Published: Sunday, January 4, 2009
IN OUR VIEW
Financial system beset by greed won't survive
Greed n. A rapacious desire for more than one needs or deserves, as of food, wealth or power; avarice.
Contrary to the opinion of the villainous Gordon Gekko, played with Oscar-winning depravity by Michael Douglas in Oliver Stone's 1987 classic "Wall Street," greed is not good. Of the lessons learned from 2008's near-collapse of the world financial system, that's at the top of the list.
Following an audacious period of free-market excess, in which rules seemed to be ignored as much by regulators as those they were supposed to be regulating, 2009 figures to be a year of re-regulation, in which the emphasis will be on getting the financial system back onto a rational playing field.
Overreaction is a danger. Congress and the Obama administration must resist the temptation to write so many rules that they drown innovation in the financial sector. Yes, innovation run amok was among the culprits that created the current mess -- the indecipherable nature of credit default swaps is one example. But innovation is also key to healthy growth in any sector; too much regulation can stifle positive innovation.
The goal must be balance -- the right kind of regulation, and just enough of it, to ensure the integrity of the financial system without holding it back unnecessarily. The rules should be sensible and clear. The players must know that referees are watching, and will hand out penalties when they see rules being broken. Those who play by the game well and follow the rules should be rewarded.
That had become a foreign concept in some institutions, chief among them Washington Mutual, the old "friend of the family" that had become anything but. According to an excellent investigative piece by The New York Times, WaMu had become a banking behemoth by adopting a culture of brazen disregard for the most basic lending standards. Mortgage applicants who WaMu officials knew wouldn't be able to make their payments were routinely approved. The bank would bundle the bad loans and sell them off as exotic securities, so it could pocket the loan fees but not be on the hook for the inevitable default.
Through it all, disgraced WaMu CEO Kerry Killinger, other executives and a lot of mortgage brokers got filthy rich. Greed, as it will when no one is watching, overpowered integrity.
Financial gain is not a sin, nor is being motivated by it. But if one's moral compass doesn't exclude greed, it's broken.
Contrary to the opinion of the villainous Gordon Gekko, played with Oscar-winning depravity by Michael Douglas in Oliver Stone's 1987 classic "Wall Street," greed is not good. Of the lessons learned from 2008's near-collapse of the world financial system, that's at the top of the list.
Following an audacious period of free-market excess, in which rules seemed to be ignored as much by regulators as those they were supposed to be regulating, 2009 figures to be a year of re-regulation, in which the emphasis will be on getting the financial system back onto a rational playing field.
Overreaction is a danger. Congress and the Obama administration must resist the temptation to write so many rules that they drown innovation in the financial sector. Yes, innovation run amok was among the culprits that created the current mess -- the indecipherable nature of credit default swaps is one example. But innovation is also key to healthy growth in any sector; too much regulation can stifle positive innovation.
The goal must be balance -- the right kind of regulation, and just enough of it, to ensure the integrity of the financial system without holding it back unnecessarily. The rules should be sensible and clear. The players must know that referees are watching, and will hand out penalties when they see rules being broken. Those who play by the game well and follow the rules should be rewarded.
That had become a foreign concept in some institutions, chief among them Washington Mutual, the old "friend of the family" that had become anything but. According to an excellent investigative piece by The New York Times, WaMu had become a banking behemoth by adopting a culture of brazen disregard for the most basic lending standards. Mortgage applicants who WaMu officials knew wouldn't be able to make their payments were routinely approved. The bank would bundle the bad loans and sell them off as exotic securities, so it could pocket the loan fees but not be on the hook for the inevitable default.
Through it all, disgraced WaMu CEO Kerry Killinger, other executives and a lot of mortgage brokers got filthy rich. Greed, as it will when no one is watching, overpowered integrity.
Financial gain is not a sin, nor is being motivated by it. But if one's moral compass doesn't exclude greed, it's broken.
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