Wednesday, September 3, 2014
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'Greed is good' is still Wall Street's mantra

Turns out, the insider-trading scandals and corporate-raiding dramas of the go-go '80s were mere chump change compared with the runaway greed and excess that has become the core fabric of today's venerable investment banks, hedge funds, and private equity traders.

'Greed is good' is still Wall Street's mantra

Michael Douglas (left) is hard-driving businessman Gordon Gekko, and Charlie Sheen is soft-hearted antagonist Bud Fox in director Oliver Stone´s classic film, "Wall Street."
Michael Douglas (left) is hard-driving businessman Gordon Gekko, and Charlie Sheen is soft-hearted antagonist Bud Fox in director Oliver Stone's classic film, "Wall Street."

Director Oliver Stone has returned to Lower Manhattan to film a sequel to his 1987 film, Wall Street.

After the cutthroat Gordon-Gekko years, Stone didn’t think he would need to say more about corporate greed. Turns out, the insider-trading scandals and corporate-raiding dramas of the go-go ’80s were mere chump change compared with the runaway greed and excess that has become the core fabric of today’s venerable investment banks, hedge funds, and private equity traders.
 
Indeed, Stone says that many hotshot bankers have told him over the years that his film — which depicted corporate America at its ruthless worst — perversely prompted them to seek a career on Wall Street. The famous Gekko line that “greed is good” has become a mantra for many bonus-hungry MBAs.
 
That ethos explains why so few on Wall Street seem to have learned any lessons from the worst financial collapse since the Great Depression. Instead, it is back to business as usual in the financial markets.
 
Day traders have returned to the stock market. Speculators are driving up oil prices. And investment banks are pushing new exotic investment vehicles.
 
One new scheme is the purchase of so-called “life settlements.” Under this plan, bankers buy life insurance policies from ill and elderly people. The policies are then “securitized,” or packaged by the thousands, and sold as bonds to investors, including pension funds.
 
The earlier the insured person dies, the more investors profit. But if the person lives longer than expected, investors could lose money. Either way, Wall Street makes money from the fees to create the bonds and trade them.
 
The concept is reminiscent to the securitization of dubious subprime mortgages. That scheme only worked as long as real estate prices went up. Once the bubble burst, home prices plummeted, and the economy sank into a deep recession. The fallout cost millions of jobs and wiped out retirement savings for many.
 
Government bailouts were used to prop up the banks, leaving taxpayers on the hook for hundreds of billions of dollars. The crisis is finally easing, but many on Main Street are still hurting and may never recover.
 
Meanwhile, Wall Street continues to mint millionaires. More than 5,000 bankers received bonuses of more than $1 million last year. One Citibank executive got almost $100 million.
 
In a capitalist system, employees should be rewarded for hard work and innovation. But Wall Street continues to reward workers for extreme short-term risks, with no penalties for failure.
 
That’s why the Federal Reserve is correct to try and curb compensation policies that encourage bank employees to take too much risk. The proposal should include a “clawback” provision that enables banks to reclaim pay from workers who take excessive risks.
 
Until Wall Street learns that greed isn’t good, everyone else will continue to pay.
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