In response to an earlier column, a reader suggested that greed was clearly part of the problem in our current financial situation. It is a point I often hear, and one I feel I need to refute, so please forgive me if I start sounding like an Ayn Rand acolyte, but to refute it, we really need to discuss what "greed" means.

The problem is, no one knows what "greed" is. They denounce those "grasping after money", yet negotiate every dime of their own salary. Do they work for free? Do they invest in underperforming stocks to give the little guys a chance? No. They behave just like those "greedy" individuals, just on a smaller scale. And that actually shows the usual explanation of "greed". "Greed " usually means "doing the same things I am but making a lot more money doing it." Denunciations of greed almost always translate into class envy, and nothing more.

The truth is almost all of us are greedy, and that is a good thing. I have food because of greedy farmers, grocers, processors, truckers and others. Their desire to wring out every last cent brings me what I want when I want it. Same with gasoline, housing, clothing, and everything else. Why do I have this forum to explain this? Greed. Why do I have a computer? Electricity? Greed. It is the force which causes people to produce. I work for greed. So do you. We all act out of greed, and that is what brings us all the goods of a modern industrial civilization.

So, to explain my earlier column. I was referring to a very specific charge of George Will. He claimed that people were "living beyond their means", and some lust for more than we can afford was behind the crisis we now face. And that is true for those who took mortgages they could not pay. And in that sense, I suppose one could call it "greed", but that was to be expected. If you offer someone something for nothing, as these loans effectively did, of course they will take it.

And that is why I said greed was not part of it. The problem was not caused by bankers who bought the mortgages, or by the investors, or even by the lenders, many of who m were responding to government pressure. The problem was originated by the one "altruistic" group. The politicians who thought they could "bring home ownership to the masses", if only they could bully banks into ignoring economic laws. They gained no wealth by doing so, they did it out of the goodness of their hearts (and perhaps with an eye to the next election), and that was my point.

Those who were greedy behaved reasonably, assuming everyone else was driven by greed. Banks thought lenders would make loans based on self interest, and invested accordingly. People invested with those buying the loans thinking the same. The "greed" driven system would have worked. The problem was that "greed" was short circuited by government "altruism", introducing factors other than economic ones and breaking a well controlled system.

Had the system been driven by nothing but greed, and had the much reviled "Wall Street fat cats" run things, we would never have made loans to the people we did, and this problem would have never arisen. It was precisely when "greed" was removed from the system that we created this problem.

POSTSCRIPT

I don't mean to imply class envy was at the root of my reader's comment, just that many times that is the origin of complaints about greed. As to my reader, I have no idea. However, I thought I should argue that greed drives systems quite efficiently, while government altruism tends to create complete messes like the one we are in now.

UPDATE

Thomas Sowell actually argues a similar point in his current column, arguing that capping CEO pay will cause losses greater than the savings. That is another case where greed makes for greater efficiency that government regulation. Companies will pay CEOs what they expect to see in returns. They can be wrong, but they are more likely to know what they are doing than government regulators or absolute caps on pay. It is a point I argued before, when George Will proposed the same bad idea this March.

UPDATE II

That is another aspect of this whole bailout which makes me inclined to oppose it. Not only do I think it unneeded and harmful, but there is a tendency among some to try to use the bailout to make sure "bad" people are punished and "good" people rewarded, or at least the former. That is a goal best left to G-d. We are not in a position to call individuals bad or good for their purchase of bundled loans or lending to subprime customers.

Is a bank bad because it bought a bundle of 80% good loans and 20% subprime? What if they expected net profits to be positive? What f the mix is different? What if they did it to take a loss for tax purposes? And the lender? What if he made loans because he was threatened with EHOC suits? What if he was not threatened, but a friend had been? How can you tell an "exploitative" lender from an intimidated one? (Actually, as most of these loans failed to perform, sticking lenders with overvalued properties, how are any makign money on this? Why do we believe Washington that lenders were "predatory"?*)

Worst of all for those seeking to punish, most of the blame rests on retired Fannie Mae executives and, most of all, on Washington politicians and regulators, along with their allies in groups such as ACORN. No one is even thinking of punishing them. So no matter how much punishment is built in to a bailout, the true villains will escape punishment.

Which makes me say, if we must have a bailout, and I think we don't, stick to financial matters, and leave justice to someone "above your paygrade", or as those less obsessed with being cute and avoiding the G-word call him, G-d.

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* There were some small number of lenders engaged in illegal flipping schemes, overvaluing properties and then sticking another institution with overvalued properties when defaulting on a loan taken on the inflated price. But they were a tiny minority. Especially when legitimate appreciation often happened faster than criminal schemes could inflate prices at the height of the boom.

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NOTE

I don't mean to give the impression I am picking on George Will. I do find I often disagree with him when he gets into economic matters. I don't know if it is intentional, part of a liberal tendency, or an effort to appear "fair", but Will has a tendency to adopt wrong-headed "common sense" approaches.

For example, when he proposes CEO pay caps, he is doing something eh would never do in his beloved sport of baseball. He would not question a team paying millions for a Cy Young winner, but he thinks a top CEO does not bring as much to a company as an award winning pitcher, and the need to bid for his services is just as great as in bidding for a free agent pitcher. Likewise, he is opposing golden parachutes, but not buying out the contract of an underperforming player.

It is a point I made in general in the comments to the Sowell column, but thanks to Will's baseball fixation, it applies to him specifically. Points he understands perfectly well in baseball puzzle him once they become "economic". It seems a lot of people are like that. Rules they understand in their own lives they cannot apply to the broader economy.

I don't get it.