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Greed Is Good:
A 300-Year History of a Dangerous Idea
Table of Contents
Cartoon from a 1909 issue of Puck magazine
Greed Is Good: A 300-Year History of a Dangerous Idea
Greed Is Good or Is It? Quote and Meaning
Greed is Good Wall Street 1987
Is greed good?

Cartoon from a 1909 issue of Puck magazine. A caption read,

"Dedicated to the states where child labor is still permitted." Library of
Congress

Cartoon from a 1909 issue of Puck magazine. A caption read,

"Dedicated to the states where child labor is still permitted." Library of
Congress

Greed Is Good: A 300-Year History of a Dangerous Idea

Not long ago, the pursuit of commercial self-interest was largely reviled.
How did we come to accept it?
Among MBA students, few words provoke greater consternation than
greed. Wonder aloud in a classroom whether some practice might
fairly be described as greedy, and students dont know whether to stick
up for the Invisible Hand or seek absolution. Most, by turns, do a little of
both.
Such reactions shouldnt be surprising. Greed has always been the
hobgoblin of capitalism, the mischief it makes a canker on the faith of
capitalists. These students' troubled consciences are not the result of
doubts about the efficacy of free markets, but of the centuries of moral
reform that was required to make those markets as free as they are.

We sometimes forget that the pursuit of commercial self-interest was

largely reviled until just a few centuries ago. A man who is a merchant
can seldom if ever please God, St. Jerome said, expressing the
prevailing belief in Christendom about the relative worthiness of a life
devoted to trade. The choice to enter business didnt necessarily deprive
one of salvation, but it certainly hazarded his soul. If thou wilt needs
damn thyself, do it a more delicate way then drowning, Iago tells a
lovesick Rodrigo. Make all the money thou canst.
The problem of money-making was not only that it favored earthly
delights over divine obligations. It also enflamed the tendency to prefer
our own needs over those of the people around us and, more worrisome
still, to recklessly trade their best interests for our own base satisfaction.
St. Thomas Aquinas, who ranked greed among the seven deadly sins,
warned that trade which aimed at no other purpose than expanding ones
wealth was justly reprehensible for it serves the desire for profit
which knows no limit.
It was not until the mischievous moralist Bernard Mandeville that
someone attempted to gloss greed as anything other than a shameful
motive. A name now largely lost to history, Mandeville became a foil for
18th-century philosophy when, in 1705, he first proposed his infamous
equation: Private vices yield public benefits. It came as part of The Fable
of the Bees, an allegorical poem that described a thriving beehive where
dark intentions keep the wheels of commerce turning. The outrage
Mandeville stoked had less to do with this causal explanation than with
the assertion that only by such means could a nation grow wealthy and
strong. As he contended (with characteristic bluntness) in the conclusion
to the Fable:
T enjoy the Worlds Conveniences,
Be famd in War, yet live in Ease,
Without great Vices, is a vain
EUTOPIA seated in the Brain.
Philosophers lined up to take their shots at Mandeville, whose moral
paradox seemed so appalling precisely because it could not be so easily
dismissed. The most notable among them was Adam Smith, the

founding father of modern economics, who struggled to distinguish the

mainspring of his system from the one Mandeville proposed.
Consider how Smith describes the selfish landowner, of whom he says
the proverb, that the eye is larger than the belly, never was more fully
verified. Looking out over his fields, in his imagination, he consumes
himself the whole harvest. The belly, however, is not so obliging. The
greedy landlord may engorge himself without making a dent in his crop,
and he is obliged to distribute the rest in payment to all those who help
supply his economy of greatness.
This is Smiths Invisible Hand at work. It is counterintuitive force for
good that, on first glance, seems not especially different from
Mandevilles contention that private vices yield public benefits. Smith
was sensitive to this factBernard Mandeville did not exactly make for
good companyand he struggled to create distance between them.
He did this in two ways. First, Smith emphasized the moral distinction
between primary aims and secondary effects. The Fable of the Bees
never explicitly claimed that vice was good in itself, merely that it was
advantageousa subtle distinction that created confusion for
Mandevilles readers which the author, a cynic through and through,
made little effort to dispel.
Smith, by contrast, made abundantly clear that, as a matter of moral
assessment, one should distinguish between the intentions of an actor
and the broader effects of his actions. Recall the greedy landlord. Yes,
the primary aims of his daily laborsvanity, sway, self-indulgenceare
far from admirable. But in spite of this fact, his efforts still have the
effect of distributing widely the necessaries of life such that, without
intending it, without knowing it, he, and others like him, advance the
interest of society. This is another way of saying, for Smith, the moral
logic of free markets was a law of unintended consequences. The
Invisible Hand gives what a greedy landlord takes.
The second move Smith made was to effectively redefine Greed.
Mandevilleand for that matter, the Church Fathers before himspoke
in such a way that any self-interested pursuit seemed morally suspect.
Smith, for his part, refused to go along. He acknowledged that pursuing
our interests often entails getting what we want from other people, but

he maintained that not all of these pursuits, morally speaking, were

equal. We get what we want in a complex commercial societyindeed,
we get to have a complex commercial societynot because we seize
things outright, but because we pursue them in a way that acknowledges
legal and cultural constraints. That is how we distinguish the merchant
from the mugger. Both pursue their own interests, but only one does so
in a manner that confers legitimacy on the gains.
Greed, as such, became an acquisitive exercise that fell on the wrong
side of this divide. Some of these activities, like the muggers, were
fairly prohibited, but those of, say, the mean-spirited merchant were
checked by censure and disgrace. These forces did not eradicate
selfishness, but by the moral distinction they maintained, they helped
establish a new ideal of the upstanding businessman.
That ideal was famously embodied by Smiths friend, Benjamin
Franklin. In his Autobiography, Franklin presented himself as the
epitome of a new American Dream, a man who emerged from Poverty
& Obscurity to attain a State of Affluence & some Degree of
Reputation in the World. Franklin found nothing to be ashamed of in
riches and repute, provided they were turned toward some broader
purpose. His success allowed him to retire from the printing business at
42 so that he might spend the balance of his life on initiativescivic,
scientific, philanthropicthat all enhanced the common good.
The example of Franklin, and those like him, gave reason for optimism
to those who understood the mixed blessing of free -markets. Whenever
we get a glimpse of the economic man, he is not selfish, the great
English economist Alfred Marshall wrote toward the end of the 19th
century. On the contrary, he is generally hard at work saving capital
chiefly for the benefit of others. By others, Marshall principally
meant the members of ones family, but he was also making a larger
point about how our self-interest can expand and evolve when we
have achieved financial security. The love of money, he declared,
encompasses an infinite variety of motives, which include many of
the highest, the most refined, and the most unselfish elements of our
nature.

Then again, they also include lesser elements. Andrew Carnegie might
have proclaimed that it was the responsibility of a rich man to act as
agent and trustee for his poorer brethren, but the steel magnates
beneficence was backstopped by cheap labor, dangerous working
conditions, and swift action to break strikes. Besides, the active
redistribution of wealth was something of a side-story (and a subversive
one at that) to the moral logic of free markets. The Invisible Hand
worked not by appealing to the altruism of exceptionally rich men, but
by turning an antisocial instinct like greed into an unwitting civil
servant.
Still, by the early 20th century, some believed his services might safely
be dismissed. Reflecting on the extraordinary rate of development in
Europe and the United States, John Maynard Keynes suggested that the
economic problem (which he classed as the struggle for subsistence)
might actually be solved by 2030. Then, Keynes said, we might dare
to assess the love of money at its true value, which, for those who
couldnt wait, he described as a somewhat disgusting morbidity, one of
those semi-criminal, semi-pathological propensities which one hands
over with a shudder to the specialists in mental disease. In other words,
at last, we could afford to shift our attention from the advantages of
greed and to disadvantages of greedy people.
Keyness views were extreme, but only in expression. Substantively,
everyone agreed with him that greed was still a vice and a rather vicious
one at that. A. Lawrence Lowell, the President of Harvard University,
called a motive above personal profit among businessmen a
prerequisite for establishing Harvard Business School, while its first
dean, Edwin Francis Gay, told a prospective faculty hire that the
pedagogy of his institution did not include teaching young men to be
moneymakers.
As a lingering distaste for the profit-motive combined with continued
economic development, the assumption began to wane that selfinterested pursuits were the organizing force of a modern economy.
Keynes pointed to this when he extolled the tendency of big enterprise
to socialize itself, a phenomenon by which enlightened middlemanagersguided by science, reason, and administrative esprit du corps

would at last supplant the animism of the Invisible Hand. If the

corporate system is to survive, Adolf Berle and Gardiner Means wrote
in the conclusion to their seminal study of the modern American
corporation, the control of the great corporation should develop into a
purely neutral technocracy, balancing a variety of claims by various
groups in the community and assigning to each a portion of the income
stream on the basis of public policy rather than private cupidity.
Berle and Means wrote these lines in 1932. In hindsight, they dont
seem exactly prescient. As a matter of economic science, the revolt
against managerial capitalism, and the reevaluation of greed, took shape
after the Second World War, led by efforts of the Austrian economist
Joseph Schumpeter and, later on, the architects of Agency Theory.
Against Keynes, Schumpeter presented a new vision of capitalism as
Creative Destruction. The relevant problem for economists, he said,
was not how capitalism administers existing structures (the purview of
the middle-manager) but how it creates and destroys them, an anarchic
activity undertaken by Schumpeters hero, the entrepreneur.
As an icon for capitalism, the pugnacious individualism of the
entrepreneur was entirely at odds with the vision of Berle and Means.
According to Schumpeter, what drove an economy was headlong
innovation, not careful administration. This was the hallmark of
entrepreneurial activity, the courageous effort of an inspired mind, not
the fruit of corporate collaboration.
An appeal to private cupidity was not the only way of eliciting such
inspiration, but it was certainly the most obvious. It was also favored by
the enthusiasts of Agency Theory, who began filling the ranks of
business schools and economics departments in the 60s and 70s. They
eschewed the common cause of managerial capitalism as an
endorsement of soft socialism, an inducement to fuzzy thinking, and a
recipe for corporate decay. Instead, they portrayed the company as a
collection of self-serving individuals whose interests could be aligned
with those of shareholders only by appeals to Keyness semipathological propensity: the love of money. Thus, the rise of stock
options, performance pay, and other compensatory strategies that aimed
to spark innovation in the executive suite. For the most part, the moral

arguments called upon to support these recommendations took a familiar

form. Greedy behavior could be tolerated, even encouraged, but only if
it eliminated worse offenses: starvation, exposure, idiocy.
But choosing a lesser evil at the expense of a greater one is merely an
exercise in good judgment. It does nothing to change the nature of what
is chosen, and when a nation no longer fears, first and foremost, the
pangs of abject misery, it may be said that greed has largely served its
social purpose. An affluent people might fairly turn their attention to the
ugly behavior greed encourages and to the social and political perils of
extreme inequality. They may have good reason, in short, to restrain the
Invisible Hand.
Accordingly, in recent decades, a new line of argument has opened in
the moral defense of greed, a change that was augured and embodied
above all others by Ayn Rand. Rand understood that, when someone
defended greed by an appeal to the common good, he was also
conceding that greed could be checked by it. As the moral foundation for
free markets, such an argument was entirely unacceptable to Rand, who
took aim at it in her 1965 essay What is Capitalism?
Implicitly, uncritically, and by default, political economy accepted as
its axioms the fundamental tenets of collectivism, she declared in a
sweeping indictment of the Invisible Hand tradition. The moral
justification of capitalism does not lie in the altruist claim that it
represents the best way to achieve the common good. That may be so,
but it is merely a secondary consequence. Instead, capitalism is the
only economic system in which the exceptional men are not held
down by the majority and in which (as she said elsewhere) the only
good that humans can do to one another and the only statement of
their proper relationship are both acknowledged: Hands off!
A woman who titled a collection of essays The Virtue of Selfishness,
Rand was given to brackish candor. Yet at a time when many people
think that the common good is more often imperiled than empowered by
unbridled greed, she provides an alternative defense of the acquisitive
instinct by appealing to an ethics of gross achievement and a formulation
of personal liberty that looks with suspicion and disdain on any talk of

civic duty, moral obligation, or even prudential restraint. Her aim was
simple: To relieve greed, once and for all, of any moral taint.
I think greed is healthy, an apparent acolyte told the graduating class
at Berkeleys business school in 1986. You can be greedy and still feel
good about yourself. The speaker was Ivan Boesky, who shortly
thereafter would be fined $100 million, and later go to prison, for insider
trading. His address was adapted by Oliver Stone as the basis for Gordon
Gekkos greed is good speech in Wall Street. An exhortation to
shareholders of a sagging company, it reads like a corporate raiders war
cry, with Gekko the grinning avatar of Agency Theory.
Such a blunt endorsement of greed today remains far beyond the
mainstream. If we tolerate greed, it is because we accept the hard
bargain of the Invisible Hand. We believe that greed can do good, not
that it is good. That, we are unwilling to say.
But for the most part, I dont think we dont say very much about greed,
not comfortably at least. Perhaps that is the inevitable price of an
economic system that relies on the vigor of self-interested pursuits, that
it instills a kind of moral quietism in the face of avarice, for whether out
of a desire to appear non-judgmental or for reasons of moral expediency,
unless some action verges on the criminal, we hesitate to call it greed,
much less evidence of someone greedy. We dont deny the existence of
such individuals, but like Bigfoot, they tend to be more rumored than
seen.
Moral revolutions come about in different ways. If we reject some
conduct but rarely admit an example, we enjoy the benefit of being highminded without the burden of moral restraint. We also embolden that
behavior, which proceeds with a presumptive blessing. As a matter of
public discourse and polite conversation, Greed is unlikely to be
Good anytime soon, but a vice need not become a virtue for the end
result to look the same.

Greed Is Good or Is It? Quote and Meaning

In the 1987 movie Wall Street, Michael Douglas as Gordon Gekko gave
an insightful speech where he said, "Greed, for lack of a better word, is

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good." He went on to make the point that greed is a clean drive that
"captures the essence of the evolutionary spirit. Greed, in all of its
forms; greed for life, for money, for love, knowledge has marked the
upward surge of mankind."
He then compared the United States to a "malfunctioning corporation"
that greed could still save.
His next point said, "America has become a second-rate power. Its trade
deficit and its fiscal deficit are at nightmare proportions."
Both of these points are more true now than in the 1980s. First the
European Union (in 2007), and then China (in 2014), surpassed the
United States as the world's biggest economy. The U.S. debt is now
larger than the country's entire economic output. The trade deficit has
only gotten worse in the last twenty-five years.
Greed Is Bad
Is greed bad? Can the financial crisis of 2008 be traced all the way back
to the greed of Michael Milkin, Ivan Boesky, and Carl Icahn -- the Wall
Street traders upon whom the movie was based? Perhaps it's always the
human drive for more, or greed itself, that's the inevitable cause of the
irrational exuberance that creates asset bubbles. Then still more greed
blinds investors to the warning signs of collapse and recessions.
That's certainly true of the 2008 financial crisis when traders created,
bought and sold sophisticated derivatives.
The most damaging were mortgage-backed securities, which were based
on underlying real mortgages. They were guaranteed by an insurance
derivative known as credit default swaps. All were traded successfully
until 2006, when housing prices started falling at the same time interest
rates rose. As mortgage-holders defaulted, no one knew the value of the
mortgage-backed securities.
Companies like AIG that wrote the credit default swaps ran out of cash.
The company, along with Fannie Mae, Freddie Mac and the major
banks, all had to be bailed out by the Federal Reserve and the U.S.
Treasury Department.
Greed Is Good

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Or is greed, as Gordon Gekko pointed out, good? Perhaps, if the first

cave man didn't greedily want cooked meat and a warm cave, he never
would have bothered to figure out how to start a fire. Perhaps Milton
Friedman and Friedrich Hayek were right -- that the free market forces,
if left to themselves without government interference, unleash the good
qualities of greed. Capitalism itself is also based on a healthy form of
greed.
Could Wall Street, the center of American capitalism, function without
greed? Probably not, since it depends on the profit motive. The banks,
hedge funds, and securities traders that drive the American financial
system buys and sell stocks. The prices depend on the underlying
earnings, which is another word for profit. Without profit, there is no
stock market, no Wall Street, and no financial system.
Hollywood imagery sometimes survives long after its initial
introduction, moving its characters and message into mainstream
culture, occasionally serving in useful instruction. That may be the case,
at least in part, with a Hollywood character named Gordon Gekko, from
the 1987 film Wall Street. Gekko was the fictional archetypal hustler;
the big-time trader/speculator/cor- porate raider who made greed is
good the signature catch phrase of the go-go 1980s. Gekko was played
to a tee by actor Michael Douglas in the film directed by Oliver Stone.
Douglas, in fact, won the Best Actor Oscar for his portrayal of Gekko,
the unscrupulous corporate raider who stops at nothing to get what he
wants.
Nearly twenty years later, the fictional Gekko played by Douglas had
left enough of an impression that he was used on the cover of the June
2005 Fortune magazine at right to spotlight a story on the new greed of
Wall Street. And more recently, by 2008-2009, during the latest
financial crisis, with greed still doing its thing big time, references to
Gekko and his quips were once again being heard. And by May 2010, a
sequel to the 1987 film, Wall Street 2: Money Never Sleeps, was
released, featuring a reformed Gordon Gekko, having served his prison
term. In the piece that follows here, however, the first film is the focus,
exploring its history and audience reaction, and why in some cases its

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characters were emulated and its central message missed and/or

unheeded.
The 1980s
Producer Oliver Stone set his Wall Street film in the mid-1980s, around
the time several insider trading scandals and prosecutions were in the
news. The film also portrayed the high-flying life styles of New York
traders rolling in their Wall Street largesse during that era. In addition to
capturing the essence of the Gordon Gekko character and his take-noprisoners school of capitalism, the film also featured the wanna-belike Gordon strivings of young trader, Bud Fox, played by Charlie
Sheen. Fox soon becomes Gekkos protg and partner in crime, living
in the fast lane for a time, with an Upper East Side condo, beautiful livein companion Darien (Daryl Hannah), while making bundles of money
all courtesy of Gordon Gekko. But young Bud eventually sees
through his hot-shot mentor and the damages his wheeling and dealing
can cause including one plan to buy, eviscerate, and sell off as parts,
the airplane company his working-class father, Carl Fox, is employed by
( Sheens fictional dad in this case is also his real one, Martin Sheen,
playing a union leader who tries to warn his son that Gekko is using
him). Bud gets caught by the Feds while doing some insider handiwork
for Gekko, but later turns government informant, wearing a wire, to help
send his former boss to jail. The film ends with Bud heading to court,
presumably to seal the case against Gekko.
One of the more memorable and much quoted moments of the film
comes when Gekko gives a speech at a shareholders meeting of Teldar
Paper, a company he is planning to take over. This is the famous greed
is good speech as Gekko defends his planned takeover, pointing to the
bloated and wasteful ways of post-War corporate America, using
Teldars management as Exhibit A, and claiming himself the companys
saviour a liberator of value (see sidebar below).
Parts of this fictional speech are reported to have come from actual
speeches that real-world Wall Streeters had given namely by
corporate raider Carl Icahn and financial wheeler-dealer Ivan Boesky.
Ichan had railed against corporate management who owned little of their
own companies, had too many high-level executives, and were otherwise

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inefficient. And Ivan Boesky is credited with inspiring the greed is

good line, paraphrased from a May 18, 1986 commencement address
he gave at the University of California, Berkeley, School of Business
Administration. Boesky said then: Greed is all right, by the way. I
want you to know that. I think greed is healthy. You can be greedy and
still feel good about yourself. Boesky was later one of those convicted
of insider-trading.

Greed is Good Wall Street 1987

In the film, Gordon Gekko is given the opportunity to address the Teldar
Companys shareholders assembled in a large meeting hall. This is the
speech that ends with his famous greed is good remarks. During the
meeting, Gekko takes to the floor, microphone in hand, thanking the
company chairman, Mr. Cromwell, for the opportunity to speak
adding, after all, I am Teldars single largest shareholder. Gekko then
proceeds to walk down the center aisle of the meeting, with shareholders
all around him, offering his views:
GEKKO: Well, ladies and gentlemen, were not here to indulge in
fantasy, but in political and economic reality. America has become a
second-rate power. Its trade deficit and its fiscal deficit are at nightmare
proportions. Now, in the days of the free market, when our country was
a top industrial power, there was accountability to the stockholder. The
Carnegies, the Mellons, the men that built this great industrial empire,
made sure of it because it was their money at stake . Today,
management has no stake in the company!
GEKKO: All together, these men sitting up here [pointing to Teldar
management] own less than 3 percent of the company. And where does
Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he
owns less than 1 percent.
GEKKO: You own the company. Thats right you, the stockholder.
And you are all being royally screwed over by these, these bureaucrats,
with their steak lunches, their hunting and fishing trips, their corporate
jets and golden parachutes.
CROMWELL: This is an outrage! Youre out of line, Gekko!

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GEKKO: Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice
presidents, each earning over 200 thousand dollars a year. Now, I have
spent the last two months analyzing what all these guys do, and I still
cant figure it out. One thing I do know is that our paper company lost
$110 million dollars last year, and Ill bet that half of that was spent in
all the paperwork going back and forth between all these vice presidents.
GEKKO: The new law of evolution in corporate America seems to be
survival of the unfittest. Well, in my book you either do it right or you
get eliminated. In the last seven deals that Ive been involved with, there
were 2.5 million stockholders who have made a pretax profit of 12
billion dollars. Thank you. I am not a destroyer of companies. I am a
liberator of them!
GEKKO: The point is, ladies and gentleman, that greed for lack of a
better word is good.
GEKKO: Greed is right. Greed works. Greed clarifies, cuts through,
and captures the essence of the evolutionary spirit. Greed, in all of its
forms greed for life, for money, for love, knowledge has marked
the upward surge of mankind. And greed you mark my words will
not only save Teldar Paper, but that other malfunctioning corporation
called the USA.
GEKKO: Thank you very much.

Not A Blockbuster
Oliver Stones Wall Street in 1987 was not a blockbuster at the box
office. It grossed about $43 million, finishing at No. 26 for the domestic
box office. But 1987, it should be remembered, was a year when the
real world stock market had a bit of crash in October. The movie came
out in December, and despite what some might have seen as good
timing, the audience for business stories then was not exactly torrid. In
addition, some reviewers had their criticisms, while others were not
especially inclined toward the film. Still, Wall Street had its fans,
leaving lasting impressions on some young viewers. Recalling in later
years his initial reaction to the film, one reviewer at IGN.com wrote:
I love Wall Street. When it came out, I read Ken Lippers novelization

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to fully immerse myself in it. In my mid-teens I bought the script at a

convention and learned it cover to cover. And at least one Wall
Street player who viewed the film at a special Wall Street screening in
December 1987 offered his impression to a New York Times reporter: It
laid bare the real motivations, he said, requesting anonymity at the
time. People pretend that they are doing something noble, raising
capital to support Americas businesses, but Wall Street is just about
making money.
Bud Fox at his trading desk where he sets out to make some quick
bucks doing deals for Gordon Gekko.
In the film, the character played by Hal Holbrook is a stock broker
who attempts to mentor young Bud Fox at the trading firm where both
work. Holbrook also represented, in Oliver Stones words, the positive
forces in the market. Holbrook is also part Oliver Stones father, who
was in real life a stockbroker for 40 years and believed Wall Street
could do a lot of good, according to Stone. In the film, Holbrook,
representing the old patient school of investing, tries to teach Bud Fox
the ethics of the business. But Fox, at first, is more enamored of the
deal, deal maker Gekko, and the quick, big money.
Gordon Gekko: "Lunch is for wimps."
Its easy to see why Gekkos elegant evil is more enticing than
Holbrooks broadly played naysayer or even Martin Sheens appealing
father figure,wrote the Washington Posts Rita Kempley in her
December 1987 review of the film. Hes cocky as a test pilot, amoral
as a vampire and fanatic as the ayatollah. Kempley continues:
Douglas plays Gekko with a terrible intensity. He raves and rants, but
he has a rascals humor. The thing youve got to remember about
WASPs: They love animals and cant stand people, he confides to his
protg, explaining his support of the Bronx Zoo.
Gekko, in fact, is quick with the quips that sum up the tough-guy
trader ethos: Lunch is for wimps, he says at one point. And he has a
bunch of others as well Money never sleeps; Whats worth doing
is worth doing for money; If you need a friend, get a dog. If youre
not inside your outside. Heres Gekko boasting to Bud about how he
made some of his early money: You see that building? I bought that

16

building ten years ago. My first real estate deal. Sold it two years later,
made an $800,000 profit. It was better than sex. At the time I thought
that was all the money in the world. Now its a days pay. Gekko also
tells Fox during the film:
Bud Fox getting a big account check from Gordon Gekko.
We make the rules, pal. The news, war, peace, famine, upheaval, the
price per paper clip. We pick that rabbit out of the hat while everybody
sits out there wondering how the hell we did it. Now youre not naive
enough to think were living in a democracy, are you Buddy? Its the
free market. And youre a part of it. Youve got that killer instinct. Stick
around pal, Ive still got a lot to teach you.
But perhaps one of the best lines in the film goes to Carl Fox, Martin
Sheens character, trying to counsel his son on the better course:
Moneys only something you need in case you dont die tomorrow
And heres another from Bud Foxs stock-trading co-worker, Marv:
Were all just one trade away from humility.
Whats intriguing about Wall Street, wrote film critic Robert Ebert
in his 1987 review, is that the movies real target isnt Wall Street
criminals who break the law. Stones target is the value system that
places profits and wealth and the Deal above any other consideration.
His film is an attack on an atmosphere of financial competitiveness so
ferocious that ethics are simply irrelevant, and the laws are sort of like
the referee in pro wrestling part of the show.
At a dinner party gathering with Gekko, Darien (Daryl Hannah) and
Buds father, Carl Fox (Martin Sheen, far right), discussing the Bluestar
Airlines deal.
Although Wall Street was not a box office smash when it first came
out, the film enjoyed a bit of a renaissance in 1989 and 1990 as the
prosecutions of Ivan Boesky and Michael Milken unfolded for their
insider trading. Milken, best known as the Junk Bond King in the
1980s, was indicted on 98 counts of racketeering and fraud and was
sentenced to 10 years in prison, though he served less than two. By
1990 Newsweek had a cover story that asked Is Greed Dead? Michael
Douglas, in any case, left behind a memorable character in Gordon
Gekko; a character who has stayed with the culture for some years now,

17

and is periodically mentioned whenever Wall Street excesses flow.

Through the 2000s, the film or Gekko received occasional mention, as in
the 2005 Fortune magazine story. At the films 20th anniversary in
2007, a special edition DVD was released that included an introduction
by Oliver Stone, extensive deleted scenes, greed is good featurettes,
and interviews with Michael Douglas and Martin Sheen.

Lessons Learned?
Gordon Gekko, from "Wall Street" film, 1987.
Oliver Stones intention with his film in 1987 was to show Wall
Streets excesses and its callousness, and with Gekko, a repulsive
character, whose quips and creed were put on display as bad example.
Yet if the films message was meant to discourage Gekkos brand of
behavior, it may have fallen short. Some critics, in fact, felt the film was
a little too good at glorifying the values it set out to deplore. The films
screenwriter, Stanley Weiser, actors Charlie Sheen and Michael Douglas,
and Oliver Stone would all acknowledge this to some degree, noting that
people would tell them they admired the Gekko and Fox characters in
their hard-charging Wall Street styles and money-making schemes.
Some even said they went into business or became stockbrokers because
of what they saw in the film. Douglas told a reporter that the continued
resonance of Gekko in this popular vein was probably been the biggest
surprise of my career; that people say that this seductive villain has
motivated [them] to go into this business. Oliver Stone has said much
the same thing. I cant tell you how many young people who have
come up to me and said I went to Wall Street because of that movie,
he said in a 2009 conversation with New York Times reporter Tim
Arango. So I think the movie was misunderstood by some, Stone
explains, because it was about a horrible thing going on; about how
people would worship money at all costs. Stone, who today also
teaches college students in a film course, has told them, Wall Street can
be the engine of capitalism, to create opportunity, but he adds that Wall
Street has increasingly not done that because theres more money in
speculation.

18

In more recent years, closer to the 2007-2009 economic crisis,

references to Gordon Gekko have come around a bit more as Stone
intended. Now Gekkos name appears to be finding some new
instructional currency. Today we are still clean- ing up the mess of the
21st-century children of Gordon Gekko.
Kevin Rudd, Australian P.M. In an October 8th, 2008 speech by
Australian Prime Minister Kevin Rudd, titled The Children of Gordon
Gekko, for example, Rudd takes aim at the financial crisis of 20072008. It is perhaps time now to admit that we did not learn the full
lessons of the greed-is-good ideology, he said. And today we are still
cleaning up the mess of the 21st-century children of Gordon Gekko.
Similarly, in Italy, Cardinal Tarcisio Bertone, a Vatican official, cited
Gekkos greed is good slogan in remarks he made in July 2009 to Italian
Senators in Rome. Cardinal Bertone said the free market had been
replaced by a greed market, blaming such a mentality for the 2007-2008
financial crisis. And in September 2009, former Harvard Business
School graduate, Philip Delves Broughton, now a writer for the London
Evening Standard, observed:
Gordon Gekko telling the Teldar board and shareholders in Wall Street
1987 how his version of greed-is-good efficiency will work.
Gordon Gekko telling the Teldar board and shareholders in Wall Street
1987 how his version of greed-is-good efficiency will work.
Gekkos Greed is Good speech is still shown to MBA students at
business schools. It is intended as a morality lesson, but ends up feeling
more like a pep talk. At my old business school, Harvard, Gekkos
speech electrified a snoozy morning class on leadership. By the time
Gekko was done berating the board of Teldar Paper, the entire class was
grinning and alert.
For most MBA students that speech is less a parody than a guiding philosophy. Over the past year, as Wall Street froze hiring and many MBA
students struggled to find work, a wave of ethical re-evaluation swept
business school campuses. A group of Harvard Business School
students even came up with an MBA oath, vowing to be responsible,
law-abiding, civic-minded business people.

19

It was not the kind of thing anyone bothered with when the economy
was roaring along and students could still fantasize about gliding from
business school into a world of Gekko-ish riches.
Still, among bankers in recent months, there has been some one-upping
of the Gekko creed with a new twist. In November 2009, Barclays CEO
John Varley stood at a church lectern in London telling his audience that
profit is not satanic. The 53-year-old head of Britains second-biggest
bank was there in part to defend high pay to bankers. Profit is not
satanic.
-John Varley, Barclays Bank Rewarding high-performing bankers
with more pay, he explained, didnt conflict with Christian values.
Bankers in Britain had taken to the churches in response to critics who
charged them with creating great disparities in wealth and inequality. A
few weeks earlier, Goldman Sachs International adviser, Brian Griffiths,
giving a talk at Londons St. Pauls Cathedral had stated: The
injunction of Jesus to love others as ourselves is an endorsement of selfinterest. We have to tolerate the inequality as a way to achieving
greater prosperity and opportunity for all. Gordon Gekko, no doubt,
would be smiling over that one, but others might find it downright unChristian.
Meanwhile, Gordon Gekko himself is set to make a renewed
appearance on the scene in a forthcoming sequel of the Wall Street film,
this one set in the current financial world.

The Sequel
A sequel to 1987s Wall Street film has been rumored for years, and in
October 2008, it was reported that 20th Century Fox began fast-tracking
production for a follow-up film. The sequel, Wall Street 2: Money
Never Sleeps, is scheduled for release some time in 2010. This film
finds Gordon Gekko released from prison, having served a 20-year
sentence for his nefarious deeds. Now, however, he faces a much
different Wall Street than the one he left. Gekko would no longer exist
in this new Wall Street, says Oliver Stone. The big players now are
major banks and hedge funds the moneys too big. In the new film,

20

Stone says, greed is now legal. This version of Wall Street will draw
inspiration from the current credit crunch and money-making schemes of
hedge fund swindlers. There will also be more emphasis on the role of
investment banks and less on traditional stock trading. The film will
have more of a global scope as well, ranging from Wall Street to Abu
Dabai, the Far East, and other locations, including New Yorks Federal
Reserve Bank.
New York Times business columnist, Gretchen Morgenson, learning
of the forthcoming sequel in September 2009, and musing on the
prospects for a new storyline for the fresh-from-prison Gordon Gekko,
offered the following possibilities:
Gordon Gekko is delighted to see that his views on greed have
spawned a growth industry. No longer must he endure criticism when he
preaches that greed is good; his concept has in fact gained acceptance at
the highest reaches of commerce. Even better, the United States
government has taken the view that on the rare occasions when greed
goes bad, the taxpayer will be there to pick up the tab.
To be sure, Mr. Gekko is sorry to have missed out on the billions he
could have made during the subprime mortgage boom. But he
recognizes that his exit from prison is perfectly timed in another way. In
the aftermath of the credit bubble, 17,000-square-foot mansions in
Greenwich, Conn., go begging, Gulfstream jets can be bought on the
cheap and prestigious golf clubs no longer have years-long waiting lists.
Because he went to jail for securities fraud and probably agreed to
sanctions in the case, Mr. Gekko is barred from working for a financial
firm or becoming a registered investment adviser. Still there are other
possibilities: starting a hedge fund that accepts only a handful of wealthy
and sophisticated clients, for example. Based in the Cayman Islands, the
Gekko Insider Insights Fund will almost certainly specialize in highfrequency trading, the investment strategy du jour. Just as certain:
investors, eager to hire a manager of such notoriety and business
acumen, will throw billions Mr. Gekkos way.

21

Others are hoping that whatever form the sequel takes, it might
actually do some good. Sequels dont have a great reputation, offers
Philip Delves Broughton, writing in the London Evening Standard, but
if Stone and Douglas can pull this one off, if they can crystallize the
horrors which unfolded at the summit of Wall Street these past few
years, they will do us all a great service.
At the very least, it can only be hoped that Mr. Gekko, or other greed is
good successors who may emerge in this film, do not go happily sailing
off into some loophole-filled Caribbean sunset with new scam intact.
Rather, some clear comeuppance and swift justice would be welcome
especially so there can be no doubt about take-away message. Then
again, the real world events of the financial melt down of 2007-2008,
ably reported in a number of probing book-length accounts to date, offer
standing lessons that provide the scarier truths.
Additional business-related stories at this website can be found at the
Business & Society category page, and include, for example: Flash
Boy Lewis (covering Wall Streets flash trading and Michael Lewiss
publishing history); Celebrity Buffett (Warren Buffett investing
history and his rise to mainstream notice); Empire Newhouse( history
of the Newhouse publishing empire through 2012 and Reddit.com); and
Murdochs NY Deals (covering the rise and 1970s American
expansion of the Rupert Murdoch media empire). Thanks for visiting
and if you like what you find here, please consider making a donation to
help support this website. Thank you. Jack Doyle

Is greed good?
Only if it is properly governed
Timekeeper
THE chairman of your [board's] compensation committee should be
richer than you and older than you, one of America's most admired
bosses advised a private gathering of 50 chief executives in New York
last November. That way, he won't get jealous when you make your

22

fortune. In fact, he should be someone who loves to see other people get
rich. Under no circumstances should he be from the public sector, or a
professor. Another boss provoked groans when he confessed: I once
made the mistake of giving the job to a distinguished academic.
Greed, for lack of a better word, is good. Greed is right. Greed works.
This credo by Michael Douglas, as Gordon Gekko in the 1987 film
Wall Street, seemed to capture the spirit of the decade, with its sharpsuited investment bankers using mountains of debt to buy up sleepy old
companies, fire most of the workers and make themselves a fortune. But
compared with the past ten years, the greed of the 1980s was as nothing.
And whereas the 1980s story was all about greedy Wall Streeters battling
against company bosses who wanted to preserve their firm and its
traditional values, in the 1990s a shared greed nurtured a symbiotic
relationship between Wall Street and company bosses that made rich
men (and, increasingly, women) of them all.
The case for greed was perhaps best made over 200 years ago by Adam
Smith, who argued that the invisible hand of market forces would ensure
that the efforts of individuals acting in pursuit of their own self-interest
made society as a whole better off. In other words, judge capitalism not
by the motives of the capitalists but by its fruit. Until recently, the fruit
of the 1990s double act of investment bankers and company bosses
looked both tasty and abundant, especially in America, where greed was
given the freest rein. The economy grew more rapidly, productivity
increased faster and the jobless rate fell further than anybody had
thought possible. Profits soared, as did the stockmarket, spreading
wealth to investors of all kinds, from fat-cat managers with share options
to ordinary workers with stakes in retirement funds. It all seemed ample
vindication for those real-world 1980s Gekkos (Ivan Boesky, Michael
Milken, Henry Kravis et al) who argued that the way to ensure that
corporate America created wealth for shareholders was to give
management a piece of the action.
Doubts started to creep in first with the popping of the dotcom bubble,
then with the broader drift in share prices and the economic downturn. In
America, the ratio of households' net worth to income has fallen back to
5.3, down from its 1999 peak of 6.3, though still well above its long-

23

term norm of 4. The optimists ascribe this simply to the ups and downs
of the business cycle, and there is some truth in that. Yet for all the
virtues of America's style of capitalism, many of the recent problems
were the natural result of bad incentives. If the current slowdown
changes those incentives, it will achieve something useful.

The wrong carrots

Managers' share options were supposed to solve the agency problem at
the heart of the modern shareholder-owned company. The trouble with
having owners who are not managers, and managers who are not
owners, is that the managers, as agents of the owners, may not run the
firm in the best interests of the shareholders. Handing the managers
share options gives them a powerful incentive to put the interests of
shareholders first. In the 1990s, when this idea gained widespread
acceptance, options spread rapidly through corporate America, and, less
rapidly, in other rich countries too. What the theory did not allow for
was that share prices could deviate substantially from their fundamental
value, and that management could help this process along in the short
term. The short term might be long enough for them to exercise their
share options and sell the shares before the market caught on.
Options also happened to encourage behaviour that was good for Wall
Street. In the 1980s, managers had often put up fierce resistance to their
firm being bought, not least because they might well lose their jobs. But
share options changed their incentives: because the options vest the
moment a firm changes hands, they can make a takeover positively
welcome to the managers. That suited the investment banks, which are
constantly encouraging mergers and acquisitions because of the huge
fees they generatenotwithstanding the lamentable economic record of
most mergers. The managers at the firm that does the buying do not
benefit from vesting options, but they are routinely offered another
carrot: a huge bonus for pulling off the deal.
It is above all in America that company boards fail conspicuously to
ensure that managers really serve the long-term interests of shareholders.
This is not because board members cannot be bothered to do their job.
Most big companies today work their board hard. Even so, board

24

members rarely challenge the chief executive. If they do, they are often
asked to resign, and usually oblige. As Enron showed, board loyalty may
be encouraged with all sorts of incentives, including donations to
favourite charities or consulting contracts. But even without such
sweeteners, boards seem to have a natural inclination to turn into clubs,
and nobody wants to upset the club president.

Divide and rule

Outside America, things are done somewhat differently. British
boardrooms, for example, usually have a chairman, typically a nonexecutive, to balance the influence of the chief executive and run the
board meetings. So the opinions being voiced can be more diverse, and
the chief executive does not always get his way.
One idea for making boards more responsible is to hold them properly to
account when things go wrong. Generally, board members face no
financial penalties if they mess up because the company buys insurance
for directors and managers. After Enron's collapse, Paul O'Neill,
America's treasury secretary, floated the idea of asking chief executives
to sign a financial-health statement that would make them liable for
misrepresentations, whether deliberate or not. But the likely effect would
be to make it impossible to get anybody to serve on a board. Already, the
increased demands of board membership are discouraging chief
executives from becoming non-executives elsewhere, says John
Whitehead, a former boss of Goldman Sachs and a member of numerous
boards over the years. The risk is you will just get dignitaries who
could use the $40,000 fee, college principals, public figures and the like.
Boards may look socially responsible, but they won't act as a
policeman.
The big challenge is to ensure that two board committees
compensation and auditdo their job properly. In Britain, the Financial
Services Authority has issued tough guidelines for the chairmen of audit
committees of financial firms that might usefully be extended to other
companies. But unless the chairmen of these committees are full-time,
are able to hire their own professional advisers and, ideally, are
nominated directly by shareholders, they are unlikely to have the

25

knowledge and independence to be effective watchdogs, reckons Bob

Monks, a veteran shareholder activist. He is not hopeful. Failing that, the
best way of getting boards to work effectively is for chief executives to
encourage robust debate and a culture of accountability. Alas, it is a rare
boss who has so enlightened a sense of self-interest.
Proper rewards
If a compensation committee were working as it should, what would it
do? For a start, it would reward only genuinely superior performance. If
a firm's share price goes up for extraneous reasonsa fall in interest
rates, say, or a rise in the stockmarketwhy should the managers
benefit? Rewards linked to a company's share price should probably be
triggered only if the firm outperforms the market as a whole, or an
industry peer group. And share options should not, as a rule, be repriced
at lower levels if the firm's share price falls.
It may not be necessary to stop using share options (though actual
shares are probably a purer incentive and have shown themselves to be
effective in motivating managers). However, they do provide an
incentive to boost the share price in the short run, which may not be in
the company's best long-term interest. One way to remove that incentive
is to prevent the manager from selling the shares until some time after he
has left the company, say three years. That is a long enough period for
any trickery done on his watch to come to light. This need not do much
damage to the manager's finances; a bank would be happy to extend a
loan secured against the locked-up shares, provided it did not think their
value had been artificially puffed up.
The biggest problem is to persuade the members of the compensation
committee to care at least as much about rewarding the company's
owners as they do about rewarding the chief executive who appointed
them. The best answer may be to let the owners themselves vote on
managers' compensation, especially options. Such a scheme is now
being introduced in Britain. Mr Pitt of the SEC has proposed similar
measures in America.
Before Enron's collapse, nobody much cared about audit committees or
auditors. Now both are under fire. Strikingly, audit committees' most
common response to growing scrutiny is to cover their backs. Many

26

audit-committee reports this year have come with disclaimers to say that
the accuracy of the firm's accounts are not their responsibility.
If anybody is going to take responsibility for a firm's accounts, it should
be the external auditor. Following Andersen's humiliation at Enron, this
duty is now being taken much more seriously. Yet serious conflicts of
interest remain for audit firms that continue to do consulting work for
audit clients. Andersen, notoriously, earned more from providing Enron
with non-audit services than from the audit.
Given the crucial importance of the audit, everything possible ought to
be done to eradicate any conflict of interest that might reduce
effectiveness. Non-audit work for audit clients should clearly be
prohibited. It would also be wise to introduce mandatory rotation of
auditors after, say, five years, to stop auditor and client becoming too
cosy .
Every crash has its villains, and this time public enemy number one is
the Wall Street research analyst. Supposedly, analysts are another force
for good corporate governance, putting pressure on management by
providing investors with independent analysis of a firm's accounts and
prospects. In practice, it seems, they often simply touted shares on
behalf of the investment bank that employed them. This was particularly
true of shares sold in IPOs. Investment banks earned huge sums of
money from underwriting IPOs, and from other business relationships
with companies. They typically earned little or nothing from selling
research. No wonder the researchers often bowed to the investment
bankers' demand for a buy recommendation to keep client firms happy.
According to the Boston Consulting Group, the potential for such
tainted research was greatest in the technology, telecoms and financialservices industries, which contributed the lion's share of investmentbanking revenues. As chart 6 shows, firms in these sectors had the
largest number of analysts carrying out research into them.
Wall Street is worried that Congress will impose new regulations along
Glass-Steagall lines to stop underwriting firms selling research. Erecting
a new legal barrier of this kind might be a mistake, not least because to
some extent this problem is curing itself. The IPO business is comatose
and shows no sign of returning to the level of activity seen in the late

27

1990s. Investment banks are writing all sorts of new rules supposed to
ensure the independence of their research, or at least give that
impression. Examples include bans on analysts trading in the shares of
companies they cover, disclosure of any investment-banking
relationships with a company, and even making the occasional sell
recommendation. Morgan Stanley has abandoned its system of buy and
(rarely) sell recommendations for a set of ratings that offer only relative,
not absolute advice.
Prudential Securities got out of investment banking altogether to prove
its research is not biased. This is a brave move, because independent
research firms have so far struggled to persuade anybody to pay for their
work. Perhaps nobody really believes that having good research will
help them to make money in the stockmarket.
Uncaring owners
In a speech earlier this year, Peter Fisher, a deputy secretary in America's
Treasury, urged insurance companies and other institutional investors to
get more involved in overseeing the management of the companies they
invest in. Enron had highlighted the potential cost of neglecting to do so.
Corporate governance should be your risk-management programme for
the next ten years, he said. But will they take any notice?
So far, institutional investors in America, who own so many shares that
nobody could argue with them, have been shockingly indifferent to bad
management. If they did not like what they saw in a firm, many simply
took the old Wall Street walk and sold their shares. Even index funds,
which did not have the option of selling, mostly did nothing to call
underperforming firms to order. There were a few honourable
exceptions, mainly public-sector pension fundsthough even the most
active of them all, CalPERS, failed to spot trouble coming at Enron;
worse, it invested in one of its notorious off-balance-sheet partnerships.
Why is everybody being so discreet? Many of the biggest fundmanagement companies are hoping to win investment mandates from
corporate pension funds and 401(k) plans, so they do not want a
reputation for being troublemakers. Smaller funds may think they do not
carry enough weight to make a difference, and that their time would be
better spent on other things. Some may feel they lack the expertise to

28

become involved in such complex matters. Robert Litan of the

Brookings Institution, a think-tank, reckons there might be a market
opportunity for a new firm that advises institutional investors on
corporate-governance matters, ideally involving well-known public
figures with solid reputations. Instead of trying to save Andersen from
bankruptcy, perhaps Paul Volcker, a former Fed chairman, would have
made better use of his energies by starting such a business.
Public pension funds started to take a greater interest in corporate
governance in the mid-1980s after the government had told them that it
was their legal duty to vote their proxies. The SEC recently issued a
letter instructing mutual-fund companies that they also have a duty to
vote proxies, which may trigger more activity from that quarter.
John Bogle, the former boss of Vanguard, the world's biggest manager
of stockmarket index funds, recently proposed the launch of a federation
of long-term investors, to cover index funds and other institutional fund
managers which rarely sell shares. Just six firms between them hold
some $1.4 trillion-worth of shares, around 10% of all shares outstanding.
Such a federation would promote better corporate governance in order to
boost long-term share values, says Mr Bogle.
A recent study of the relationship between corporate governance and
equity prices in 1,500 firms in the 1990s found that better governance
was correlated with higher returns. A strategy of buying shares in
companies with good governance and selling the rest would have
produced well-above-average results.
In the past, American capitalism has shown a remarkable ability to learn
from its mistakes and emerge from them even stronger. The 1929 crash
prompted the passing of tough investor-protection laws that greatly
improved the quality of the financial markets. After America's savingsand-loan crisis and related property debacle of the late 1980s and early
1990s, the banking system was recapitalised and its risk management
much improved. Perhaps now it is the turn of American shareholders to
revitalise capitalism, by ensuring that the greed of their managers works
with them, not against them.