The less we say about it the better
Make it up as we go along
Feet on the ground
Head in the sky
It's ok I know nothing's wrong...nothing- Talking Heads
In the 1987 movie Wall Street, up-and-coming young stock broker Bud Fox calmly provides a counter bid for his premium penthouse apartment by saying "Offer 950."
Setting aside the fact many New Yorkers would kill for a three bedroom walkup at 950 today, the message of the scene is clear. Young Bud Fox has now made it. His greed has taken him where he wants to be.
Of course, later in the movie there is a huge fall from grace when Bud and his scheming mentor Gordon Gekko get their comeuppance for blatantly and continuously breaking laws — securities and others — in order to advance their wealth. In this case, greed took them where society forbade and they paid the price.
But is Mr. Gekko's seminal message wrong? Is greed, in fact, not good?
There are many who believe today that greed is the cause of our current economic challenges, and they may in fact be correct. However, attempting to cure this affliction is a fool's game.
Not only is greed a part of human nature (Who doesn't want more?), but it has been proven that channeling greed creates wealth and advantages for the many and not just for the greediest.
By constructing a regulatory system that funnels the energy of such "greedy" people as bankers, entrepreneurs, VCs and LPs, not only do the individuals win, but so do the employees of the companies they found and the citizens who receive benefits from the tax base that is created — not to mention the company's eventual customers, including healthcare patients.
Unfortunately, sometimes those setting the rules get greedy too. And we've yet to figure out a way to funnel the greed of our politicians toward our own benefit.
My colleague, Jim Anderson, has argued for paying senators and congresspeople extremely high wages in order to, among other things, reduce temptation. The full logic of his compelling argument is laid out in his 2006 ISO article, "Show Them the Money."
The other side is to turn "Wall Street" into a dark epithet and "greed" into a four-letter word. The obvious intent here is to convince the masses that greed is bad and something that no one should desire. Without greed, the argument goes, none of these excesses would have happened and the economy would motor along quite well.
There may come a time when we can find a cure for greed. After all, the world changes continuously and treatments we consider today to be routine were not always the case. For example, the Roman physician Pliny the Elder (A.D. 23 – 79) created a fantastical prescription for the common toothache, which even at that time had a mysterious origin. First, the patient must bite on a piece of wood from a tree struck by lightning, then touch the afflicted tooth with the frontal bone from a lizard taken during a full moon. If the ache persists, the patient must find a frog by the light of a full moon, spit into its mouth and say "Frog, go! And take my toothache with thee!"
We've certainly advanced from Pliny's days.
Curing a toothache is certainly a good thing, but ridding the world of greed would remove the desire for bettering ourselves and our world. This is not something we should attempt to achieve.
Instead, we should take a hard look at both our system of rules and regulations along with those who are in charge of their development. It's easy to find examples of both Republicans and Democrats who, over the years, allowed and even encouraged the housing market into bubble territory. Perhaps their motivations and mode of existence should be questioned.
Perhaps we should attempt a Pliny-like treatment for our regulators and rule makers, rather than focusing so intently on financial professionals who, after all, only acted under their natural human instinct.
Mortgage Review Reset?
Barney Frank has rescheduled a hearing on the mortgage giants Fannie and Freddie for March 23. The goal, it seems, is to explore ideas regarding a complete restructuring of the mortgage sector. However, one must wonder how much will be accomplished, given the Obama administration is set on putting off this discussion to 2011.
We will continue to watch these developments closely.
Key Developments
The trade deficit in January declined to $37.3 billion from $39.9 billion a month earlier, with both imports and exports declining after a string of solid gains over the prior eight months. Some of the weakness is likely due to Toyota's activities and it's possible international trade will resume to grow in the coming months.
It is widely rumored that Janet Yellen, the president of the San Francisco Federal Reserve, will be chosen as vice chairman of the central bank. Though it is being widely reported that she is a dove — meaning she is less likely to vote for higher rates — there have been times when she seemed more hawkish to me. Nonetheless, just last month she stated that the U.S. economy "still needs the support of extraordinarily low" interest rates.
Retail sales were very strong in February, increasing 0.3 percent overall and an eye-popping 0.9 percent after stripping away autos and gasoline. Keeping in mind this is only one data point, I can't help but be impressed even as consumer confidence actually fell from 74.0 in February to 72.5 in March.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
SVB Asset Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other obligations of Silicon Valley Bank, and may lose value.