Greed Is Good or Is It? Quote and Meaning

Is Greed Good?

Greed is good
Michael Douglas reprised his role as Gordon Gekko in the movie "Wall Street: Money Never Sleeps.". Photo: Herrick Strummer/Getty Images

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 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 largest 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 you trace the financial crisis of 2008 back to the greed of Michael Milkin, Ivan Boesky, and Carl Icahn. These are the Wall Street traders upon whom the movie was based. Greed causes the inevitable irrational exuberance that creates asset bubbles. Then still more greed blinds investors to the warning signs of collapse. In 2005, they ignored the inverted yield curve that signals 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. They were based on underlying real mortgages. They were guaranteed by an insurance derivative called a credit default swap. These worked great until 2006. That's when housing prices started falling. The Fed had started increasing interest rates in 2004.

Mortgageholders soon owed more than they could sell the  house for. They defaulted. As a result, no one knew the value of the mortgage-backed securities. Companies like AIG that wrote the credit default swaps ran out of cash. The Federal Reserve and the U.S. Treasury Department had to bail out AIG, along with Fannie Mae, Freddie Mac and the major banks. 

Greed Is Good

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. They claim that the free market forces, if left to themselves without government interference, unleashes 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.