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Banker as amoral psychopath

From the Financial Times of London.  Not me, crazy Austrian School conspiracy theorist gold bug.  No.  The Financial Times of London:

Charming, materialistic, aggressive, self-centred, Machiavellian, thrill-seeking alpha males with little respect for rules who eat stress for breakfast – sound like a banker you know? If so, think again: it is a summary of the traits of psychopaths.

The characteristics that make for good traders and investment bankers are pretty much the same as those that define psychopaths, according to Michael Price, co-director of the Centre for Culture and Evolutionary Psychology at Brunel University in London. Indeed, Wall Street’s Gordon Gekko has clear psychopathic tendencies, he says.  But don’t think of Alfred Hitchcock’s villains or Thomas Harris’s Hannibal Lecter. While academics believe psychopaths are responsible for a large proportion of serious crime, that does not mean they all want to eat your liver with fava beans and a nice Chianti.

Instead, they might have infiltrated the financial system. Surely only someone with a serious personality disorder could have thought it was a good idea to sell a highly risky financial instrument like a CDO-squared to a naive investor who clearly did not understand the risks? Or would react with anger when told that they would not be paid multimillion-pound bonuses, because their previous bets had gone so badly wrong that their employer had to be bailed out by the taxpayer?

Robert Hare, a leading specialist in the disorder, has estimated that about 1 per cent of the US population are psychopaths. Most live non-violent lives, but scheme their way through damaging careers and dysfunctional marriages.

After the accounting scandals that followed the dotcom busts, Prof Hare and Paul Babiak, another psychologist, launched a test designed to spot psychopaths among the workforce.

What James is thinking…

Sovereign defaults tend to go in waves. History is littered with examples of lending booms followed by busts. Greece, Portugal and Ireland are now teetering. If they go down, history suggests more will follow.

Unfortunately, if banks were to use the test, they would probably want to hire the people it identified: psychopaths might well make the best traders. Self-centred and motivated by money, charismatic and unafraid to take risks – they fit the stereotype perfectly.

“The banking industry is an ideal target for psychopaths,” Prof Hare told me recently. The ructions of the past few years will only have helped their rise. “These areas are tailor-made for the psychopath. Where things become chaotic and the normal rules don’t apply, enter stage right the psychopath.”

But while they may be good for short-term profits, they are also likely to bend, or break, the rules. This helps their bonuses, of course. As bank shareholders have discovered since 2008, working in a moral vacuum does immense damage to the corporate image, while fines can hurt the bottom line.

If banks are indeed full of psychopaths, this has serious implications for regulation. New rules and tougher enforcement are likely to be met by more outright deceit; psychopaths are all but immune to threats of punishment. Prof Hare’s most famous experiment showed that when faced with a countdown to a painful electric shock, most people showed visible signs of anxiety; psychopaths did not even break a sweat.

Attempts by some regulators, such as those in the UK, to align the interests of bankers and banks by insisting on part-payment in shares that vest over a period might help, by playing on psychopaths’ focus on reward. But they are likely to be arbitraged at every opportunity – as has already happened at some banks. Approaches designed to deter ordinary people from getting excessively greedy will not stop the predatory psychopath.

Not surprisingly, banks have proved reluctant to take part in studies. But in the wider corporate world it does appear that psychopaths tend to rise to the top. A small-sample study by Prof Babiak, Prof Hare and a colleague found that while the average result in a common psychopathy test was the same for executive high-flyers and the wider population, 3 per cent of high-flyers scored highly enough to be classed as psychopaths.

Perhaps along with bank stress tests, financial regulators should be screening traders and executives for psychopathic traits.

Just so long as this is not applied to journalists. The study found executives with high psychopathy scores were seen as having good communication skills, strategic thinking and creative ability, a poor management style, were not team players and received poor performance appraisals from their immediate bosses. Leaving out the last of those, that applies to pretty much every journalist I know.

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