A Look Back: Greed Is Back On Wall Street

WHY WE DID THE STORY: It all started with our deputy editor, Shishir Prasad, being intrigued by the return of Gordon Gekko, the icon of greed, in a sequel to Oliver Stone’s 1987 thriller Wall Street. It seemed that traders and investment banks had learned their lessons in 2008 during the worst ever financial meltdown since the Great Depression. Why, Prasad wondered, would Oliver Stone make another movie on the theme of greed on Wall Street?

He commissioned an interview with Stone by our contributor, Maharshi Vaishnav, to find out the answers. At the same time, I happened to be reading up on how easy liquidity and low interest rates were triggering a fresh round of excessive risk-taking on Wall Street. During a newsroom chat at Forbes India, it was clear that we were sitting on a potential cover story.

Wall Street insiders told us stories of how a new breed of investment bankers was emerging, replacing the old, but all the dirty tricks of the trade were intact. In fact, they told us, new bubbles were building up in the bond market, mergers and acquisitions and share offers.

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WHERE THE STORY STANDS: Within a month of our story, the US Federal Reserve launched its second tranche of monetary expansion called the Quantitative Easing 2 (QE2) programme. It has released $75 billion in newly printed currency every month into the system. Most of the $600 billion under QE2 has hit the market. Now, the Fed has run out of ammunition to keep the markets going. Expecting a liquidity squeeze, traders have already started offloading commodities. The dollar, meanwhile, has strengthened.

By the time you read this, the US government would have reached the limit of how much debt it can have ($14.3 trillion). That means, unless the Congress approves a fresh limit, the government’s ability to honour its financial commitments could be jeopardised. Republicans are in no mood to support raising the limit unless the government agrees to a severe reduction in expenditure. The stalemate will determine which of the two demons will take over Wall Street — greed or fear.