Greed is sometimes good is an article that outlines the economic perspectives and ideas of one of the Democratic presidential candidates, Bernie Sander. The primary purpose of the article is to illustrate how the aspect of greed has been used and portrayed by Credit Rating Agencies (CRAs) in the US and how this greed had led to financial crisis and economic downturns in the country. The 2008 economic crisis, its causes, the role of the financial market and the CRAs is the primary focus of the article. The article also outlines various ways trough which this aspect of greed in these agencies can be dealt with.
Sander begins by illustrating how greed and the love for economic resources such as money is manifested in rational human beings from their homes to the labor market where people are willing to work for an extra hour just to make an extra coin. It is, however, natural and rational for people to behave this way since money is the most relied upon means of satisfying the never-ending needs of individuals. When human beings are in a position where they can access money quickly, the aspect of greed gets out of control, which is dangerous not only to the person but the nation and the world as a whole. Greed by the players in the financial markets can trigger economic recessions, for example, the great recession witnessed in 2008 in the US, which was caused by the greedy and selfish actions of credit rating entities, Moodys and Standard & Poors, in Wall Street.
One of the ways to address greed as pointed out by Sander is to turn credit rating agencies into non-profit making organizations. This move will ensure that cases of economic recession such as the one triggered by the greed actions of Standard & Poors, are not repeated. These two credit rating agencies were heavily paid by Wall Street (financial market) when they gave credit ratings to the complex bundle of mortgage bonds. The mortgages, however, turned to be anything but valuable. The firms who should have acted as guardians of the health of financial systems acted in greed by giving high forged ratings to securities so they could benefit from high incentives from the ratings. This monetary competition which leads to the financial crisis can be avoided through converting these CRAs into nonprofits.
The regulation which requires that publicly traded bonds be subjected to rating by the CRAs so as to assess their profitability should be dispensed. It is because these agencies engage in fraudulent activities where they give higher rates to securities that do not deserve that rating. Sander says that fraud is the rule and should be eliminated if a financial crisis like the one experienced in 2008 is to be avoided.
It is however not clear whether banning greed is going to reform Wall Street. Although Sander advocates for total ban of greed, it is believed that banks and banking system are necessary which will ensure that capital and money flows through the economy. Appropriate measures should be put in place to ensure that this is done efficiently and effectively so as to ensure that a culture of recklessness does not appear in the system. It is finally argued that the problem in Wall Street is not greed or the presence of greedy people but the lack of individuals who can discharge the financial roles and purposes effectively and creatively.
Greed Is Good Analysis
The primary focus of macroeconomics is on the trends and movements in the economy while in macroeconomics, the attention is directed to factors that affect individual decisions by firms and households. Macroeconomics is the big picture study of economics and entails looking at concepts such as the industry, country and global economic factors (Wight, 2005). Typically, the subject in macroeconomics is a nation and how market forces interacts to generate the aggregate variables such as changes in employment rate, the rate of economic growth and development, the national income, fiscal and monetary policies, interest rates and lending policies, the GDP as well as the levels of inflation and prices. The study of how a nation's economy work and how it tries to establish the best choices that can improve the overall well-being of the nation is also incorporated in macroeconomics. Since the "Greed is sometimes good article concentrates more on the wellbeing and improvement of aggregate factors and their influence on the American economy, it is only fair for one to conclude that the primary focus of this article is on macroeconomics and not the microeconomics.
Greed and self-interest are concepts that have been discussed by economist since time immemorial. A lot has been said concerning the role of greed in capitalist free market economies. Greed is believed to steer economy by some economist while others believe that it undermines value system that drives the economy. In his book, The Wealth of Nations, Adam Smith once noted that we do not expect our dinner from the benevolence of the butcher, the banker or the brewer but from their concern for their own interest (Wight, 2005). These ideas of Smith explain that people trade because of their own self-interests. At the beginning of the article an illustration is made of how people are willing to work for extra hours, not because of their love for their jobs but because of the self-interest of getting the additions to their regular salaries. The selfish benefit of the two credit-rating agencies, Moodys and Standard & Poors, are mentioned in the article. The two institutions emerged from the 2008 economic crisis with their conflict of interest being clear, which is describes as an awful sight. This trade, if at all it is a fair trade, pushes an economy forward hence creating a more profitable condition for individuals in the economy (Wight, 2005).
The broad topic of financial markets, the role of Credit Rating Agencies and their impact on a nations economy is another topic of interest to the macroeconomists. In economics, poor sovereign ratings by the CRAs have been associated with factors such as financial crisis, poor political systems unsustainable development and low investment rates. Just like Moodys and Standard & Poors, it is a risk to a nations and the entire global economy when CRAs issue unsolicited ratings concerning various securities that are publicly traded in the financial market. What happens when investors invest in securities they thought would be profitable but only turn out to be anything valuable? Well, of course, their return on investments will be less than expected meaning that returns that are in most cases used to steer economic growth and development are not sufficient. Slowed growth is associated with issues like inflation and unemployment, which eventually affect a nation's economy negatively. The great economic recession experienced in the US in 2008 was mainly as a result of unsolicited credit rates of mortgage packages by the CRAs, which attracted massive investments into non-profitable securities (Smith, & Max-Neef 2011).
From a macroeconomists view, some level of inflation is necessary and acceptable for normal performance of the economy. Just like inflation, some level of greed is acceptable in an economy since it triggers mass, healthy competition both in private and public sectors. With financial markets, however, greed is no virtue. When the key players in the financial markets especially the Credit Rating Agencies act in greed and issue higher score even to securities that do not deserve it, very much gullible, inexperienced investors get caught up in the latest heated market only to buy in at the top. Due to the unpredictability's and instabilities in the financial markets, vulnerability to greed and fraud may often result in low investor confidence. Low investments may lead to serious financial crisis and economic depressions just like the one experienced in 2008 (Smith, & Max-Neef 2011). Greed can be related to a Wall Street saying that in recent times, the financial markets are steered by two powerful emotions which are greed and fear that causes deleterious effects in investors' portfolios and the stock exchange. Elimination of this aspect of greed in the financial markets is what Sander is talking about in the article.
The role of the banks in addressing the economic crisis is another broad aspect of the macroeconomic study. In the article, it is said that what is needed for the economy is a banking system that is run creatively and efficiently and which allows capital flow through the economy. According to macroeconomists, what bring about economic crisis are the changes in opera rating systems of central banking. The functions of the central banks and the regulation instruments extensively impact on the economy. Major economic crises mentioned in the article had an epochal effect on the perception of the roles and capabilities of economic policy and, specifically, the role of central banks. For the banking systems to operate effectively, carelessness and recklessness should be avoided.
Economists agree that sometimes greed is good, not just for oneself but also for the economy and the world at large. Not all greed is however created equal. For example, the greed that almost brought the global economy to as a sudden stop in 2008 is disgusting (Smith, & Max-Neef 2011). This is because capitalism is incapable of surviving in the midst of selfishness and an environment characterized by immediate gratification. Due to the greed of some players in the economy, the global economy appears to be bare and barren and capable of easily deterring investors who are a still stumbling from 2008 economic crisis (Wight, 2005). For those who are happy enough to sit on a medium or long-term investments, this is the perfect opportunity to enter the market.
Acemoglu, D. (2009). The Crisis of 2008: Lessons for and from Economics. Critical Review, 21(2-3), 185-194.
Smith, P. B., & Max-Neef, M. A. (2011) Economics unmasked: from power and greed to compassion and the common good. UK: Green Books.
Wight, J. B. (2005) Adam Smith and greed.Journal of Private Enterprise, 21(1), 46
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