Can You Trust These Men II
This Diary was originally published in Daily Kos.
Two months ago I published a Diary entitled, “Do you trust these men.”In that Diary and in Trenz Pruca’s Journal, I posted a photograph of several distinguished executives of the nations principle commercial financial entities taken during their testimony before Congress during that body’s investigation into whether or not these distinguished men or their organizations caused or contributed to causing the nation’s current financial crisis.
They uniformly denied that either they or their organization bore any responsibility, but assured the Committee they could be trusted with the running of the a major portion of the Nation’s economy without the citizens of the country’s knowledge, monitoring or supervision. None in the men in the photograph were smiling. I wrote:
Although they are not smiling they are laughing at you and I. They know that your Congress will not do anything serious to limit these men from doing whatever they want to do with your money.
Of course they are confident, intelligent and respectable men who can be trusted to do the right thing with your and the Nation’s money. Or can they?
In a study published by the journal Psychology, Crime and Law, Belinda Board and Katarina Fritzon tested 39 senior managers and chief executives from leading British businesses with among other things their psychopathic tendencies. They compared the results to the same tests given patients incarcerated at Broadmoor special hospital, following their conviction for serious crimes. They found that on certain indicators of psychopathy, the bosses’s scores either matched or exceeded those of the patients. In fact, on these criteria, they beat even the subset of patients diagnosed with psychopathic personality disorders.
This is not a joke.
Lynn Stout who has written on this phenomena points out:
“The problem with the homo economicus theory is that the purely rational, purely selfish person is a functional psychopath. If Economic Man cares nothing for ethics or others’ welfare, he will lie, cheat, steal, even murder, whenever it serves his material interests. Not surprisingly, although homo economicus is alive and well in many economics departments, many experts today prefer to embrace behavioral economics, which relies on data from experiments to see how real people really behave. Behavioral economics confirms something both important and reassuring. Most of us are not conscienceless psychopaths.”“A few years of big profits from risky derivative bets drove Wall Street traders crazy from testosterone poisoning. So it’s not really alpha males who blew up the global economy, it’s just a bunch of guys who overdosed on naturally produced steroids.”How Investing Turns Nice People into Psychopaths.
Another commentator Andrew Leonard in his article in SALON entitled, “How Testosterone Poisoning Wrecked the Economy” described the same phenomena when he wrote:
“A few years of big profits from risky derivative bets drove Wall Street traders crazy from testosterone poisoning. So it’s not really alpha males who blew up the global economy, it’s just a bunch of guys who overdosed on naturally produced steroids.”
Many studies have confirmed the psychopathic tendencies of these “Masters of the Universe.” A study entitled, Endogenous Steroids and Financial Risk Taking (Coates and Herbert) reports:
“Testosterone may therefore underlie a financial variant of the ‘winner’ effect, in which a previous win in the markets leads to… increased (and eventually irrational) risk taking in the next round of trading. This effect, even if confined to a small number of people, could cause financial markets to deviate from the predictions of rational choice theory.”
Or as reported in ScienceDirect:
“Testosterone levels change after a wins or a loss. Researchers found that those changes could then predict what a loser would do next. Losers who after competing, had increased levels of testosterone, were more likely to compete again. But those who lost a competition, and had testosterone levels decrease, were less likely to compete again.”
As another exasperated reviewer of these studies commented:
“Participation in high-reward, high-stress occupations like derivatives trading warps your brain chemistry. People with unbalanced brain chemistry make bad decisions. Every time Wall Street bubbles over, it becomes a factory for producing hopped-up-on-steroids madmen who think they are chasing woolly mammoths, but are actuallystabbing themselves in the kidneys.”
Recent psychological studies have shown that threats to ones manhood causes significant anxiety in men. On the other hand these same studies indicate that women couldn’t care less if their gender is threatened.
So what, you may ask. They’re still experienced capable experts. So, they go a little mad during the heat of the moment. That can be a good thing, can’t it?
Well for one thing the studies seem to show that it is not simply during periods of great stress that they do things that would get many of the rest of us locked up. For another the myth of competence appears as shaky as the myth that these unsmiling men are ethical and cool under pressure.
For example Daniel Kahneman, winner of a Nobel economics prize, discovered that the apparent belief by financial high fliers that they earned their success by talent and hard work is a cognitive illusion. For example, he studied the results achieved by 25 wealth advisers, across eight years. He found that the consistency of their performance was zero. “The results resembled what you would expect from a dice-rolling contest, not a game of skill.” Those who received the biggest bonuses had simply got lucky.
Such results seem to have been widely replicated. They show that traders and fund managers all across Wall Street receive their massive remuneration for doing no better than would a chimpanzee flipping a coin. When Kahneman tried to point this out to the financial industry, they ignored him. “The illusion of skill … is deeply ingrained in their culture,” he observed.
Brad DeLong recognizing this wrote:
“The core competences of high finance are supposed to be (a) assessing risk, and (b) matching people with risks to be carried with people with the risk-bearing capacity to carry them.
Robert Waldmann has a different view:
Limits to Arbitrage Bites Again: I think their core competencies are (a) finding fools for counter-parties and (b) evading regulations/disguising gambling as hedging.
Regulatory arbitrage, and persuading those who do not understand risks that they should bear them–those are not socially-valuable activities.”
Writing specifically about the obvious fraud perpetrated on investors by hedge funds Simon Lack in his new book The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to be True, observes:
“…Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.
Hedge fund fees are egregious by any measure. The normal 2% management fee and 20% incentive fee have resulted in an enormous transfer of wealth from clients to the hedge fund industry. According to the report pretty much all the profits earned by hedge funds in excess of the risk free rate have been consumed by fees.”
Bankers do not believe the neoclassical economists’ baloney about the discipline of the free market, but they sure want you to.
“Lots of bankers knew that things were in trouble, and they went on — they did it anyway…Some of them did it because they could bet against it. Some of them did it because they could make fees by helping clients who were betting against it. And some of them did it just to keep the machine doing it and make huge bonuses.”
ProPublica reporter Jesse Eisenger on the 2008 financial collapse.
Paul Krugman (sometimes also referred to as Obi Wan Kenobi, at other times “the Only Truly Noble Economist”) like Delong in decrying the impact of the ethical deficiencies rampant in the financial industry on the public observed:
“Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.
This special treatment can’t bear close scrutiny — and therefore, as they see it, there must be no close scrutiny. Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized, hence the frantic sliming of Elizabeth Warren.”
NOTE: Did you know that the so-called Nobel Prize for Economics was not set up by Alfred Noble. It was a later addition to the awards set up and funded by the banking and financing community to provide the cover of intellectual respectability for their favored advisors (They chose economists because they realized a Nobel Prize for Lawyers would never fly).
But, some may argue, obviously they are respected pillars of their community, aggressive behavior in pursuit of their goals would not include conscious wrong doing, would it?
Unfortunately Reuters recently reported that about twenty-five percent of Wall Street executives see wrongdoing actually as a key to their success. According to a report recently released by whistleblower law firm Labaton Sucharow:
“In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.
Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.”
Scorn for moneymen has a long pedigree. Jesus expelled the money changers from the Temple. Timothy tells us that, “the love of money is the root of all evil.” Muhammad banned usury. The Jews referred to interest as neshek—a bite. The Catholic church banned it in 1311. Dante consigned moneylenders to the seventh circle of hell—the one also populated by the inhabitants of Sodom and “other practisers of unnatural vice.”
An economics book used in some fundamentalist christian private high schools in the US asserts that the Antichrist — a world ruler predicted in the New Testament — will one day control what is bought and sold.
Does this all mean that the CEO of Morgan Stanley, Jamie Dimon (Demon? Spell check says so.), could be the AntiChrist and may practice “unnatural vice?”
So, there we have it; the “Masters of the Universe” to a great extent are, according to science, psychopathic gamblers with gross ego problems and according to many commentators unethical to boot. Not only that but God himself despises them. So what should we do about it?
Well, to risk even more over simplification than I have already, I tend to agree in exasperation with swellsman here on Daily Kos who wrote To Hell With the 1% – The Case for Debt Forgiveness.
“There is absolutely no reason — well, no good reason — why the United States should continue to keep pumping its money, its heart’s blood, into the lifeless corpse that the financial industry has become. These zombie banks have already acknowledged that they need the government to keep bailing them out in order to continue doing business. When someone has so screwed up their company that it can no longer exist without continuous, massive government subsidies, then – I’m sorry — there’s no longer a place for that company in America. (It’s not me, Mr. Bankster . . . it’s the free market. I’m just enforcing the rules.)”
Why is this important? Because we need to do better than this:
a. In 1970, 65 percent of all Americans lived in “middle class neighborhoods”. By 2007, only 44 percent of all Americans lived in “middle class neighborhoods”.
b. According to a recent report produced by Pew Charitable Trusts, approximately one out of every three Americans that grew up in a middle class household has slipped down the income ladder.
c. In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.
d. The poorest 50 percent of all Americans now collectively own just 2.5% of all the wealth in the United States.
e. The number of Americans that fell into poverty (2.6 million) set a new all-time record last year and extreme poverty (6.7%) is at the highest level ever measured in the United States.
f. According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 dropped by 27 percent after you account for inflation.
g. America has lost an average of 15 manufacturing facilities a day over the last 10 years. During 2010 it got even worse. Last year, an average of 23 manufacturing facilities a day shut down in the United States.
h. Back in 1980, less than 30% of all jobs in the United States were low-income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
i. Most Americans are scratching and clawing and doing whatever they can to make a living these days. Half of all American workers now earn $505 or less per week.
Can anything be done to halt this union between those who would destroy the country to preserve or gain even greater wealth and those so frustrated by their weakening grasp on the few privileges remaining to them they would at the behest of those who actually are undermining them from above surrender their liberty, that I wrote about in a prior Diary? I, for one am pessimistic.
To me, there is a critical element that is missing in the current debate regarding our political system, the economy and the environment. While economists wax wroth over which theory of financial exchange is real, and conservatives and liberals engage in a fight to the death over whether government is the problem or the solution, the institutions that so troubled Adam Smith, Thomas Jefferson, Justice Brandeis and many many others, have continued their legislative and judicial march, increasing their wealth and power until now they stand on the verge of acquiring all the rights of an individual with a few of the duties. For all extents and purposes there has ceased to be a distinction between very large corporations and especially those in the financial industry (VLCS) and nations except that in many cases the VLCS have greater economic and political power than many if not most countries, as well as greater control of their dependents (worker’s and customers) than most countries have over their citizens.
With the impending collapse of liberal democracies under the influence of these institutions (VLCS) and climate, religious and ideological pressures, I can foresee a time in the not to distant future where in some cases the fiction of Democracy will be done away with and the VLCS will reign again as did the British East India Company in India.
We must never forget that to a great extent it was these types of commercial companies, with much less economic and political power [no one thought they were individuals then] who created colonial America. Also, remember a nation-state originated as a commercial enterprise based upon exploitation of land and managed by a small group of self-perpetuating individuals. Liberal Democracy was an idea borrowed from city-states not nation-states.
There is little to distinguish the current commercial oligarchy with the aristocracy of old except that our modern counterparts to the ancien régime have held on to their wealth for a briefer period and would like to hold on to it much longer no matter its impact on liberty or the welfare of others.
Perhaps it is time for a second American Revolution or even a second civil war. Hopefully it can be fought at the ballot box and not on fields of dishonor.
(Note: this diary was assembled from notes and personal emails posted over the past year and may contain some unattributed material, like the list, I tried my best to cite everything, if I failed, I apologize and if objection is made I will correct it immediately.)
- Corporate Psychopaths Bad for Business (sott.net)
- Scandal After Scandal, Lie Upon Lie … What’s Going On? (ritholtz.com)
- Hedge Funds Are Better For Their Managers Than Their Customers (businessinsider.com)
- April Rudin: Mad Men Meets Wall St. — Hedge Funds Will Be Allowed to Advertise (huffingtonpost.com)
- There are no good Samaritans on Wall Street if you can be taken for 9 Billion (thoughtmanagement.org)
- In the mind of the psychopath (sciencedaily.com)
- When Animal Spirits Attack (businessweek.com)
- Childhood psychopathy may lead to corporate success (metronews.ca)
- Hedge Funds Trail Vanguard as Elliott Returns Atypical – Bloomberg (bloomberg.com)