Sunday, March 1, 2009

"Francisco's Money Speech:" Some Thoughts on the Financial Crisis

In times like these we fall back on overly simplistic cliches to describe what has happened to the world financial system, to vilify the Wall Street titans that we hold to blame for much of what is happening today. We reduce the entire problem to Gordon Gecko's "Greed is Good" philosophy and we blame it on the moral depravity of the "fat cats". But we each neglect to accept responsibility for our roles in the crisis. Whether it was from seeking more aggressive returns on our savings or prospecting on a new home or pushing our credit card debt to new heights, we helped give those institutions the fodder they needed to go out and commit incredible acts of greed.

The mistake is thinking it happened all at once, that at some point they, and we, made some explicit decision to look for shortcuts and seek easy returns on our money. It wasn't a moment at all, it was thousands of little ones by you, me, the press, regulators & Wall Street that somehow made us get to this point. It was by allowing, talking about and even envying the titans of Wall Street that this all came to be. Take for example an article I found from May 2006 that writes so deferentially about the outlandish salaries of major Wall Street movers:

"The highest paid chief executive in 2005 was Richard Fairbank of Capital One Financial Corp., who earned $249.4 million, according to Forbes...Simons, 68, of Renaissance Technologies Corp., more than doubled the $670 million he earned in 2004, when he ranked second among hedge-fund managers. His $5.3 billion Medallion fund's return after taking 5 percent of the fund's assets and a 44 percent performance fee was 29.5 percent in 2005."

The problem here is that we let single individuals take more money in annual income than most
large corporations bring in revenue and we congratulated them for it. The truth is how many of you, given the opportunity to make $400 million in a year for doing something on the surface to be benign wouldn't have done it? And we hide our acceptance for this greed under the thin veil of our system being a meritocracy. The same articles goes on to assert that "the founders and owners are taking the lion's share of the profit...these guys created firms and risked capital, [so] you can't say they don't earn it.'' Well they didn't earn it, just like you wouldn't have earned your return on Citigroup if it were now at $100. And just because the system lets you make a quick buck, it doesn't mean that you should or that you would be better off for it. Maybe its time that we all start thinking more about how much value we actually create rather than how much ability we have to consume.

Better said in the words of Ayn Rand, through the character Francisco d'Anconia in Atlas Shrugged:

"But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality--the men who seek to replace the mind by seizing the products of the mind.

Money will not purchase happiness for the man who has no concept of what he wants: money will not give him a code of values, if he's evaded the knowledge of what to value, and it will not provide him with a purpose, if he's evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil?

Only the man who does not need it, is fit to inherit wealth--the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one, would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve the mind that cannot match it. Is this the reason why you call it evil?

Money is your means of survival. The verdict you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men's vices or men's stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment's or a penny's worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you'll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money?"

See the link here to the authorized reprint of the full excerpt of "Francisco's Speech."

Update: Just found a great video that helps explain the dynamics that caused the Credit Crisis in extremely easy to understand terms. Worth watching if you have ANY doubt about what actually contributed to the current crisis.

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