A New Deal Prescription for Gordon Gekko
By Robert Brent Toplin
History News Service
"Greed . . . is good," said Gordon Gekko when addressing a 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 protégé’ 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.
Robert Brent Toplin is a professor of history at the University of North Carolina at Wilmington and a writer for the History News Service.
[Robert Brent Toplin, Department of History, University of North Carolina at Wilmington, Wilmington, NC 28403-3201. Telephone: (434) 295-5105; e-mail: email@example.com.]