Greed and Debt - Horsemen of the Economic Apocalypse

Like most people I have been paying attention to the crisis on Wall Street especially its potential negative impact upon our investments. While it is all very complicated on its most basic level I think it comes down to two things – greed and debt. These are problems both on the personal and the corporate level – first the personal.

I think that greed is one of those words that has become so caricatured that we think of it only in its extreme terms – Ebenezer Scrooge in literature and/or the way some of the rich are portrayed in the Gospels. Since few, if any of us, are like that there is a tendency to think that greed is not an issue either for us or for most of our society. Unfortunately I think that is a mistaken belief, greed exists in many different forms and at many different levels so that it is a risk in one way or another for all of us. I was trying to think of a more working definition of greed when by accident I found one in the September 19th issue of the New York Times.

It was the story of a judge’s struggles with finding the right sentence for a young drug dealer. The judge had asked the young man to put into writing what he was thinking of when he committed his crime. The young man wrote that when he started selling drugs he went from having no money one day to having $300 the next day. The money brought him status and respect blurring or wiping out any moral issues about the source of the new found wealth.

$300 is certainly not a huge amount of money so I think that a working definition of greed is that it is what happens when we give into temptation to acquire money or wealth in a way that is not sound. Fortunately there are limits on those who are tempted into criminal behavior. Unfortunately that is not the case with those who are tempted into debt.

The biggest potential for problems with debt rests with abusing credit cards and mortgage debt. These can be reasonable means for buying something we need that we can’t afford on one payment, but can afford to payoff gradually. That is the way debt can and should be used. The problems occur when we use credit cards with little thought of how we can pay it off the balance or when we use mortgage debt inappropriately in relationship to real estate.

Properly used the home mortgage has opened up the dream of owning a home to those who would never have had that opportunity. Unfortunately greed sets in when we incur excessive mortgage debt in order to buy a home that is really beyond our means. The same thing can be said of home equity loans or mortgage refinancing where the proceeds are again used for something we can’t afford and probably don’t need.

Such greed is not unlike that of the young dealer – the big difference is that what he did was against the law. But when we acquire more house than we could possibly need relying excessively on the “value” of the house and/or use the house to finance things that again we probably don’t need – greed has again taken over. Such greed accompanied by the debt that can fuel that greed can be the ruin of us and, in sufficient numbers, can put our whole society at risk.