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There's Nothing New About Greed

Miami Herald • August 1, 2002

By Fred Tasker

There's nothing new about greed. Back in Genesis, Jacob tricked Esau out of his inheritance for a bowl of stew. But recent events have taken the selfish sin to a level that would shame King Midas.

At Enron, 29 top insiders take in $1.1 billion selling shares of company stock, with chief executive Kenneth Lay scoring $101.4 million. The stock tanks when Enron's losses are revealed, gutting the retirement programs of thousands of lower-ranking employees.

At WorldCom, chief financial officer Scott Sullivan sells $45.4 million in company stock, quietly shifts $3.9 billion in expenses to make the company look more profitable. The bubble bursts, the firm declares bankruptcy and lays off 17,000 workers. At Adelphia Communications, founder John Rigas and two sons are arrested last week on fraud charges, leaving a bankrupt company liable for $3.1 billion of their debts. Lawyers say the Rigas men used the company treasury as "a family piggy bank," taking secret salaries of $1 million a month.

Some say greed has grown: "People at the top are taking in more than they can ever possibly use, while people at the bottom are working several jobs to get by," says Scott Klinger, co-director of the consumer group United for a Fair Economy.

Others say human nature is unchanging: "It is not that humans have become more greedy than in generations past," Federal Reserve Chairman Alan Greenspan tells Congress. "It is that the avenues to express greed have grown so enormously."

A comparison of today's scandals to those of the 1980s -- the "Me Generation" of Michael Milken, Ivan Boesky, Charles Keating -- illustrates a crucial difference. The '80s villains, despite the billions in damage they did, could be seen as the excesses of an isolated few. Today, many experts say the problems are much broader.

"The Boeskys and the Milkens of the 1980s were truly rogue individuals," says Klinger. "They took hundreds of millions in theft, but they were not part of a systemic situation. What's going on today is much broader, with overaggressive accounting and misrepresentation of earnings.

"What's worse, some of it isn't even illegal."

There's no doubt that greed was rife in the '80s. Its poster boy was Gordon Gekko, the fictional trader portrayed by Michael Douglas in the movie "Wall Street." His motto: "Greed is good."

In real life, Charles Keating Jr.'s Lincoln Savings & Loan bilked elderly investors out of $250 million via worthless junk bonds. Miami banker David Paul lavished $3.2 million of CenTrust money on his palatial Miami Beach house. Michael Milken, the "Junk Bond King," paid nearly $1 billion to settle civil claims in the collapse of his Wall Street trading firm, Drexel Burnham Lambert. Speculator Ivan Boesky repaid $100 million to settle insider trading charges.

But despite the damage they did, they could be seen as aberrations, mavericks, ruthless egos at play.

Today's greed seems more shocking because it involves people we thought to be solid citizens -- CEOs of some of America's apparently most successful corporations. Fortune magazine had named Enron the most innovative company in America six years running -- and found it the 18th most admired company in America. CEO Magazine said Enron had one of the best corporate boards in the country.

Also, this time it's not just individual companies. It's their accountants, too -- the people we count on to make sure businesses play by the rules. It may even be their banks, with Congress investigating whether Enron's shenanigans were abetted by J.P. Morgan Chase and Citibank.

What's particularly disgruntling is that top execs, when their empires collapse, seem uncannily able to limit their personal losses -- even profit from the troubles. WorldCom's Sullivan is fighting to keep his $10 million bonus, and continues work on a $15 million mansion in Boca Raton. Enron's Lay is in little danger of losing his $7 million Houston penthouse even if he declares personal bankruptcy because of Texas's generous bankruptcy laws. Global Crossing's Gary Winnick continues a $15 million remodeling of his $90 million house in Los Angeles.

The impact of today's scandals is broader than those of the '80s, too. They have sucked nearly half the value out of the Standard & Poor's 500 since its peak, one-quarter out of the Dow just since Memorial Day.

To the satisfaction of many stockholders, several CEOs and CFOs are probably headed for prison, which raises a fundamental question: Why would corporate executives, already wealthy beyond imaginable, risk scandal and incarceration by cooking books and manipulating stock options to take in millions more?

"At some point, money doesn't mean money to a person anymore," says Florida International University social psychologist Marvin Dunn. "What's the difference between having $100 million and $300 million? It doesn't represent what it can purchase, because you can already buy anything you want. It becomes symbolic of a person's sense of self and power relative to other people."

Miami securities lawyer Alan Axelrod agrees: "Why does a baseball player need $100 million instead of $80 million? At some point you can't spend all your earnings."

Axelrod believes many big companies got used to reporting huge profit increases every year in the red-hot late 1990s, and couldn't bear to be the first to break the momentum once those profits began to falter.

"At Enron I'm not sure it was the dollars they were after personally. It was power and position. Their personal value of themselves was based on the success of their company, not on whether they personally had $3 million or $30 million in the bank."

In the end, then, many doubt that today's corporate execs are much different from the Boeskys and the Milkens.

"Any explanation that relies on people becoming different is a mistake," says Richard Thaler, a professor at the University of Chicago Business School and a guru of the 'behavioral finance' school of thought, which seeks to understand why investors so often make irrational purchasing decisions. "People don't change. Institutions and incentives change."

"I see a lot of similarities between now and the '80s," says Mike Lux, president of the Washington-based consumer watchdog group American Family Voices.

"In the '80s what started the ball rolling was when (President) Reagan signed a bill to deregulate the savings & loan industry. His quote then was: 'I think we've hit the jackpot with this one.' It turned out to be true for a few greedy, crooked people.

"It's happening today on a broader scale," Lux goes on, "again because we've created an environment with not enough government oversight, and not enough sense of responsibility among the executives themselves and the folks who are supposed to keep tabs on them."

He cited in particular a 1995 deregulation law passed over President Clinton's veto that made it harder for stockholders to sue corporate executives for financial misdeeds.

"It's not that executives got more greedy. They were already greedy. But they were more able to skirt the law, to avoid regulation."

In fact, this was what Greenspan ruefully referred to when he told Congress the avenues to express greed had grown. The man who two years ago coined the term "irrational exuberance" for the stock market now shook his head at the "infectious greed" of corporate execs.

What should be done?

Some want more regulation: "I'd like to see us take a one-time hit, set up tough new penalties and regulations and begin a new day," says Klinger.

"I'd like President Bush to stand up and say this kind of thing has been going on, but it's going to stop. We're going to change the rules and go forward from here."

Others would prefer to see the market, not the government, correct the problem. When Enron first collapsed, U.S. Treasury Secretary Paul O'Neill described it as "part of the genius of capitalism."

Since then, the brutal way in which the stock market is correcting the problem has converted many to accepting greater government regulation.

Bush, who a year ago was talking about cutting the SEC's authority and budget, reversed course and called on Congress to pass a reform bill. It did Thursday, setting up a new oversight board to watch and discipline accountants, requiring top execs to personally attest to the veracity of company financial statements, imposing new fines and prison terms on violators.

"Unethical business practices by corporate leaders amount to theft and fraud," Bush said. "These practices are unacceptable, and we are fighting them with active prosecutions and tough enforcement."

What isn't included, however, is a proposal to follow the example of Coca-Cola, which recently announced it will treat stock options as expenses. Furious corporate lobbying killed a Senate measure that would have required all companies to do that.

Klinger, for one, doubts true reform can succeed without such a measure to curb the eternal temptation to greed.

"Otherwise, we've given corporate executives every incentive to do whatever is necessary to make it look as if their companies are doing better than they really are."

Copyright 2002, Miami Herald