through.

Today is the day to determine your reason for getting rich. Make a list of your “Don’t wants” and your “wants.” Make sure that your reason is strong and determined. If you find the right reason, I promise you that you will find a way to get real wealthy But it all starts with you.

Stay tuned to my 9 other ways over the next few months… In the meantime, share your thoughts

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