Financial Sense

Greed has Destroyed Economies Worldwide

by Chuck Young, Rebel Traders | February 2, 2009


The economic crisis our nation finds itself in is the result of unbridled greed, a lack of responsibility, and poor ethics. One could even make the case that the actions that have created the largest financial disaster since the Great Depression are even criminal.

Greed, the dictionary defines this word as…

“Excessive or rapacious desire of wealth or possessions“

Greed is an underlying motive to increase profits and is the force that grows a company and reward the shareholders and employees. But, when does profit motives cross the line and become immoral and even criminal?

The line is crossed when corporate greed puts at risk the welfare of the innocent. Competition among different corporations is one thing, but when greed creates an environment of behavior that adversely impacts more than their own balance sheet and reaches past the corporate walls then it is at that time the line is crossed. It can be a company that uses inferior parts to cut production costs resulting in a dangerous product that puts people in harms way or it can be a company who engages in activity that puts at risk the sovereignty of the financial system.

The largest banks and investment firms of the world have systematically schemed to create more and more profits without regard for their actions. Their actions have reached far beyond their own corporate walls and impacted the very fiber of the financial system to which they were attempting to profit from in the first place. Now it is everyone that is having to pay the price.

Every election we hear people claiming that corporate lobbying will be curtailed, yet it continues just as it always has. Corporations have continued to influence and define the very laws to which they operate under. Much of the failures facing the financial system now are the result of their own lobbying efforts to allow them to increase the amount of leverage they were allowed to operate with. Even the former Treasury Secretary Hank Paulson, then CEO of Goldman Sachs, lobbied Congress in 2000 to change the net capital rules which essentially gave these firms a free run of how much leverage they could use.

The granting of the high leverage to these firms enabled them to take greater risks in order to satisfy the growing greed. The banks and investment firms, with their rapid creation of numerous types of investment assets to capitalize on the housing market further elevated the prices of homes around the nation.

And why stop there? They didn’t. In order to satisfy the demand for the exotic mortgage backed assets being sold to mutual funds, pension funds, and countless other businesses and investors, the banks and mortgage companies set out to adopt a ‘no income, no problem’ mantra in order to increase the amount of mortgages they could leverage against, and in turn make even more money.

As financing was being made available to people, who otherwise would have been shut out of the housing market, they were quickly embracing these individuals and giving them hope that they could have a part of ‘the American dream’. In doing so they escalated demand for houses which is why the housing prices rose so quickly over the past 9 years.

The rise in housing prices was not organic growth, but instead was artificially engineered in order for Wall Street banks and investment companies to expand the creation and selling of more mortgage backed securities to anyone who ‘wanted in’ on the big housing market boom.

All the while this was going on it was (and is) the average home owner whose very home mortgage was being used as a poker chip on a roulette wheel. Wall Street had a winning streak and the housing market continued to skyrocket as the excitement surrounding the winnings created a growing desire to have more. But, then their luck ran out and suddenly these banks and investment firms were trying to pull their chips off the table or find someone to off load them onto. But now these companies are stuck holding onto those chips and they continue to lose value by the day. And everyone else who was partying at that roulette wheel is now in the poor house along with the banks and investments firms who started it in the first place.

What the CEO’s of these companies have done is reckless endangerment to the financial stability of the nation. If you engage in reckless driving and put an innocent person at risk, then that person stands to lose his/her driver’s license, and even face possible jail time.

On Wall Street reckless endangerment is being rewarded with the largest taxpayer funded bailout in history. In what may end up costing nearly 4 trillion dollars by some estimates to ease the damage done by these companies why is it that these companies are being allowed to continue to stay in business?

Because we are being told that they are “too big to fail.” This is complete nonsense and is simply a scare tactic being played by the Government and the Treasury Department in order to create fear so as to give the taxpayers some feeling that their tax dollars are being put to good use. But nothing could be further from the truth.

If these companies were left to suffer their own consequences without any bailout funding, then many of them will be forced to file for bankruptcy or admit they are insolvent. Would that create a mess in the financial system? Yes, it would, but the earth will not implode because of it.

Over the past 18 months we have witnessed the largest financial disaster in history. And I will go so far as saying this financial crisis is worse than the Great Depression. It’s just that the Government is doing everything they can from allowing that to be acknowledged by keeping these firms on life support. It is akin to keeping a man with a terminal illness in a deep freeze until one day a cure is discovered for that illness. That is exactly what our Government is doing now. They will continue to pump life giving capital, at our expense, into the very firms that created the disaster in the hope that one day a cure is discovered.

Unfortunately the only cure is to force the companies holding the bad assets to acknowledge them and take the losses on the balance sheets right now. In doing so many of the large Wall Street banks and investment firms will have to publicly acknowledge they are insolvent, and then their fate would be sealed. But, as I said earlier, the corporate CEO’s who in my book should be treated as criminals, are instead influencing Government officials to create legislation that enables them to receive money from the innocent victims they hurt in the first place… the taxpayers.

And all of this is taking place while these CEO’s, Board of Directors, and other high ranking executives at these firms continue to receive substantial bonuses. As if to say to the tax payers that ‘they’ run the world and you can’t do anything about it. They are holding the taxpayer and Government hostage.

In some ways they have been given permission to operate this way because too many American people have become brainwashed to just ‘go along’ with what they are told, to just grin and bear it. Last week nearly 1 million people protested in France over the handling of the economic crisis. Why do we not have the same kind of outcry occurring here? Why are there not 100,000 people in front of the headquarters of Citigroup, AIG, Bank of America, etc. protesting that they come clean and letting them know we will no longer support their corruption and greed? Why is there not 1,000,000 people in Washington telling the Government to stop the corporate bailouts?

If you think Bernie Madoff is a criminal, then what has been perpetrated by the largest banks and Wall Street investment firms makes Mr. Madoff look like a penny candy thief.

It is time for the Government and the responsible firms to stop the game of hiding the losses. It is time for the CEO’s of the firms responsible for this disaster to be called in and prosecuted, and it is time for Americans to speak loudly and speak often that the taxpayers will not be held responsible for their actions any longer. It was their greed that created the disaster, and it needs to be their demise that is the result.

The CEO’s have crossed the line of greed; they have put at risk the very stability of the entire financial system as a result. The bailout madness must stop now and let the system reset itself once and for all.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. Thomas Jefferson (1743 - 1826)

Copyright © 2009 Chuck Young
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Chuck Young | Rebel Traders | Palmyra, NJ USA | Email | Website

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