Posted on 07/11/2002 10:49:50 AM PDT by RAT Patrol
Posted on Thu, Jul. 11, 2002
Our own greed fueled an economic downfall
My Random House College Dictionary defines the word greedy as "excessively or inordinately desirous of wealth."
It seems to me that we've all become a little too greedy for our own good. Take the stock market, for instance.
Only months ago we were all basking in the sunlight of a roaring bull market and predicting a Dow in excess of 15,000 and a NASDAQ of 7,000. Brokers were touting each new dot-com as the next Microsoft. Mom and pop were hocking their homes to jump into the market, and the sky was the limit. Formerly prudent investors with balanced portfolios threw caution to the wind and plunged into equities with abandon. We were on a roll, it seemed, and we thought it would last forever.
Well, it didn't. Sagging corporate earnings, the tech fall from grace, Sept. 11 all did their part to let the wind out of our sails.
Now comes the latest boogieman: corporate dishonesty. Enron and Arthur Andersen, WorldCom, Xerox, Martha Stewart and ImClone, and who the heck knows who's next?
Even in the face of an apparently thriving economy, the investors -- big fish and little minnows -- are pulling back, licking their wounds and dropping stocks like a bad transmission or a hot horseshoe.
Politicians smell an opportunity, too. The Democrats are blaming the Republicans, and the Republicans are blaming the Democrats, and both are pandering to frustrated investor/voters by proposing new laws and punishment for the newest evildoers: CEOs.
Financial networks hourly are reporting news about the latest scandal and clearly can't wait until they can break the next big one. Stock prices go up and down like yo-yos as rumors whirl around the trading floor like dust devils in west Texas. Retirement savings have been depleted to the point that many retirees are going back to work.
Not a pretty picture, to be sure. The fact is, we had it coming. We all got greedy. We became "inordinately desirous of wealth" and forgot the old adage that what goes up must come down.
The top executives of a few public companies imagined millions of dollars lining their pockets if they could just keep those share prices increasing each quarter. For some, the temptation to cheat was apparently just too great.
We everyday investors were just as "excessively desirous of wealth," buying those stocks that we thought would make us overnight millionaires without regard for old-fashioned fundamentals like what kind of profit did they earn, how much debt did they have, and how long had they been in business.
We routinely punished companies by tossing their stock into the basement when they failed to promise increasing quarterly earnings, so a few of them began promising good times and cooking the books to make those promises appear to come true.
The financial watchdogs, the accounting folks, apparently were greedy as evidenced by at least one firm's supposed willingness to bend the rules to protect its lucrative accounting and consulting contracts.
I'm like Will Rogers on this subject. All I know is what I read in the papers, but it doesn't take a dadgummed genius to figure out that greed is what got us into this mess.
I reckon we'll stay in the mess until companies start rewarding their corporate big shots for getting and keeping customers and making good products and providing great service instead of just driving share value. Share value, I think, will follow if they do the other stuff.
I also calculate that investors are going to have to be less punitive toward companies that fail to "meet street expectations" on a quarterly basis and become more interested in the company's long-term success. The Japanese are famous for taking a long-term view and scorning our quarter-to-quarter mentality.
It also may be that we common folks need to adjust our greed-o-meters down a bit, too. We need to remember that the vast majority of America's public companies are good, solid outfits that are investment-worthy and, while maybe not capable of 27 percent increases each quarter, are honestly producing reasonable returns over a reasonable period of time.
I don't know about you, but a little old 6 percent or 7 percent return right now would make me think I'd died and gone to heaven.
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Reach Mike Oatman at 681-4426 or olmike@swbell.net.
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© 2001 kansas and wire service sources. All Rights Reserved. http://www.kansas.com
My stock market investments form my retirement fund. Aside from the value of my house (and whatever the feds choose to pass my way as part of "Social Security"), they are all I have to retire on. I have never spent a penny of those accounts for anything. How am I "greedy"?
The author of this piece is a jerk.
I thought he made some good points.
Yeah, and that outlook has kept them in the long term tank. Greed didn't cause Enron, WorldCom, et al. Another word did, in the words of Big Daddy: Mendacity. It's the market's prerogative to toss a poor quarterly performer to the basement. It's the result of an honest (if ultimately foolish) decision on the part of the shareholders. Cooking books is fraudulent. It's lying. The underlying reason for the fraud is as pertinent as "hate" is to committing murder. Greed may be an unseemly trait, indeed it may be a deadly sin. But lying is the real culprit here.
As for Martha Stewart, what would you do? If she was given information that the hundreds of thousands of dollars worth of stock she owned was going to tank, was she supposed to hang onto it? Her action, selling the stock, was akin to yanking your hand from a red hot stovetop. I'm not saying insider trading is "good", but once the cat is out of the bag, you can't expect someone to take a hit.
I don't know about you, but a little old 6 percent or 7 percent return right now would make me think I'd died and gone to heaven.
I have a hard time arguing with the end of this arrticle, of course the beginning wasn't worth the time.
I nearly didn't get there, so I posted the last two paragraphs. I wonder who can argue with those?
That "All I know is what I read in the papers" is the part that jumped out at me. That really says it all on every subject, isn't it? That's why the issue of media bias is really THE most important issue. (off subject, but then, not really)
You must have mixed up Wall Street and The Boardwalk at Atlantic City. I believe it will be discovered that craps is more honorable and true to its odds than mutual funds.
I would like to see more of linkage made of our current economic problems with Clinton. As Carvile so famously pointed out, his administration was entirely dependant upon confidence in the economy, they'd do anything and encouraged any kind of unethical behavior to keep up the appearance of prosperity and the press happily kept the whole thing propped up.
Its no coincidence the wheels started coming off just before he left office.
"Corporate greed" may have driven those folks at companies like Enron, Tyco, and WorldCom to cook their books, but that was only half the problem (the "E" -- earnings -- in a P/E ratio). Even before any of this stuff came to light, stocks were still trading at exorbitantly high P/E's. It is the buyer (us) who drives the "P" -- price -- through the roof.
Notice how the decline in the NASDAQ has been worse than the decline in any other index -- investors were buying many of those stocks even though the companies didn't have any "Earnings" for the foreseeable future. It's hard to fault a company executive for falsifying an earnings report when the earnings he reported were already negative.
There are 1000s of mutual funds that cover a wide spectrum of investment goals. Some cater to the greedy.
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