Is Greed Really Good?
In the 1987 film Wall Street, Michael Douglas portrays a fictional character Gordon Gekko who has become a stand out symbol of unrestrained greed and the lengths people in the financial industry are prepared to go. "Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit…"
So…is greed really good? In the local property boom leading up to 2007 we witnessed, in my view, a large element of "greed" getting the better of all the stakeholders involved. A bit like the feedback from the recent Black Friday sales…people were paying for things they didn’t need with money they didn’t have.
There are vast economies of scale between the two comparisons but on the lead up to the bust of the property bubble, there is no denying that bankers got their bonuses for lending the money, whilst borrowers became balance sheet rich with the “notional equity” in their newly purchased assets, which with hindsight was ultimately being over valued by local property agents. Don’t get me wrong, no professional was without their part to play – the accountants counted it all up whilst the lawyers sat and done the paperwork.
The incentives and motives will only be known to the people involved, and like all things there were winners and losers, but unfortunately the end result has turned out far from anything "good". The trust that existed between banks and borrowers was all but wiped out as each party continues to blame the other for what occurred.
GDP Equity Experts don't work for banks but we do have to work with them. A lot of what we do in mediation is repair the relationship that has broken down between the bank and borrower or last resorts agree an amicable exit. We always tell our clients to educate themselves and become more financially aware...our own wee bit of advice towards the GDP cause of helping fix the local economy.
Having worked for the last 4 years as a go between for banks and borrowers one thing is certain from my perspective. Borrowers, who unlike the banks, were not bailed out by the tax payer and the cost to a borrower has been much greater than any figure reflected on a balance sheet. Family businesses and lives have been destroyed, if not, taken away.
What is disappointing from my perspective is the way I look at it there are no mistakes, only lessons, but how many lessons have to be learned before they get things right. It seems we are all only human, and where there are humans...there will be human error.
The reason I say this is in other news, public faith took another turn for the worst, as Bank of England’s Mark Carney has again been critical of the financial markets stating they are "tainted" by scandals to the extent that people now question their integrity. Mr Carney went on to say "there was widespread misconduct in certain parts of markets and required a forceful response."
Chancellor George Osborne weighed in that "if you go and shoplift at the local WH Smith, you go to prison, but the market trader on the trading floor of a big investment bank, and you rip off people to the tune of millions of pounds, there are no criminal offences available to deal with you". He went on to say there as a lot of "totally understandable anger" over the last five years over the "biggest single economic crash of our lifetimes".
He added people need to see "tougher laws and tougher regulation, and people who commit crimes go to prison, that the banking system if it gets into trouble or individual banks that get into trouble will be bailed out by their creditors rather than by the taxpayers, and that there will be openness and transparency. It's going to take time and the financial services sector, and indeed in the regulators and the politicians responsible, have to prove to the public things really have changed."
In basic terms, there can be no recovery in the economy and indeed public trust without open, willing and transparent disclosure and discussion from all sides. The team at GDP Equity Experts from the offset have encouraged this behaviour and what we have found is as our clients have worked pragmatically with the banks, the banks have returned this position and worked with them so swifter mediated amicable agreements can be achieved. Greed from either side is never good.