Monday, December 08, 2008

Power and Greed

Here we are, hoping the government can somehow pull us out of this deep recession. We're so concerned about the present and the future, we don't think much about the recent past. It's the past, after all. But I've been thinking about how we got to this sorry state, and the answer is "power and greed". Nothing new. Over history, this combination of human drivers has caused more misery than the bubonic plague.

There are some people who are wired differently than most, or they get rewired through their life experiences. They love the feeling of control over others, and they will do anything they can get away with to establish that control. They also love the material trappings of success. The old saw about "What separates the men from the boys is the cost of their toys" is their mantra. These are the people who are primarily responsible for our economy being in tatters.

Looking back at the American financial system, we see a complex matrix of "credit default swaps", "hedge funds", and "nothing-down, no-credit-check, adjustable rate mortgages". Lots of these transactions had little more substance than air, or were simply another way to gamble. Yet the people who invented them, or approved them, or marketed them, or failed to regulate them, were generally very smart people. They knew better; they understood the potential for disaster if the value of these transactions reached a critical mass. So, why did they proceed? Simple. Power and greed. The short term success they achieved gave them great influence, and their large profits enabled plenty of flashy homes and toys. They acted rationally, for them.

The "free-market" zealots just don't understand the risk this small group of talented people presents. Although capitalism seems to be the best way we currently know to achieve innovation and productivity, unfettered capitalism provides the "power and greed" crowd with all the room they need to produce chaos. These people are willing to cross the lines of generally acceptable behavior if they feel they can gain an advantage by doing so. In a worst case scenario, you get a Hitler. In a more typical case, you get the guys who pushed Washington Mutual and Lehman Brothers off the cliff. If you were generous, you'd call them "unprincipled".

I've been up close and personal with members of this crowd. I've seen them make alliances with others of like mind in a large corporation. When they achieved the critical mass they needed, they simply broke the rules they all understood in order to cash in. To add insult to injury, they rigged their company's liablility insurance so that it had to pay the fines they ultimately got charged by regulators. All of them are mighty comfortable right now, their reputations ruined but their fortunes intact. They won the game.

When you hear someone say "Regulation stifles innovation", you can safely respond that "Lack of regulation creates human disasters". The trick with regulation is to get the level right. But, never forget, the "power and greed" crowd is always lurking close by, just waiting to find the chinks in the laws and rules that we depend on to make our society fairly predictable. Better to err on the side of caution.

1 comment:

Anonymous said...

Conservatives like to couch things as if there are only two choices: no regulation, or bad regulation.

Good regulation is a completely foreign concept to them. The idea that government could do something right, or keep plugging away until they get something right, is just not an idea they can wrap their heads around.