wall street scandals: the myth of individual greed

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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 Millss (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 per-

sonal troubles, or history in terms of the individuals 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 UnitedStates. A few bad apples on Wall Street have created havoc on Main Street. Here, one may argue

that greed thatif not kept in checkwhich seems to afflict almost everyone, transcending social

class and status boundaries, may be a public issuea structural problemrather 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 An earlier version of this article was presented at the 2009 Annual Meeting of the AmericanSociological Association in San Francisco.

2 University of Massachusetts, Boston; e-mail: [email protected] University of Massachusetts, Boston; e-mail: [email protected].

Sociological Forum, Vol. 25, No. 2, June 2010

DOI: 10.1111/j.1573-7861.2010.01182.x

367

2010 Eastern Sociological Society


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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 amongthe Seven Deadly Sins. Paul, the first Christian, declared the love of money as

the root of all evilradix 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 noto-

rious 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. How-

ever, selective memories as well as some strategically placed endowments haveall 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 Millss (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 individuals 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 peoples ideological souls. A trained incapacity to look outside of

ones 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

4 As the cost to investors and as the price of Western Union plummeted under the cry of monop-oly, Gould and his short-selling colleagues reputedly made a million dollars each when theycovered their positions in the face of a bear run on the stock (Geisst, 1997:95).

5 Ironically, Stephen Greenspan, a psychologist and author of Annals of Gullibility: Why We GetDuped and How to Avoid It (2008), fell victim to Madoffs scheme (Here and Now, WUBR,11309).

6 As noted by Pierre Bezard, the COB [Commission des Operations de Bourse], Francescounterpart to the SEC, had been in operation for 22 years and had ruled on fewer than 30insider-trading cases (Los Angeles Times, 11889).

368 Hansen and Movahedi


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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 bureaucratsand 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 (deregula-

tion) in favor of only one eye! I think it was right for him to use the watchfuleye, this goes back to what I was saying a minute ago about too many watchful

eyes who didnt 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 ques-

tion 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 wordsnobody minding the store. We had in the financial sectorthree people minding the store and each saying I am not the guy with the bottom lineresponsibility what I hope to come out of this is to have only one single supervisorfor the entire financial institutions . (National Public Radio On Point hosted by TomAshbrook, Monday, January 26, 2009 at 10:00 a.m. EST)

Here, one may argue that greedif not kept in checkwhich seems to

afflict almost everyone and transcend social class and status boundaries, may

be a public issuea structural problemrather 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 Durkheims

structural analysis of anomie. Anomie is a social structural condition, a condi-

tion that allows the individuals 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 peoples 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.

7 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 thefinancial industrys inability to monitor itself, but he added that speculative excesses are anormal function of capitalism. Yet, he attributed much of the problem to human nature: Itshuman nature, unless somebody can find a way to change human nature, we will have more cri-ses and none of them will look like this because no two crises have anything in common, excepthuman nature.

The Myth of Individual Greed 369


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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 manifesta-

tion of complex economic systems, and as such some greed is a necessary part

of capitalism. Ironically, Greed is Good was the arbitrageur Ivan Boeskys

(the convicted insider-trading felon) encapsulated message of his May 18, 1986

commencement address to the UC Berkeleys School of Business Administra-

tion. Boeskys 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 concen-

trated economic and political power that eventually made them such a vilified

group. In spite of the animosity exhibited toward the banking community,

and Congresss 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 behaviorhere, economic

behavior leading to scandals on Wall Streetneeds 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 peoples political consciousness within a particu-

lar mode of production, Mills (1951:333) writes:

If the consciousness of men does not determine their existence, neither does their mate-rial existence determine their consciousness. Between consciousness and existence standcommunications, 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 variouslyinvolved 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 neces-

sary to examine more than the macrostructure. The microstructure, formaland 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 inter-

est 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



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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 WallStreet, and the network of communication among bankers, traders, and inves-

tors 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 orga-

nizational group dynamics such as groupthink, conformity, obedience, and

submission, operate to elicit certain response patterns that may lead to finan-

cial crimes. In the 2005 documentary Enron: The Smartest Guys in the Room,10

the corporate climate of Enron was not unlike Stanley Milgrams (1960) infa-

mous experiment on obedience. The book and subsequent documentary specu-

late that traders at Enron were aware that they were putting individuals at

risk for health-related illness and death by instigating rolling blackouts of elec-

trical 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.

8 During the free-wheeling days of deregulation under the Reagan Administration and prior tothe 1984 crackdown, one form of white-color criminalityinsider tradingbecame moretempting in a progressively more laissez-faire market. New liberalism in the market, the concur-rent growth of funds, greater foreign investment, and high interest rates all resulted in corpora-tions becoming a new source of capital. The new challenge for politicians was to controlmerger activity. During the 1970s, the need for greater regulation was endorsed by both theRepublican and Democratic Parties, who favored strong antitrust enforcement, since there wassuspicion of the bigness associated with merger activity (Stearns and Allan, 1996:705).However, the Republican Party platform after the 1980 election advocated a buyer bewarementality. As Johnson (2003:193) observed, an informed consumer making economic choicesand decisions in the marketplace is the best regulator of the free enterprise system. This policyresulted in the rush for deregulation early in the Reagan presidency.

9 Government tends to be reactive rather than proactive in fighting financial crime, largely dueto budgetary constraints. As Charles Carberry (former U.S. Attorneys Office prosecutor anddebriefer of Boesky) notes, the horse left the barn mentality of prosecutors results inincreased law after criminal behavior has been identified, becoming draconian before law is leg-islated (Interview, New York City, June 2003). Either way, the data will show that criminalnetworks can and do exist within financial networks, though perhaps not as rampantly todayas the one that emerged in the 1980s.

10 Based on the 2003 book by Bethany McLean and Peter Elkind.

The Myth of Individual Greed 371


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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 investmentbankers interact with one another. The first instinct is to place importance on

the regulatory system. More importantly, it appears that the competitive envi-

ronment plays a greater role in offering opportunities. (Sauder and Fine [2008]

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 fornefarious purposes, fair competition becomes null and void. For instance, it

was competition itself, as evident by the very few individuals involved in merg-

ers 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 Turks prediction (1966) that the demand for illicit goods and

services can result in a criminogenic subculture.

Furthermore, based on Hansens (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 monitor-

ing 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 incon-

sistent. 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.



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