Tuesday, September 30, 2008

Risk, Business, Wall Street & Charlie Sheen

Wall Street is a messy place...it attracts the analytical, the mathematically creative, and the type of person who makes calculated risk.

Oliver Stone's film Wall Street was released 20 years ago and in the plot Charlie Sheen's character Bud Fox creates an archetype for the young stock broker that fits your perfect stereotype of the young guy who will do anything to get to the top.

In fact getting to the top at any cost is a Wall Street characteristic that shows up in other recent films like The Pursuit of Happyness, Boiler Room, or A Good Year. Most of the time, these "Wall Street stereotypes" will get to the top at any cost.

Obviously, when investors are playing games with other people's money, its scary and dangerous. Especially over the past couple of decades more and more people have their retirement and savings accounts tied up in the ever growing pool of investment funds....whether through 401ks, mutual funds, or other investment options.

The one thing that has been crazy for me to hear over the past couple weeks with these crazy and unsettling financial times is the criticism that politicians and individuals have towards businesses and the risky behavior. I don't know if people are unaware but American financial culture is not one that is risk adverse. In fact, I would say America's financial and economic history is filled with risk, whether you're talking about the Pilgrims, the gold rush, the railroad tycoons, or those people who created online websites for people to buy dog food or groceries over the Internet.

Back in June I shared some ideas from Daniel Gross' book Pop: Why Bubbles are Great for the Economy. Gross' 2007 book finds some silver lining in bubbles of the past as well as spends some time suggesting the benefits of our current real estate struggle as well as predicts the next bubble to grow (and pop)...the energy bubble.

I certainly would love to hear Gross continue the conversation as the real estate bubble's pop has continued to spiral out of control and spread into other areas of the economy, in ways the fiber-optic bubble did not.

Yet...I still find it so odd to hear so much criticism about investors taking greedy risk. Isn't that in part the role of the investor?

I think one of the dangers is that so many of these investors have gotten so big and powerful that there power supersedes the power and reach of government in many instances...and as a result we begin to superimpose a moral standard for these corporations. If you want to get real fired up about the danger of the modern corporation, may I recommend the documentary The Corporation, were we are reminded that much of the function behind the corporation is to free people from having a moral obligation in the professional actions.

I don't really know how this all shakes out. I certainly wonder what role these days and weeks we have seen and are seeing play out in the big picture. But one thing I do know...this is history before our eyes. Politically, economically, socially, culturally...the world is changing and there will be many books, thoughts and perspectives on what is happening in our world over these days. This is the stuff of American History exams of the future.

And I can't help but think...whatever happens on Wall Street and with business I hope that Americans don't become risk averse, because I feel like if there is anything that distinguishes Americans is that they are often independent risk takers...and sure Americans and American businesses make lots of mistakes, but I think we also succeed and have found ourselves in these risk.

When Charlie Sheen brings down Gordon Gekko (Michael Douglas) in the movie Wall Street, Sheen is laying it all out on the line, his career, his freedom, and his previous hopes and dreams. Yet, he counts the cost and brings down Gordon Gekko at his own game...sure the securities and exchange commission play a role in the final outcome, but Charlie Sheen doesn't take these risks with regret, but in the full knowledge of the consequences.

America has succeeded and seen prosperity in their risky and entrepreneurial behavior. We cannot take the good without also being willing to take the consequences, and to blame business for moral hazard is a little silly to me.


Loren Eaton said...

I still find it so odd to hear so much criticism about investors taking greedy risk. Isn't that in part the role of the investor?

Quite true. And let's not forget the people who bought houses at inflated prices, reasoning away their inability to pay the mortgage by saying values would just keep going up and up and up.

Dad said...

I'm wondering how many critics of Wall Street can honestly say they would have acted differently. As I understand it for the most part people weren't breaking rules (there probably should have been some more rules, but that's water under the bridge to nowhere). When the stimulus checks came no one said, "Wait a minute. Do I deserve the taxpayers money? Am I being greedy by taking this?"

No. Everyone accepted it because it was within the rules to do so. What's $700 Billion anyway? As I understand it there will be no immediate tax increase. If the markets don't stabilize there will be some immediate pain in lost jobs, lost retirements, banks closing.

So anyway. I invested all of my money in Beanie Babies. I'm sure they're coming back.