Updated: May 3, 2013 12:14PM
On the eve of a holiday that celebrates the best in human nature, it's interesting to wonder why humans have spent the past 2,000 years struggling to live up to these lofty standards of the Golden Rule: "Do unto others as you would have them do unto you."
Is the Golden Rule suspended when it comes to money and investing and wealth? Surely, you'll answer with a resounding no. But that is not the way we behave. Perhaps because when it comes to financial decisions, human nature is ruled by two powerful emotions -- fear and greed.
Overcoming good sense
As economic events have recently displayed, those two powerful emotions can overcome both the good sense and the moral compass of even the most sophisticated, intelligent and responsible people.
How else can you explain the mortgage mess?
At every level, greed held sway over the judgment, principles and intellect of ordinary, moral people:
**Ordinary moral people believed they deserved to own a home without having either the money for a deposit or the income to repay the loan.
**Ordinary, moral people believed that home prices would continue to rise, so they could always repay those loans.
**Ordinary, moral people (bankers) believed it was all right to make those loans in spite of predictable consequences that violated the principles of sound banking.
**Ordinary, moral people (investment bankers) believed they could "spread the risk" of those underlying mortgages by packaging them up, getting ratings agencies to evaluate them, and then selling slices of these packages to investors.
**Ordinary, moral people at the ratings agencies earned fees for evaluating some of these securities, and giving them AAA grades without looking closely at the underlying assets.
**Ordinary, moral people running mutual funds purchased these securities because the higher yields made their performances look better to attract the retirement accounts of ordinary, moral investors.
**And, ordinary moral investors never asked about risk, because they liked the higher yields in a time of low interest rates.
Who should have known better? Everyone!
But "everyone" was too overcome by greed to look at the evidence. Our most esteemed financial institutions from Citigroup to Merrill Lynch to Morgan Stanley, have now taken multibillion-dollar writeoffs. It's been reasonably estimated that by the time the process is finished -- something expected to take a few years -- the red ink could be as high as $300 billion.
Sure, many saw it coming. In June, 2003, this column asked: "You say you don't see housing prices as a bubble? Well, that's what everyone says when they're standing inside a bubble! But no one in a position to profit wanted to burst that bubble."
Manias and greed-induced madness are nothing new. If you haven't read the classic book Extraordinary Popular Delusions and the Madness of Crowds, written by Charles Mackay in 1841 (and now reproduced in modern editions), it makes perfect holiday reading. Writing more than 150 years ago, Mackay documented the greed that created the legendary 1720s South Seas "bubble" in shares of a New World exploration company, and the "tulipmania" in the 1630s that had people exchanging their farms and fortunes for one rare tulip bulb.
Unchanging human nature
Even with the Internet and modern technology that allows us to easily study the history of greed as a human emotion, we fail to learn the lessons of the past. And so we repeat those greedy scenarios. Neither time nor technology, it seems, can change human nature.
That's something to think about as we look at the state of the world this holiday season. And that's The Savage Truth.
Terry Savage is a registered investment adviser. Check out Terry's answers to reader questions at suntimes.com, and click on Business. Distributed by Creators Syndicate.