This is continuing the lecture on Capitalism & Socialism and today we will see the second reason I had listed as a cause for failure of these systems - greed & impatience. If you were to hear the campaigns of Obama and McCain, then you cannot miss the phrase "greed of wall street eating the main street" from both of them. They are not far from the truth. It is greed and a dose of impatience mixed together that actually leads to failure of any good system.
Where does this all start? It is tough to point out. But we can safely say that it possibly starts with investors who take equity stakes with the idea of making a quick buck. Make no mistake - it is NOT just retail investors like you and me who want to double and triple our holdings in few months by investing in stock market. It is even the seasoned investors, big financial institutions who want to do this. Not everyone is Warren Buffet, after all!
So when these investors want to make this urgent profit, they push corporations to show successes in their business every single quarter. Not just that, they want every corporation to better itself every single quarter. This pushes the corporations to try and do whatever it takes to be a leader in the market. They hire some of the best brains with exhorbitant salaries hoping that their innovative & leadership skills will be useful in this never ending competition.
When smart MBAs join with skyrocketing salaries and corner offices with few or no previous experience in corporations, they are under pressure to show results. And then they start innovating "bad" things - In financial institutions, this leads to innovation of bad instruments like sub-prime lending, reverse mortgages etc. which take advantage of unsuspecting human behavior (which is coupled with little greed anyway). Thus a vicious circle is formed where investors are investing in nothing continiously. And when is it found that there has been no foundation and no pillars of support, the entire building collapses, taking everyone with it.
As you can see the impatience of investors and greed of investors, coroporate management play key role in the downfall of a capitalist economy.
While greed plays a major factor in downturn of capitalist markets, impatience plays a key role in destroying socialistic structures. For wealth to be divided and a propotionate share to go to every participant, it is important that wealth be created and economy becomes rich. Any attempt to bring fairness in the system by excessive controls will result only in a temporary mirage of success. In the longer run, this arrangement will not work out as it will push the nation into backwardness and will not help poor to rise out of poverty. In addition, this will also lead to lot of unrest as control structures inherently lead to corruption, pesudo dictatorship and inefficiencies.
Thus a combination of greed and impatience has the power to ruin both capitalist as well as socialist set-ups. It is not a joke when they say "Good things come to those who wait!"
Where does this all start? It is tough to point out. But we can safely say that it possibly starts with investors who take equity stakes with the idea of making a quick buck. Make no mistake - it is NOT just retail investors like you and me who want to double and triple our holdings in few months by investing in stock market. It is even the seasoned investors, big financial institutions who want to do this. Not everyone is Warren Buffet, after all!
So when these investors want to make this urgent profit, they push corporations to show successes in their business every single quarter. Not just that, they want every corporation to better itself every single quarter. This pushes the corporations to try and do whatever it takes to be a leader in the market. They hire some of the best brains with exhorbitant salaries hoping that their innovative & leadership skills will be useful in this never ending competition.
When smart MBAs join with skyrocketing salaries and corner offices with few or no previous experience in corporations, they are under pressure to show results. And then they start innovating "bad" things - In financial institutions, this leads to innovation of bad instruments like sub-prime lending, reverse mortgages etc. which take advantage of unsuspecting human behavior (which is coupled with little greed anyway). Thus a vicious circle is formed where investors are investing in nothing continiously. And when is it found that there has been no foundation and no pillars of support, the entire building collapses, taking everyone with it.
As you can see the impatience of investors and greed of investors, coroporate management play key role in the downfall of a capitalist economy.
While greed plays a major factor in downturn of capitalist markets, impatience plays a key role in destroying socialistic structures. For wealth to be divided and a propotionate share to go to every participant, it is important that wealth be created and economy becomes rich. Any attempt to bring fairness in the system by excessive controls will result only in a temporary mirage of success. In the longer run, this arrangement will not work out as it will push the nation into backwardness and will not help poor to rise out of poverty. In addition, this will also lead to lot of unrest as control structures inherently lead to corruption, pesudo dictatorship and inefficiencies.
Thus a combination of greed and impatience has the power to ruin both capitalist as well as socialist set-ups. It is not a joke when they say "Good things come to those who wait!"
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