Being Wrong About Greed

Edward M. Liddy, Chairman and Chief Executive Officer of AIG, should be wrong. Here’s why.

Liddy believes that AIG will not be able to “attract and retain the best and brightest talent to lead and staff the AIG businesses” without retention payments-bonuses.  His stance shows an alarming cynicism about his staff. While he is taking $1 in payment for 2008-2009, staking his future, reputation and financial status on turning around a crisis that he did not create, he thinks other AIG staffers are not so motivated..

There has been a great furor around executive pay, and the word “greed” has been tossed around like popcorn at a baseball game. “Define greed” as a search term on Google, yields over a million hits. Dictionary.com includes “grasping, rapacious, selfish. ravenous, voracious, gluttonous, insatiable, covetous, anxious” as synonyms.

And yet, the desire to earn money beyond our wildest dreams-or needs-is a basic tenet of capitalism as we know it. We fight to make more money than we could use in a lifetime, and to preserve the right to keep as much as we possibly can. The 90% who will never in their lifetimes amass an amount large enough to pass along an inheritance subject to the tax laws as they have stood for 20 years, will none-the-less fight to abolish such taxes. Warren Buffett is vilified as a populist for suggesting that taxes for him and those like him are much too low. Ronald Regan has been canonized for cutting taxes. Even when such taxes reduce benefits for over 80% of the population, we fight for them because we believe that what keeps the wheel of our economy moving is greed. Without it, the $13+ trillion dollar US GDP will grind to a halt.

We forget-whenever we can-that life is not easy for most of us. With real wages stagnating, we take bets-which have come to haunt us-that our houses or investments will make up for the gap between what we make and the rising cost of living. We believe we are emulating the rich who are getting rich quick, while we worry about our kids, and whether their schools are preparing them for the realities of our world. We avoid looking, but the litter in our streets, the quality of our air, remind us daily that what we are working for is slowly disappearing. Our exhaustion after the one to two hour commute belies our satisfaction at a day’s work. We fear that one illness, one lost job, could leave us living in the tent cities now sprouting up in cities like Seattle.

As we start to see the flaws in our thinking about what makes our system work, fueled by our newfound disgust at greed, we have an opportunity. This is a time to think about the values that would lead to a sustainable, durable market economy.

American values are not about rights, but about responsibilities: about our collective responsibility to see our individual success mirrored in the cities and towns around us.

The complex credit default swaps, which began as a potentially useful tool to encourage private investment to make liquidity available for working businesses, got sidetracked into riskier ideas, ever greater gambles and more and more complex packages. The brilliant minds that conceived of the potential of CDSs are in fact the right people to help fix them. Liddy believes these brilliant minds are not incented to do so without retention bonuses in addition to salaries.

Let’s hope he’s wrong about that.