In Oliver Stone’s Wall Street, antagonist Gordon Gekko noted that “greed is right, greed works.”
If by that he meant that the desire to better one’s life is the driving force underlying free market capitalism, he’s right. But, if he meant that strictly Adam Smithian, laissez-faire principles should govern the U.S. and other modern economies, he’s wrong.
History has proven that unregulated economies produce Darwinian disparities in wealth; an environment in which only the fittest survive and prosper. While it is true that such thinking produced the Gilded Age and the Robber Barons - the Carnegies, the Rockefellers, and the Astors - it also produced stock-shorting and manipulation, trusts, price fixing, industrial labor abuse, poverty and The Great Depression.
As a society, we decided long ago that America should be a place of greater “fairness.” Consequently, it became permissible to intervene in economic machinations in order to establish a safety net; a more level playing field; greater opportunities for a greater number of citizens. It was a “fair deal” that Franklin Roosevelt conceived of and offered the people of the United States, and it helped right a sinking ship of state.
But this past year’s near collapse of the nation’s leading banking and financial institutions has demonstrated that we have not learned from the lessons of history.
In 1933, Congress passed the Glass-Steagall Act. It established a critical separation between commercial banks, which take deposits and make loans, and investment banks, which underwrite securities. In the face of runs on banks and proliferating failures, the Act was designed to protect the savings of average Americans. The government was saying that banks engaged in certain types of risky derivatives investments could not also be in the business of routine banking.
Ten years ago, in 1999, the Glass-Steagall Act was repealed and replaced by the Gramm-Leach-Bliley Act, the result of a $300 million lobbying effort on the part of Citibank, Travelers and other power players of the day, who sought consolidation, autonomy and power.
This year’s nearly systemic financial collapse seems at least partially the result of deregulation; a pendulum swing that has allowed a gradual return to the Smithian free market. While it is true that the majority of banking problems centered on pure investment institutions like Lehman Brothers, the huge commercial banking conglomerates that arose with the passage of Gramm-Leach-Bliley (Citigroup) and the insurance companies that were allowed to barter securities (AIG) would not have faced dire collapse had Glass-Steagall remained in effect.
Ultimately, unrestrained greed is not good, and despite Gordon Gekko’s eloquent phraseology, greed doesn’t “work.” Instead, moderation is the rising tide that lifts all boats.
