Greed's Deadly Consequences

As 2008 draws to a close, it's a good time to contemplate this crazy year and one of its major themes: unbridled greed, unfettered by conscience.

It's true, some degree of self-interest is important -- it breeds incentive to strive, to realize our dreams and goals, to do better, and to create. However, there's a reason that outright "greed" is one of the Seven Deadly Sins. It's a destructive force, and our current troubled times illustrate that point pretty perfectly.

The end
Michael Lewis's recent article for Portfolio magazine, "The End of Wall Street's Boom," got my brain rolling on the era of greed. The article presents an eye-opening account of what went wrong for decades: CEOs with no clue as to what kind of risks underlings were taking, and underlings who didn't actually even know what they were doing, folks who lied and screwed each other over with wild abandon, and last but certainly not least, a disturbing lack of accountability, much less conscience.

All of this boils down to greed -- admittedly with an ample dose of stupidity, too, and that's a terrible combination -- and it has nearly brought our entire system to its knees.

Still, the news just keeps coming about just how bad it has been, and we continuously receive more and more signs that not only are many people not ashamed, but they still feel awfully entitled to enjoy the fruits of jobs poorly done. What the …?

No shame
In the latest surreal headlines, money manager Bernard Madoff has been arrested for massive fraud -- basically, a Ponzi scheme. Apparently, even some very smart people couldn't remember that if it's too good to be true, it probably is.  

Merrill Lynch's (NYSE: MER  ) John Thain made headlines this month when he was reported as angling for a $10 million bonus for a year's work. The board pushed back, and he backed off. Although I understand the argument that Thain's stewardship and sale of Merrill to Bank of America (NYSE: BAC  ) kept shareholders from suffering even worse losses, I can't believe he had the gall to ask for a massive bonus for a short stint at a firm that will soon no longer be an independent entity.  

And I still can't get over some of the information that came to light during the Congressional hearings involving Lehman Brothers' Dick Fuld. No wonder a Lehman employee allegedly punched his lights out when he ran into Fuld at the gym.    

Danced to death
When Fuld allegedly pooh-poohed the notion of conciliatory pay cuts for management to soothe sore stakeholders, he said, "Don't worry -- they are only people who think about their own pockets." As disturbing as I find that statement, I know there's some truth to it -- people can be lulled by money.

Then there's Citigroup's (NYSE: C  ) former CEO Chuck Prince's strange but fitting metaphor about the boom times: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." Maybe what we really saw was a resurgence of the medieval dancing-mania epidemic. 

Many people -- including shareholders -- got wrapped up in the perils of greed and short-term thinking, and they let too many of the warning signs slide as long as the short term felt lucrative. In a way, I feel as if greed even got perverted into a virtue instead of a vice in many people's minds. It's high time we say, "No more!"    

There is hope
Fortunately, there are some companies and individuals who take the long term to heart. These are the philosophers of long-term thinking who have illustrated knowledge of the difference between the capitalist ideal of building great, long-term businesses rather than greedy pillaging for short-term personal gains.

Take Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) Warren Buffett, who has shown loads of long-term wisdom and often criticized corporate excess, including runaway CEO pay. Or Costco's (Nasdaq: COST  ) modestly compensated CEO Jim Sinegal, who famously ignored Wall Street pressure to boost profits by shirking on employee benefits like health care. Or Whole Foods Market's (Nasdaq: WFMI  ) John Mackey, who debated the great economist Milton Friedman, arguing that business does have a responsibility to focus on more than simply profit. Then there's Vanguard founder Jack Bogle, who outlined many of the dangers in our system in his book The Battle for the Soul of Capitalism, which I enjoyed and reviewed in 2006. (His new book, Enough, is on my to-read list.)

Golden rules
It seems as if the last several decades have been defined by greed and short-term thinking. Maybe we all fell asleep at the wheel a little bit; perhaps bull markets have become the opiate of the masses, sedating reasonable caution. However, we all play a part in what goes on, and speaking of accountability and conscience, I hope more of us can bring it on ourselves to condemn the factors and behavior that brought us here and remember the things that really matter, like honesty, hard work and true merit.

This could be a great opportunity to remember the patient rewards of long-term investing, and to remember that being a shareholder means being part-owner of a company. Hopefully, the current disasters will result in a push for solid, shareholder-friendly corporate governance principles and boards of directors that actually do their jobs in looking out for shareholders and long-term performance. Maybe we can all invest with the motive of avoiding companies with management cultures that only look out for themselves, even if they try to bribe us along the way with short-term, ill-conceived profits.  

It's time for vigilance, and it's time to reject short-term views (so long, short-termers). It's also high time to realize that greed isn't good, and that a better rule of thumb might be the Golden Rule: "Treat others as you want to be treated." It doesn't sound so bad to me.

Related Foolishness:

Bank of America is a Motley Fool Income Investor recommendation. Costco Wholesale and Berkshire Hathaway are Motley Fool Inside Value picks. Whole Foods Market, Costco Wholesale, and Berkshire Hathaway are Motley Fool Stock Advisor picks. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax owns shares of Whole Foods Market. The Fool has a disclosure policy.


Read/Post Comments (24) | Recommend This Article (91)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 16, 2008, at 2:49 PM, wuff3t wrote:

    Alyce,

    As much as I agree with your sentiments I fear we would all be naive to hold out much hope that things will improve. Thain's behaviour in asking for an exorbitant bonus is revealing: there are still people who think they are entitled to a (much) bigger slice of the pie than everyone else, and that "the masses" simply work to make them rich. This sort of thing isn't new, and what happens to CEOs/directors when they leave one company? Regardless of how well or badly they've done their job they usually walk into a similar job at another company.

    However much we hope and try to regulate for the better, people will find a way of getting around the system in order to cream off a bit extra for themselves. It has always been thus. It doesn't mean we shouldn't try to make the world a better place; I just think it would be wise to act (invest) as though it won't.

  • Report this Comment On December 16, 2008, at 5:03 PM, PoundMutt wrote:

    "that a better rule of thumb might be the Golden Rule: "Treat others as you want to be treated." "

    NO!

    "Treat others as THEY want to be treated."

  • Report this Comment On December 16, 2008, at 6:06 PM, radarlen wrote:

    I've been around the block a few times-- but i find it truly astounding that american business, especially the financial biz, is so rampant with such grotesque greed and no sense of ethics. its one thing to want to attain wealth, but this is a perverse situation, people with more money than God, yet dont seem to hesitate to sell their souls (assuming they have a soul), lie and deceive. Have we beome the United States of Avarice?

  • Report this Comment On December 16, 2008, at 8:24 PM, bubbanjo wrote:

    Greed & Stupidity are the winners !!

  • Report this Comment On December 16, 2008, at 8:24 PM, bubbanjo wrote:

    Greed & Stupidity are the winners !!

  • Report this Comment On December 16, 2008, at 8:41 PM, hikerdude7088 wrote:

    "It seems as if the last several decades have been defined by greed and short-term thinking."

    Yes, this seems to have also been the era of Republican rule. Another cycle of the "Robber Barrons"

  • Report this Comment On December 16, 2008, at 9:14 PM, thedofca100 wrote:

    It's interesting that Alyce chose John Mackey, Whole Foods, as one who is more concerned about the long-term than greedy personal gain. Isn't he the one who has been exposed for posting comments on Yahoo Finance message boards under a user name, not his own name, cheerleading himself and the company he co-founded, and bashing then-competitor Wild Oats for eight years? Ostensibly this was to drive up the price of Whole Foods which would certainly put money right in his pocket while damaging Wild Oats. I notice it's the one company Alyce said she had stock in. It damages the entire article, imo.

  • Report this Comment On December 16, 2008, at 10:11 PM, Atrossity wrote:

    It is greed to do all the talking but not to want to listen at all - Democritus

    With that said I guess I'll be stupid enough to do some talking.

    , thedofca100, I find it interesting you nit pick the article by making the ridiculous claim that Yahoo Finance Message boards are the best way for a CEO to drive their stock up and their competitors down. Hope you're not a CEO of a stock I own.

    I agree with Alyce and I don't believe the problem is that greed is not illegal but that it's become socially acceptable and so few seem to care.

  • Report this Comment On December 16, 2008, at 10:17 PM, steveherb wrote:

    Well said Alyce. Straight from the comment sections of every article recently posted. I'm glad someone on the other end of the computer is listening to the comments. Unfortunately the end result of every complaint is just a comment. Time passes and the public will soon forget is greed's motto. But thank you for caring, trying, and listening. But if you do have and an investment following greed, then this article does defeat the purpose.

  • Report this Comment On December 16, 2008, at 11:11 PM, eguy wrote:

    Pride, gluttony, avarice, anger, lust, envy, sloth. These are the seven 'deadly' sins, and greed is not among them. Greed is a big part of what drives markets. Blaming greed as a kind of moral defect in investing is silly.

    Upholding John Mackey as some paragon of charity is really laughable, given his lame and anonymous efforts to talk down a competitor, and given the shoddy business he runs.

    To me, Whole Foods actually represents greed. They are a combination of WalMart and Starbucks, in the sense that they seek to use their economies of scale to create a retail monopoly in certain upscale areas, but like Starbucks (and unlike WalMart) they have figured out that they don't have to compete on price. In fact, they can overcharge and underserve the harried consumer who is simply trying to get some decent food on the table. Seems very greedy to me.

    The reason for the current economic disaster is not greed, it is lack of reasonable regulation. Walking down Wall St wagging your finger at all those greedy guys? Come on. And it's worth noting that the motley fool predicted none of it.

  • Report this Comment On December 17, 2008, at 1:48 AM, ffrank1 wrote:

    Alyce, well said.

  • Report this Comment On December 17, 2008, at 3:53 AM, HenryHigginsJR wrote:

    I agree with everything you wrote, Alyce.

    But it seems that this point of view is not likely to be accepted by the majority, not even here in Fooldom.

    Your article got only 31 recs.

    Your great article about CEO Pay only got 8 recs.

    Your great article about Foolish CEO Jim Sinegal only got 6 recs.

    What the heck is going on with you, Fools?

    Can't you distinguish between important and not important items?

    The aforementioned articles treats the most important item of all:

    It's a lack of integrity that causes greed.

    Fools: Let me see skyrocket the recs for Alyce's articles!

  • Report this Comment On December 17, 2008, at 4:37 AM, realfun wrote:

    AUTO BAILOUT?

    IT WILL TAKE A GROUP OF CZARS TO EXPLAIN TO THE UNION AND THE BIG THREE HOW INTELLIGENCE WILL SAVE THEM. NOTE THE

    FOREIGN CO'S ARE GETTING IT DONE HERE IN

    THE GOOD OLD USA. PLEASE STOP THE BUSH

    RUSH TO PROVE MORE OF HIS STUPIDITY. I AM READY TO DRAFT THE PLAN DETAILS TO SAVE THEIR @$%@'S. NOTE! WE SEE VERY LITTLE "ZERO % FINANCING FOR XX TIME" GEE

    THEY REALLY ARE HURTING AREN'T THEY.

  • Report this Comment On December 17, 2008, at 10:39 AM, ReillyDiefenbach wrote:

    It's called republicanism. Own it, people. You have reaped exactly what you have sown.

  • Report this Comment On December 17, 2008, at 12:48 PM, ernieslog wrote:

    Greed is not the problem. Greed is what drives the economy. Because some people want more the result is competition, creativity and innovations. This benefits everyone and we all have more. The problem is that a significant number of people, in trying to get more, act illegally, unethically and immorally. These people are dishonest. They are the problem.

    The only duty (job) of the managers of a business is to maximize owner’s value while acting legally, ethically and morally. You cannot maximize owner’s value by taking a short-term view but what do you do if that is what the owners want.

    There is nothing wrong with Whole Foods or Starbucks. They serve a need. Personally, I do not have that need so I shop at Wal-Mart and local supermarket chains. I do not feel sorry for people who want to overpay for what Whole Foods and Starbucks have to offer and every November I buy 33 Advent Calendars 99 cents each from Trader Joe's for my immediate family (eight children, 15 grandchildren and spouses). Otherwise, Trader Joe’s is a little pricy.

  • Report this Comment On December 17, 2008, at 3:33 PM, fjool101 wrote:

    Greed, as opposed to self interest, is generally regarded as a deadly sin. The excessive desire to acquire or possess more money or material wealth than one needs or deserves is, by definition, rude and offensive. Republicans and other right wing conservatives have wrongfully promoted this ethos as a positive trait to justify plundering publicly traded companies for personal gain. When this nonsense is rejected, America may reclaim its virtue as a nation of hard working people (both labor and management) who meet the markets demands with innovative products and services - but not before.

  • Report this Comment On December 17, 2008, at 5:20 PM, Franktheyank wrote:

    I wish there were a 1000 Bernie Madoffs. He and his ilk (investors) were in a special club of their own. And to hear them now - I just have to laugh.

  • Report this Comment On December 17, 2008, at 5:37 PM, wuff3t wrote:

    "Pride, gluttony, avarice, anger, lust, envy, sloth. These are the seven 'deadly' sins, and greed is not among them."

    Er, eguy, can I respectfully suggest you look up "avarice" in a dictionary? Think you'll find it means "greed"....

  • Report this Comment On December 17, 2008, at 5:42 PM, lebaresq wrote:

    The much villified Jim Cramer (for stock-picking entertainment side of his programs) also imparted wise words over the years for longer-term investors which we all should be mindful of going forward:

    -Don't 'fall in love' with your stocks.

    -Use roughly18 month time horizon to start with.

    -Have profit/loss targets in mind with new positions.

    -If a stock meets your profit expectation, take the profit (at least half position, letting remainder ride if you have faith in company's management and strategy).

  • Report this Comment On December 18, 2008, at 10:45 AM, HenryHigginsJR wrote:

    fjool 101 well said!

  • Report this Comment On December 18, 2008, at 4:10 PM, gcrII wrote:

    vis a vie the seven dealy sins, greed is in fact one; if you check the dictionary "avarice" in fact is just a fancy work for, that's right, greed.

  • Report this Comment On December 19, 2008, at 5:50 PM, SLTom992 wrote:

    I think that the most important point is that more and more management is completely isolated from the rest of their company. They are developing the idea that management IS the company.

    Along these lines we've seen that more and more businesses are closing American operations and opening labor facilities in foreign countries especially Mexico, China and India. Apparently the thinking is that American labor is too expensive to use.

    My experience is that American labor worked a great deal more carefully and precisely than other countries (save Japan) and the actual costs were a great deal lower than it appeared, if you counted in the amount of DELIVERABLE product per hour and the reduced costs of after-sale repairs.

    Without their governments subsidizing the shipping it is likely that American labor costs in the end were equal or perhaps even better than these other countries.

    Here's a more important bottom line - if we continue to train foreign countries to produce the goods we want, they will soon not need any American management either and then what will these American managers have to say?

  • Report this Comment On December 24, 2008, at 2:04 PM, 32susan wrote:

    I don't think things are as bad as you are talking/writing about-- we all can work & grow up

  • Report this Comment On January 12, 2009, at 11:34 AM, donkyboy wrote:

    At some point it becomes a game to get a bigger paycheck. "Let's see if I can get them to add another zero." I'd like to see Top Dog pay be limited to 10 times the least worker pay. Maybe 15 times. But certainly not 53 times. Mr. CEO: You want a pay raise, raise the pay of everyone in the company. Yours can go up too. By the same percent. Stock options for everyone in the company too. Involve the least worker and the company will benefit. Does a carrot work better than a stick?

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