Is the Answer to Lock Up Our Gordon Gekkos?
stockholders' meeting in Oliver Stone's 1987 movie, "Wall Street." Gekko, an
arrogant power broker, used insider knowledge to organize corporate buyouts
that produced millions for himself while leaving others in ruins. His words
resonated strongly in the 1980s, because they reminded audiences of the
behavior of Ivan Boesky and other manipulative financiers accused of insider
trading. Gekko's words also carry weight in this year of fast-breaking news
about corporate malpractice.
Of course, Gekko's provocative observation was not entirely
mistaken. Greed is "good" when it produces the enterprise and drive
that
energizes capitalism. If, however, greed leads to violation of fair business
practices and harms the interests of millions of investors and workers,
morally or economically, it does no "good."
The Gekko character is a familiar figure in U.S. economic history.
His most notable earlier appearance was in the 1920s. In that decade, a time
of fast-rising stock prices, manipulative financiers gave the public
distorted information about the condition of their business enterprises.
They also expanded their investments broadly through risky buyouts of
disparate companies. Often they stuffed their pockets with cash while
unloading highly questionable securities on the American people. Then, in
the late 1920s and early 1930s, the empires they had built like a house of
cards collapsed. Millions of unsuspecting investors went crashing down with
them.
During the 1930s, Franklin D. Roosevelt's administration found a way
to deal with these troublesome Gordon Gekkos of yesteryear. Roosevelt's
remedy was not simply to prescribe tough jail sentences for the wayward. His
principal response was to establish new rules for corporate behavior, rules
that reduced conflicts of interest. The New Deal also supported
"transparency," a much-lauded goal of today's reformers, because it
facilitates public access to information about corporate activities.
One of the New Deal's first and most important regulatory measures
was the Glass-Steagall Act of 1933, which separated commercial and
investment banking and restricted the use of bank credit for speculative
activities. Roosevelt also supported creation of a new regulatory agency
that dealt with the stock market, the Securities and Exchange Commission.
The SEC required that stock offerings contain detailed financial
information, to permit investors to make informed judgments on values, and
it sanctioned the investigation of executives who knowingly furnished
incorrect or misleading information.
The legacy of regulation passed down to us from FDR's New Deal will
be difficult to revive today. A laissez faire philosophy now commands almost
religious devotion on Wall Street and Pennsylvania Avenue. Brokers and
politicians recite the mantra that federal regulation retards economic
growth. These advocates of hands-off policies fail to see regulation as many
New Dealers did -- as a useful means for promoting honest and equitable
business practices. Nor do they recognize -- as the New Dealers did -- that
effective regulation helps to restore public confidence in the stock market
and produce better conditions for economic progress.
Reformers in Congress are struggling against the force of this
laissez faire philosophy as they attempt to design new legislation that will
dissuade future Gordon Gekkos from acting in ways that can hurt investors,
employees and the U.S. economy. The problems these reformers face are
different from the ones the New Deal reformers confronted 70 years ago, but
the distinctions are in degree rather than in kind. There is a common theme
in the 1930s and in our time: excesses occurred largely because laws were
not adequate to check them.
Today's Gordon Gekkos have come to expect that their exercises in
greed will go unchallenged, because the American people's fear of the
federal government appears to exceed their fear of corporate robber barons.
Twenty-first century Gekkos hope the New Deal's approach to business
regulation has been forgotten, and that policies such as those established
by FDR have little chance of revival.
If Americans remember the lessons of "Wall Street," however, they
are likely to give the modern-day Gordon Gekkos their comeuppance. Stone's
movie, after all, was not just a morality play about the evils of avarice.
It also carried a practical message. What was good for Gordon Gekko, the
movie suggested, was not necessarily good for the U.S. economy or the
American people. The movie provided a Hollywood solution to the problem: in
the final minutes, Gekko's protege turned him in to the authorities. In
real life it takes more than a single act of heroism to deal with the
challenges posed by excessive greed.
Government must establish the rules of fair play.
This piece was distributed for non-exclusive use by the History
News Service, an informal syndicate of professional historians who seek
to improve the public's understanding of current events by setting these events
in their historical contexts. The article may be republished as long as both
the author and the History News Service are clearly credited.