Editor's note: "Greed is good."
The line from Oliver Stone's Wall Street is one of the most famous lines in movie history. And according to Casey Research founder Doug Casey... it's also 100% true.
Longtime readers know Doug is an important mentor to S&A founder Porter Stansberry. He is also a best-selling author and one of the most successful speculators we know. Doug has spent his 40-year career profitably trading commodities, currency, real estate, and stocks.
Today's edition of our Weekend Masters Series is excerpted from his classic investing book, Crisis Investing for the Rest of the '90s, published in 1993. Doug describes how the general view of the movie shows how "the public rarely analyzes moral issues" and simply accepts what the authorities condemn as "wrong"...
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Wall Street, the Movie
By Doug Casey, founder of Casey Research
[The movie] Wall Street chronicles the rise of a young stockbroker, Bud Fox, to a position as protégé of a corporate raider/speculator Gordon Gekko, Bud's supposed corruption in the process, and his subsequent return to grace. On a psychological level, it is the story of how a "good guy," represented by Fox's father, and a "bad guy," represented by Gordon Gekko, vie for possession of Bud's soul. It's a sad story because the "good guy" wins.
Fox's father, an unintelligent, pigheaded, envy-driven loser who is a populist union steward, mentioned to Bud that the [Federal Aviation Administration] is going to exonerate his employer, Blue Star Airlines, for an accident that had been hanging over them. He gratuitously allows how he had always believed it was "those greedy, cost-cutting" airplane manufacturers that were really to blame. His views provide a good insight into the filmmaker's values. Another is offered when the elder Fox says: "The only difference between the Empire State Building and the pyramids is that the Egyptians didn't have unions." Sure. And the only difference between McDonald's and the Gulag bread line is the sesame seed bun.
Knowledge of the unannounced FAA decisions is valuable data. Bud wrangles an appointment with Gekko, using a box of Cuban cigars his straight-arrow Dad must have liberated with a bribe to a customs inspector, as a door-opener. To ingratiate himself further, he discloses the Blue Star decision to Gekko, who naturally buys the stock in anticipation and makes a bundle. This is presented as an illegal and unethical use of inside information. Was it illegal? Who knows?
The very concept of inside information is undefined and indefinable. The rationale against insider trading is the creation of a "level playing field" for all players, so no one knows anything before anyone else, and there are no "unfair" advantages.
Would acting on the elder Fox's information have been illegal if he had told not just one person, but everyone he knew? What if he took out ads and tried to inform the world at large? What about those people who did not read the paper; would they have grounds for a lawsuit because they were not given the opportunity to buy? That decision rests on the whim of some regulator. Shouldn't it also be "inside information" if the few people who are the first to hear an official announcement immediately act on it? What if Gekko had simply had a hunch about the decision and bought Blue Star based on that hunch alone; how could he prove he didn't have illegal data?
Is the use of insider information ethical? Absolutely, whenever the data is honestly gained and no confidence is betrayed by disclosing or using it. Because the whole concept of inside information is a floating abstraction, it's a witch hunter's dream and a natural for government lawyers. It takes millions of dollars of legal fees to reach an arbitrary decision on legalities alone. And as with most regulatory law, concepts of ethics, justice, and property rights never even enter the equation.
In the movie's next supposed moral dilemma, Gekko convinces Fox to follow an Australian speculator around town to learn what stocks he's buying and buy them first. The confused Fox comments: "Inside information, isn't it?" before embarking on field research that resulted in more successful trades. Is it inside information to follow someone around town and conjecture what he's likely to buy based on whom he visits? I can't see how, but who cares, because it's information honestly acquired.
In the next instance, Fox, posing as a cleaning man, gains access to a law office and copies some files detailing a takeover. Inside information? It's academic because the act is simple theft. The movie is unable to distinguish between detective work and burglary. The fact that a theft has been committed – the only real, common-law crime in the whole movie – is never acknowledged.
A Hero in the Slime
The viewer's attention does not focus on the vapid, dishonest yuppie Bud Fox, played by actor Charlie Sheen, but on the dynamic Gordon Gekko. Gekko is not a particularly nice guy. He is materialistic, cheats on his wife, and doesn't give suckers an even break. And he probably doesn't care where or how Fox gets his information. But do you care where Standard and Poor's obtains its data? No. You care only that it is accurate, and you make the reasonable assumption it is not the product of theft. Gekko encourages Fox to get information that isn't common knowledge. That's what makes for success in many legitimate endeavors. But he never sends him to steal.
In fact, Gekko does nothing unethical in the movie except lie to the union people when he's about to take over Blue Star. But for that exception, we can make a case that Gekko, his personality aside, was actually a moral hero. Look beyond the nasty patina the film paints him with. Gekko rewarded Fox for doing what appeared to be good work. He paid for the value received.
A criminal takes what he has not earned, offering nothing in exchange. Whether someone is a criminal or not has little to do with whether he violates some law.
Gekko's infamous "greed is good" speech at the annual general meeting of Teldar Paper should be given at every annual corporate meeting. Gekko explains how money is concentrated life, representing all the good things one ever hopes to have and provide. And since love, life, and money are good, so is the desire – greed – to have as much of them as possible. Gekko's speech is also an accurate and excellent presentation of why takeovers are usually a good thing. Gekko points to Teldar's numerous vice presidents, who are paid six figures to shuffle memos and build little satrapies with money that should be given to the shareholders as dividends. Gekko makes it clear that if he wins they will be fired. Gekko is absolutely right, and his actions through the movie can only serve to better the lot of thousands, maybe millions, of people. In that regard, at least, the country could use a thousand Gordon Gekkos.
Fox is understandably unhappy with Gekko because of his lie about Blue Star. He decides to turn state's evidence against Gekko when the [Securities and Exchange Commission] gets both him and Gekko in its sights. He wires himself, presumably to gets a reduced sentence, and induces Gekko to say compromising things. Here the only morally unambiguous and satisfying point in the whole movie is made: Gekko, quite correctly, beats the daylights out of the sleazy young Fox.
It is strange how the public rarely analyzes moral issues; something is considered "wrong" because a preacher or an official says it is. No one considers whether the "authorities" might have based their judgment on a false premise or a hidden personal agenda. Sometimes things are believed to be wrong because "everyone" assumes as much, as everyone once assumed the sun revolved around the Earth. And after a while, that unchallenged assumption becomes part of the social contract.
Now Gordon Gekko, and everything he's supposed to stand for, has become a cultural totem for everything that's wrong with the U.S. financial system. Try defending Gekko sometime and watch the reaction you get; better you should try to defend Stalin. People have a hard time getting past their emotional reaction and weighing the rights and wrongs of a situation.
Especially with the increasing influence of the popular media, that unreasoned emotional response can only hurt the markets, the economy, and the unlucky individuals who are singled out.
Editor's note: Doug Casey is known for his unconventional and often provocative views. And in his latest book – Totally Incorrect – he discusses why NASA should be abolished... why most college educations are a waste of time... and why global warming is a hoax. To learn how to purchase a copy of Totally Incorrect for nearly half off its newsstand price – and why Porter called it one of the most "important... and dangerous" books he's read recently – click here.