Sociological Forum, Vol. 25, No. 2, June 2010 DOI: 10.1111/j.1573-7861.2010.01182.
Wall Street Scandals: The Myth of Individual Greed1
Laura L. Hansen2 and Siamak Movahedi3
There is rarely an introductory text in sociology that does not begin with C. Wright Mills’s (1967) distinction between personal troubles and structural or public issues. To lack sociological imagination is to confuse between these two levels of analysis in trying to explain public issues in terms of personal troubles, or history in terms of the individual’s biography. ‘‘Troubles occur within the character of the individual and within the range of his immediate relations with others; Issues have to do with matters that transcend these local environments of the individual and the range of his inner life’’ (Mills, 1967:8). Issues are generated in response to the dynamics of the social system and unfold within the larger structural and historical contexts where the character of the individual takes shape. Yet, the most popular explanation of the contemporary ﬁnancial crisis with its disastrous social and economic consequences is personal greed. It is the greedy investment bankers, corrupt politicians, and unscrupulous lobbyists who are to take the brunt of the current economic meltdown in the United States. A few bad apples on Wall Street have created havoc on Main Street. Here, one may argue that greed that—if not kept in check—which seems to afﬂict almost everyone, transcending social class and status boundaries, may be a public issue—a structural problem—rather than a problem within the character of the individual. Not to be greedy within the contemporary social and economic system may be considered pathological, an instance of personal trouble. KEY WORDS: crime; culture; economy; greed; scandals; social networks.
One of the most popular explanations of the contemporary ﬁnancial crisis with its disastrous social and economic consequences is personal greed, a ‘‘selﬁsh’’ pursuit of ‘‘self-interest’’ that has no recognition of others at its boundaries or limits and involves no connection between satisfaction and further pursuit of attainment (Greenberg and Mitchell, 1983; Hegel, 1977; Levine, 2001). It is the greedy investment bankers, corrupt politicians, and unscrupulous lobbyists who should take the brunt of the current economic meltdown in the United States. A few bad apples on Wall Street have created havoc on Main Street. Millions of ordinary victims of subprime investment and mortgage scams who have lost their houses to foreclosures and become homeless have not escaped the accusation of greed and pure stupidity for what has happened to them.
1 2 3
An earlier version of this article was presented at the 2009 Annual Meeting of the American Sociological Association in San Francisco. University of Massachusetts, Boston; e-mail: email@example.com. University of Massachusetts, Boston; e-mail: Siamak.firstname.lastname@example.org. 367
Ó 2010 Eastern Sociological Society
Hansen and Movahedi
Greed does not seem to be exclusively a twentieth- or twenty-ﬁrst-century phenomenon, nor is the concept of portfolio diversiﬁcation, particularly in the case of ﬁnancial crime. In Christianity, greed is the second in severity among the Seven Deadly Sins. Paul, the ﬁrst Christian, declared the love of money as the root of all evil—radix omnium malorum avaritia (Tickle, 2004). Indeed, there has never been a time in history when greed did not play a role in the exchange relationships of individuals, particularly if money was involved (Simmel, 1978). Names, such as Jay Gould, represent some of the more notorious scandals that took place on Wall Street prior to 1900.4 Thus Dennis Levin, Ivan Boesky, Michael Milken, Bernard Madoff,5 and Robert Stanford are not necessarily the most viliﬁed names in the history of Wall Street. However, selective memories as well as some strategically placed endowments have all but erased the shame due to the creative ﬁnances of the Robber Barons and other morally questionable participants in Wall Street scandals. It seems rather sad that human greed has been and continues to be getting in the way of smooth operation of the social, political, and economic system. Foreign ﬁnancial markets have not escaped scandal attributed to greed, nor have they escaped growing pains. Insider trading was not even banned until the 1980s in England and is not considered a crime in Germany or Italy (Forman, 1989). By coincidence, France, like the United States, suffered from insider trading scandals in the late 1980s, but without consistent prosecution.6 There is rarely an introductory text in sociology that does not begin with C. Wright Mills’s (1967) distinction between personal troubles and structural or public issues. To lack sociological imagination is to confuse between these two levels of analysis in trying to explain public issues in terms of personal troubles, or history in terms of the individual’s biography. ‘‘Troubles occur within the character of the individual and within the range of his immediate relations with others; Issues have to do with matters that transcend these local environments of the individual and the range of his inner life’’ (Mills, 1967:8). Issues are generated in response to the dynamics of the social system and unfold within the larger structural and historical contexts where the character of the individual takes shape. The source of the confusion between these two levels of analysis seems to reside in people’s ideological souls. A trained incapacity to look outside of one’s narrow perspective seems to afﬂict even some leading economists. To Martin Feldstein, the Harvard economics professor and the former Chairman of the Council of Economic Advisors, the chief advisor to President Reagan
As the cost to investors and as the price of Western Union plummeted under the cry of monopoly, ‘‘Gould and his short-selling colleagues reputedly made a million dollars each when they covered their positions’’ in the face of a bear run on the stock (Geisst, 1997:95). Ironically, Stephen Greenspan, a psychologist and author of Annals of Gullibility: Why We Get Duped and How to Avoid It (2008), fell victim to Madoff’s scheme (Here and Now, WUBR, 1 ⁄ 13 ⁄ 09). As noted by Pierre Bezard, the COB [Commission des Operations de Bourse], France’s counterpart to the SEC, had been in operation for 22 years and had ruled on fewer than 30 insider-trading cases (Los Angeles Times, 1 ⁄ 18 ⁄ 89).
The Myth of Individual Greed
and the architect of the Reagan and Bush policy of deregulation, the ongoing economic disaster has nothing to do with the right-wing political economy of a free market. He blames the whole ﬁasco on a few incompetent bureaucrats and some technical screwups.7 In his inauguration speech on January 20, 2009, President Obama raised a number of questions about the structure of government and the economy. Being an ardent critic of deregulation, he called for a new era of responsibility under a watchful eye. Martin Feldstein agrees with President Obama about the need for a watchful eye. However, to Feldstein, ‘‘a watchful eye’’ is a matter of personal trouble rather than a structural issue. He hears through his ideological ear that President Obama is advocating elimination of too many watchful eyes (deregulation) in favor of only one eye! ‘‘I think it was right for him to use the watchful eye, this goes back to what I was saying a minute ago about too many watchful eyes who didn’t do their jobs’’ (National Public Radio On Point hosted by Tom Ashbrook, Monday, January 26, 2009 at 10:00 a.m. EST). In response to a question by the frustrated Tom Ashbrook: ‘‘[H]as this terrible economic crisis not given you a pause that there is something in the ethos of economics that you have championed that leads to nobody minding the store?’’ Feldstein responds:
you said the right words—nobody minding the store. We had in the ﬁnancial sector three people minding the store and each saying I am not the guy with the bottom line responsibility … what I hope to come out of this is to have only one single supervisor for the entire ﬁnancial institutions …. (National Public Radio On Point hosted by Tom Ashbrook, Monday, January 26, 2009 at 10:00 a.m. EST)
Here, one may argue that greed—if not kept in check—which seems to afﬂict almost everyone and transcend social class and status boundaries, may be a public issue—a structural problem—rather than a problem within the character of the individual. No to be greedy within a particular social and economic system, say, capitalism, may be a pathological manifestation, an instance of personal trouble. Greed, as the egoistic pursuit of self-interest, reminds us of Durkheim’s structural analysis of anomie. Anomie is a social structural condition, a condition that allows the individual’s insatiable passions and appetites to operate with little external limits or regulation to harness them. In such condition, ‘‘greed is aroused,’’ according to Durkheim (1951:256), ‘‘without knowing where to ﬁnd ultimate foothold.’’ Although the recent deregulation legislated in the name of the ‘‘free market’’ may have contributed to the weakening of structural constraints on people’s insatiable appetites, the ‘‘boundless greed after riches,’’ as noted by Marx, is the deﬁning feature of the current economic system and is by no means irrational or pathological.
In a recent interview on BBC at 2100 BST on September 10, 17, and 24, (2009, rebroadcasted) Alan Greenspan said he had changed his mind about deregulation. He blamed the crisis on the ﬁnancial industry’s inability to monitor itself, but he added that ‘‘speculative excesses’’ are a normal function of capitalism. Yet, he attributed much of the problem to human nature: ‘‘It’s human nature, unless somebody can ﬁnd a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature.’’
Hansen and Movahedi
This boundless greed after riches, this passionate chase after exchange value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser (Marx, 1967:153). In fact, as Zakaria (2009) writes in his Newsweek article, ‘‘The Capitalist Manifesto,’’ market behaviors are not about morality. They are a manifestation of complex economic systems, and as such some greed is a necessary part of capitalism. Ironically, ‘‘Greed is Good’’ was the arbitrageur Ivan Boesky’s (the convicted insider-trading felon) encapsulated message of his May 18, 1986 commencement address to the UC Berkeley’s School of Business Administration. Boesky’s exploits were later ﬁctionalized in the Hollywood movie Wall Street, which included a speech given by a Boesky-like character on the virtues of greed similar to that given in the commencement address. Greed in the early years of Wall Street and banking in the United States was attributed to the lack of a central bank, allowing more opportunity for devious investments. Banks and bankers, like the Robber Barons, earned less than stellar reputations. As World War I approached, bankers were accused of being plunderers and noncontributors to the building of the U.S. economy. As Geisst (1997:124) noted, ‘‘it was the combination of wealth and concentrated economic and political power that eventually made them such a viliﬁed group.’’ In spite of the animosity exhibited toward the banking community, and Congress’s push for a new central bank in response to public pressure (actualized in 1913), banking continued to ﬂourish through the 1920s, enjoying a relatively friendly regulatory atmosphere. The question of structural determinants of behavior—here, economic behavior leading to scandals on Wall Street—needs much more unpacking than what we typically do in most sociological analyses. Social structure by itself is not causally efﬁcacious. Intervening variables and processes that need clear articulation are usually taken for granted. Speaking on the importance of communication in forming people’s political consciousness within a particular mode of production, Mills (1951:333) writes:
If the consciousness of men does not determine their existence, neither does their material existence determine their consciousness. Between consciousness and existence stand communications, which inﬂuence such consciousness as men have of their existence. Men do ‘‘enter into deﬁnite, necessary relations which are independent of their will,’’ but communications enter to slant the meanings of these relations for those variously involved in them.
Although Mills here is referring to the contents of communication media on the macro level, his argument equally applies to micro-level communication within dominant social networks. In examining corporate crimes, it is necessary to examine more than the macrostructure. The microstructure, formal and informal, is perhaps more crucial. It is made up of corporate actors, some of whom are caught up in the moral mazes of conducting business in the interest of the company and yet still acting ethically in a changing environment (Collins, 1975; Jackall, 1996; Meyer and Rowan, 1977). In fact, our data from an extensive earlier study of Wall Street scandals clearly show the role of
The Myth of Individual Greed
communication within the networks of characters in the ﬁnancial community in structuring different patterns of white-collar criminality. The regulatory part of the market structure, the competitive environment, the culture of Wall Street, and the network of communication among bankers, traders, and investors interact to bring about the ﬁnancial disasters that we are witnessing today. Most scandalous forms of ﬁnancial activity, such as insider trading, subprime mortgage scams, or Ponzi schemes, are heavily embedded within the legitimate ﬁnancial banking network of Wall Street.8 The most striking ﬁndings of a recent study conducted by one of the authors (Hansen, 2004) suggests that the very Wall Street stars and innovators, such as Bernard Madoff, the former chairman of the NASDAQ and founder of Bernard L. Madoff Investment Securities, can also be on occasion the most deviant.9 What is insidious and difﬁcult for scholars of white-collar crime to research and for regulators to prevent is that corporate ﬁnancial malfeasance can at times appear to be accidental. Even when an incident is formally and legitimately identiﬁed as an accident, it is often due to miscommunication between management and technical advisors (Vaughan, 1996). In many cases, organizational elites knowingly use the hierarchy and their organizational positions to command deviance (Ermann and Lundman, 1996). The competitive environment of the market economy, in addition to organizational group dynamics such as groupthink, conformity, obedience, and submission, operate to elicit certain response patterns that may lead to ﬁnancial crimes. In the 2005 documentary Enron: The Smartest Guys in the Room,10 the corporate climate of Enron was not unlike Stanley Milgram’s (1960) infamous experiment on obedience. The book and subsequent documentary speculate that traders at Enron were aware that they were putting individuals at risk for health-related illness and death by instigating rolling blackouts of electrical power in California during the 100+ degree weather in the summer of 2000, and they continued to do so with the blessings of their supervisors.
During the free-wheeling days of deregulation under the Reagan Administration and prior to the 1984 crackdown, one form of white-color criminality—insider trading—became more tempting in a progressively more laissez-faire market. New liberalism in the market, the concurrent growth of funds, greater foreign investment, and high interest rates all resulted in corporations becoming a new source of capital. The new challenge for politicians was to control merger activity. During the 1970s, the need for greater regulation was endorsed by both the Republican and Democratic Parties, who favored strong antitrust enforcement, since there was suspicion of ‘‘the ‘bigness’ associated with merger activity’’ (Stearns and Allan, 1996:705). However, the Republican Party platform after the 1980 election advocated a ‘‘buyer beware’’ mentality. As Johnson (2003:193) observed, ‘‘an informed consumer making economic choices and decisions in the marketplace is the best regulator of the free enterprise system.’’ This policy resulted in the rush for deregulation early in the Reagan presidency. Government tends to be reactive rather than proactive in ﬁghting ﬁnancial crime, largely due to budgetary constraints. As Charles Carberry (former U.S. Attorney’s Ofﬁce prosecutor and debriefer of Boesky) notes, the ‘‘horse left the barn’’ mentality of prosecutors results in increased law after criminal behavior has been identiﬁed, becoming draconian before law is legislated (Interview, New York City, June 2003). Either way, the data will show that criminal networks can and do exist within ﬁnancial networks, though perhaps not as rampantly today as the one that emerged in the 1980s. Based on the 2003 book by Bethany McLean and Peter Elkind.
Hansen and Movahedi
The cultural environment plays a key role in providing both opportunity and constraint for individuals in the banking industry. There are two means by which the environment plays a part in shaping the way that investment bankers interact with one another. The ﬁrst instinct is to place importance on the regulatory system. More importantly, it appears that the competitive environment plays a greater role in offering opportunities. (Sauder and Fine  make a similar point with reference to business schools.) Nevertheless, competition in the market does not seem to be a guarantor of fairness, as predicted by Schoenberger (1997). Competition in the legitimate market is the precursor of activities, such as exchange of insider information, that reduce fair competition. With a limited number of actors privy to the information, and an even fewer number of actors who use the information for nefarious purposes, fair competition becomes null and void. For instance, it was competition itself, as evident by the very few individuals involved in mergers and acquisitions compared to the total number of transactions that took place from 1979 to 1986, gave rise to the need for illicit information. This coincides with Turk’s prediction (1966) that the demand for illicit goods and services can result in a criminogenic subculture. Furthermore, based on Hansen’s (2004) study of Wall Street, opportunity gives way to embeddedness in both legitimate and illegitimate networks, with different manifestations in each one. Legitimate network actors unexpectedly become more embedded with the formation of cliques, dependent broker ties, and reduction of structural holes. This is contrary to competitive economic models. Illegitimate networks, on the other hand, become more centralized and stringy, and reduce competition for the precious resource of information by operating more efﬁciently than legitimate networks. The illegal network represents informal structure sprouting from formalized professional ties. This is an important ﬁnding for future research, as organized crime networks such as the Maﬁa and motorcycle gangs do have formalized structure, even though their roots are in informal groups. Likewise, white-collar criminal networks are suggested to have the same social evolution, but in reverse: informal illegal networks emerge from formal legitimate, professional networks. The regulators themselves are under scrutiny, making the task of monitoring malfeasance and crime within corporations doubly difﬁcult. The Wall Street Journal reports (May 16, 2009) that a network of alleged insider traders within the SEC is under investigation. As Hansen (2009:36) notes, ‘‘regulatory agencies alone cannot be depended on to provide prophylactic measures to prevent corporate crimes.’’ And, as noted earlier, regulation globally is inconsistent. Corporations, international and otherwise, must be called upon to identify the potential problems by identifying the informal structures within the organization that have the potential of segueing to illegal networks, rather than merely seeking out individual troublemakers. As demonstrated by the pandemic insider trading during the 1980s, as well as by the Enron debacle, indiscretion is often found within illegal network structures (Hansen, 2009), including, if The Wall Street Journal is correct, the SEC.
The Myth of Individual Greed
In sum, the environmental pressures and competition, the culture and ideology of Wall Street, the formal and informal structure of corporations, the executive and employee compensation structures, all operating within the broader regulatory system, are responsible for some of the scandals we are witnessing. Any analysis of the present condition from the standpoint of explanation, prediction, or prevention should be focused on the macro- and micro-structural condition. Psychological explanations in terms of character, personality, or traits such as greed are totally inadequate. The problem with occupational crime is that it is committed within the conﬁnes of positions of trust and in organizations, which prohibits surveillance and accountability. More importantly, work performance is evaluated by nonperformance criteria and evaluations are ceremonially executed, particularly, as previously stated, in the case of professionals who are technically trained beyond the education and practical knowledge of management (Collins, 1975; Meyer and Rowan, 1977). As such, the explanations for occupational crime are structural rather than social-psychological, as the organizational apparatus creates an atmosphere conducive to occupational crime. One theory that supports a structural model is that of Billingham (1990), who proposed that criminality among elites may be part of ‘‘doing business as usual.’’ As previously noted, the potential for the deviant behavior of insider trading has been found to have its roots in business schools, where students are more materialistically minded, particularly in U.S. universities (Billingham, 1990). A code of ethics does not necessarily prevent unethical behavior within organizations but, as Cressey and Moore (1980) concluded, ‘‘[a] demonstration of deeds, not nice words, is necessary to correct unethical corporate behavior’’ (Clinard and Yeager, 1980:302). Corporations rarely make apologies for their bad behavior, except when pushed to do so for public relations purposes. REFERENCES
Billingham, Carol J. 1990. ‘‘Are Business Schools to Blame for Materialism and a Questionable Business Practices? A Cross-Cultural Study,’’ Michigan Academician 22(2): 107–113. Clinard, Marshall B., and Peter C. Yeager. 1980. Corporate Crime. New York: Free Press. Collins, Randall. 1975. ‘‘A Conﬂict Theory of Organizations,’’ in Conﬂict Sociology: Toward an Explanatory Social Science: pp. 286–347. New York: Academic Press. Cressey, Donald R., and Charles A. Moore. 1980. ‘‘Corporation Codes of Ethical Conduct,’’ Final Report to the Peat, Marwich, and Mitchell Foundation. ´ Durkheim, Emile. 1951. Suicide. New York: Free Press. Ermann, David M., and Richard J. Lundman, eds. 1996. Corporate and Governmental Deviance: Problems of Organizational Behavior in Contemporary Society. New York: Oxford University Press. Forman, Craig, 1989. ‘‘Old World Traditions Include Insider Trading,’’ Wall Street Journal, February 8. Geisst, Charles. 1997. Wall Street: A History. New York: Oxford University Press, Inc. Greenberg, J., and S. Mitchell. 1983. Object Relations in Psychoanalytic Theory. Cambridge, MA: Harvard University Press. Hansen, Laura L. 2004. The Bad Boys of Wall Street: A Network Analysis of Insider Trading (1979-1986). Dissertation, University of California, Riverside, CA.
Hansen and Movahedi
Hansen, Laura L. 2009. ‘‘Corporate Financial Crime: Social Diagnosis and Treatment,’’ Journal of Financial Crime 16(1): 29–40. Hegel, G. W. F. 1977. Hegel’s Phenomenology of Spirit. Oxford: Oxford University Press. Jackall, Robert. 1996. ‘‘Moral Mazes: Managerial Work and Personal Ethics,’’ in M. David Ermann and Richard J. Lundman (eds.), Corporate and Governmental Deviance: Problems of Organizational Behavior in Contemporary Society: pp. 61–78. New York: Oxford University Press. Johnson, Roberta Ann. 2003. Whistleblowing: When It Works and Why. Boulder, CO: Lynne Rienner Publishers. Levine, David P. 2001. ‘‘The Attachment of Greed to Self-Interest,’’ Psychoanalytic Studies 3(3–4): 131–140. Marx, Karl. 1967. Capital, vol. 1. New York: International Publishers. Meyer, John W., and Brian Rowan. 1977. ‘‘Institutionalized Organizations: Formal Structure as Myth and Ceremony,’’ American Journal of Sociology 83: 340–363. Milgram, Stanley. 1960. Obedience to Authority. New York: Tavistock Publication. Mills, C. Wright. 1951. White Collar: The American Middle Classes. New York: Oxford University Press. Mills, C. Wright. 1967. The Sociological Imagination. New York: Oxford University Press. Sauder, Michael, and Gary Alan Fine. 2008. ‘‘Arbiters, Entrepreneurs, and the Shaping of Business School Reputations,’’ Sociological Forum 22(4): 699–723. Simmel, Georg. 1978. The Philosophy of Money, T. Bottmore and D. Frisby (trans.). London ⁄ Boston: Routledge. Stearns, Linda Brewster, and Kenneth D. Allan. 1996. ‘‘Economic Behavior in Institutional Environments: The Corporate Merger Wave of the 1980s,’’ American Sociological Review 61: 699–718. Tickle, Phyllis A. 2004. Greed: The Seven Deadly Sins. New York: Oxford University Press. Turk, Austin T. 1966. ‘‘Conﬂict and Criminality,’’ American Sociological Review 31: 338–352. Vaughan, Diane. 1996. The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. Chicago: University of Chicago Press.