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CRITIQUE OF UTILITY THEORY: Greed versus Generosity
The Archbishop of Canterbury has hit out at the "human greed" behind the current global financial crisis.
Dr Rowan William's attack came on the back of a major two-day dialogue between Muslim and Christian leaders held at the University of Cambridge this week.
He continued: "Clearly as religious leaders we want to say that the root problem is human greed which is not specific to any one nation or even to the governing class or any one religion."
The leaders concluded their closed door meetings with a communiqué in which they called for a "more equitable global economic system that also respects our role as stewards of the earth's resources".
by Oskari Juurikkala
“Greed is good,” insisted Gordon Gekko in the 1987 film Wall Street. Most of us disagree. Recent events in the mortgage lending industry prove us right.
After Enron, we got the Sarbanes-Oxley Act, which costs fortunes to U.S.-listed companies. Despite this new layer of regulation, abuses are rampant: massive off-balance sheet items, shadowy over-the-counter deals, unrealistic marking-to-model pricing, murky offshore special purpose entities (SPEs). Risk-hiding has become widespread, often with the explicit or tacit approval of regulators.
We need simpler rules, ones that tackle the real issues. But more than rules, we need personal conversion.
Remember Enron? “They broke the law,” people say. Well, yes. They also abused financial derivatives, SPEs and a range of other tricks to hide their excessive risks. But what really destroyed Enron, and made it so dangerous, was its corporate culture. It was infected with institutionalized greed.
The current situation is Enron writ large. We have more derivatives, more leverage, and bigger losses. Wall Street is hardly superior when it comes to generosity and detachment from worldly goods.
The Apostle Paul identified the issue 2,000 years ago: the love of money is the root of all evils (1 Timothy 6: 10). He concurred with Jesus, who said, You cannot serve God and mammon (Matthew 6: 24).
The goods of this world are good. But we have to pursue them in the right order, guided by love of God and neighbor. It applies to personal life and it applies to finance. Wisdom shuns greed. Prudence depends on the moral virtues, as Aristotle taught. Greed is like pride: it blinds.
Greed, Stupidity, Delusion — and Some More Greed
By John Steele Gordon
To be sure, there is plenty of blame to go around. Greed, as it periodically does when traders and bankers forget the lessons of the past, clouded judgments. Some very smart people talked themselves into believing in the repeal of one of the fundamental laws of economics: risk will always equal potential reward. The idea that risk can be eliminated and high yields guaranteed is as idiotic as the idea that gravity can be suspended. RememberLong-Term Capital Management? Ten years ago it figured out how to eliminate risk using highly sophisticated computer programs and rolled up annual returns averaging 40 percent — until it collapsed in a heap.
Credit ratings agencies such as Moody’s and Standard and Poor’s gave good credit ratings to securities they didn’t understand.
But at the heart of the problem is Congress and its deeply corrupt relationship with Fannie Mae and Freddie Mac. Congress was equally at the heart of the savings and loan disaster 20 years ago and, obviously, learned nothing from it. (For a history of what led to the savings and loan collapse,see here.)
Franklin Raines, Fannie C.E.O. from 1999 to 2004, had been budget director in the Clinton White House. He cooked the books at Fannie to increase his compensation (more than $50 million). Jamie Gorelick, vice C.E.O., was number two at the Clinton Justice Department before going to Fannie Mae. She made $26 million. Jim Johnson, a perennial Washington big-foot, was chairman from 1991 to 1998. He too, according to an official government report, cooked the books to increase his compensation and failed to publicly reveal how much he received.
The Wall Street Journal editorial page has been giving chapter and verse for years on why this was a disaster waiting to happen (Pulitzer Prize judges, please note). The Bush administration tried way back in 2003 to change the system. It got nowhere. Alan Greenspan, then the chairman of the Federal Reserve, frequently noted the danger of Fannie and Freddie’s weak capitalization. He was ignored. Congressman Mike Oxley, then chairman of the House Financial Services Committee, introduced a bill in 2005 to correct the situation. Lobbyists from Fannie and Freddie succeeded in gutting it to the point that Rep. Oxley pulled the bill.
Published: April 15, 2009 in Knowledge@Wharton
Wharton dean Russell Palmer, author of a new book, Ultimate Leadership, writes in this opinion piece that the situation offers an opportunity to learn crucial lessons about leadership.
What caused the crisis? In my view, greed was the underlying factor. Wall Street hedge funds and others are looking for any financial machination that they can find to hype their financial returns. The whole mortgage fiasco is just the latest example. The dot-com bubble of the late 1990s was another instance. Anyone with any sense knew that during the dot-com mania, you couldn't sustain high prices for stocks on companies that had no current earnings, only losses. It was a bubble, just like the Tulip Mania that investors lived through during the 17th century. With the present subprime crisis, the people originating the mortgages had to know that the higher the risk on the mortgage terms, the greater exposure there was to the mortgage going to foreclosure. So did the people who bought the mortgages, securitized the mortgages, and so on.
Not everyone kept playing the game until the roof fell in. T. Rowe Price, early on, got out of the market because of the high risk level, as did others on Wall Street who bet against this Ponzi scheme. Greed reflects a failure of leadership; turning your head to ignore the high risk because you are making big earnings today certainly shows a lack of leadership. How many people on Wall Street have been subject to less than robust oversight by their organization because they were producing such big contributions to the firm's earnings? Allowing your organization to be a party to contributing to this scheme -- even if you know that you will not be directly affected -- is not a mark of leadership. It is a sign of greed.
http://politicalaffairs.net/article/view/7196/
Everyone is now accustomed to hearing that the financial crisis in the United States and in Britain was caused by American financial institutions lending money to unsafe borrowers for buying houses, thereby breaking with the long-established rule of lending only to those with a steady income and a good credit rating. So it was all the fault of irresponsible borrowers!
While it is true that the bubble burst because of those borrowers being unable to repay their loans, the truth is more complex and it lies at the heart of advanced capitalism. Greed is the real cause, within an unscrupulous system that causes mass murder by slow degrees of poverty, starvation and lack of health care all over the world. Capitalists operate by exploiting the workers of the world, paying us as little as possible for our labor and accumulating the surplus value in private profit. This system is facilitated by a lending structure refined over the last two hundred year
http://www.marketoracle.co.uk/Article9915.html
Free Marketeers defend greed:
The Wall Street Journal recently suggested that a ‘culture of greed' may be to blame for today's crisis. Billionaire investor Stephen Jarislowsky has said that he thinks ‘extreme' greed was to blame. And nestled within the mob of protestors ahead of last week's G20 meeting was a little girl, no more than 5 or 6-years of age, holding a sign saying ‘You Greedy BosTards'. Let us simply say, while acknowledging the views of the Wall Street Journal and Mr. Jarislowsky, that the protesting little girl may have been misled.