Hubris and the Irish Banking Crisis Post author By Philip Lane Post date September 24, 2013 Gillian Tett cites this recent paper by Niamh Brennan and John Conroy. Categories In Uncategorized 25 Comments on Hubris and the Irish Banking Crisis ← Conditional guidance as a response to supply uncertainty → An updated economics syllabus after 44 years would be an asset 25 replies on “Hubris and the Irish Banking Crisis” Great work. The link between CEO’s and narcissism has been long documented and Daniel Kahneman’s work on superstar CEO’s and long term company sustainability is also fascinating. A new version of Anthony Clare’s “In the psychiatrists’ chair” is badly needed. All our former leader Mr Haughey’s bagmen are sovereign landlords; In Ireland the interface between private property and the public sector is where much political corruption occurs.Two examples are the planning process and state/sovereign commercial leases. The findings of the Mahon Tribunal were “Corruption in Irish political life was both systemic and endemic”. In the Moriarty Tribunal the findings were ” What was attempted on the part of Mr Dunne and Mr Lowry was profoundly corrupt to a degree that was nothing short of breathtaking” Ireland has the most draconian anti-tenant commercial property lease law in the world i.e. ratchet upward-only rent reviews tied to long leases,some as long as 65 years e.g Carrisbrook House, Ballsbridge,but usually 35 years. This feudal lease law was organised by a cartel. Former Taoiseach Mr Haughey required a minimum of a million pounds per year,to finance his lavish lifestyle. Many of Mr Haughey’s bagmen are sovereign landlords-this was the pay back. Many Irish politicians families,friends and bagmen are sovereign landlords. This is institutionalised political corruption. The sovereign should be a lease maker not a lease taker,because of it’s risk free unbeatable covenant. These sovereign leases are sovereign bonds with the notorious ratchet upward-only rent review attached. Sovereign landlords have bled the state dry using this feudal lease law and have wasted billions of Irish citizens money. We are alone in the eurozone with this feudal commercial property lease law,where lease lengths are 3 to 10 years and rents are reviewed annually in line with inflation The state,by colluding with this cartel and signing these feudal leases,legitimised them and copper fastened them for all commercial tenants. Reckless Irish banks lent tens of billions against these feudal leases,not against the properties themselves,and created the greatest commercial property bubble in the history of mankind. When this bubble burst it bankrupted the Irish banks and the sovereign. No other government in the world would sign these feudal leases. A study of executive hubris published by the Quinn school of business and written by Michael McDowell’s wife. It’s not rocket science http://www.youtube.com/watch?v=Kh2FRFhS7QY Whoa, party now Too much money in the bank account Hands in the air make you scream and shout When we’re in AIB Whoa, party now Spending money in a large amount Hands in the air make you scream and shout When we’re in BKIR http://www.youtube.com/watch?v=UxxajLWwzqY I got this feeling on the summer day when Lehman was gone. I crashed my bank into the bridge. I watched, I let it burn. I threw your economic justifications into a bag and pushed it down the stairs. I crashed my country into the bridge. I don’t care, I love it. I don’t care. The clever narcissist would avoid the obvious terms, promote teamwork and so on. Maybe if you realise you’re a narcissist, does that mean you’re not? In 2010, the Academy of Management Learning and Education reported that over the past 25 years, college students in the US have scored steadily higher on tests for narcissism. Journalists typically build up CEOs and politicians where they are linked with success and blame them for failures that may have been beyond their control. Of course we can find examples of failed bankers praising themselves but of course the research here wouldn’t have been done if the crash was pencilled in by the god in 2014. Individual leaders themselves typically claim responsibility for success, which may well be just timing luck and they of course avoid responsibility for failure. Most political, business, academic leaders have some element of narcissism. The admiration for Angela Merkel is that she isn’t a fake and her husband, also a scientist, who could be in the limelight, but shuns it. However, there is an expectation that people should be participating in fake imagery to satisfy a money machine and a public appetite. AO Scott recently in The New York Times reviewed a documentary on the author of “The Catcher in the Rye”: “It does not so much explore the life and times of J. D. Salinger as run his memory and legacy through a spin cycle of hype. Salinger moved to the woods of New Hampshire partly to escape the intrusions and indignities of American celebrity culture. “Salinger” is that culture’s revenge.” http://movies.nytimes.com/2013/09/06/movies/salinger-a-documentary-by-shane-salerno.html?pagewanted=all Steve Jobs was a success, failure and success at Apple Prof. John Kay wrote in his Financial Times column in Oct 2008 that John Sculley was chief executive of Apple from 1983 to 1993. He gave an extended account of his experiences to Fortune magazine, which posed the question: “Sculley – chump or champ?” Sculley’s tenure included a period of great success – Apple’s graphical user interface brought the present computer within the capabilities of everyone; and a period of serious failure – Microsoft achieved almost complete dominance of the industry. How could one man have been both so right and so wrong? Prof. Kay said the analysis overlooked the obvious answer – that neither Apple’s success nor its failure had much to do with Sculley, an able corporate bureaucrat who rode the roller-coaster of high technology. He said by describing Napoleon’s Russian campaign through the eyes of individual participants, Leo Tolstoy rejected the notion of history as the lives of great men. Of the battle of Borodino, he wrote: “It was not Napoleon who directed the course of the battle, for none of his orders was carried out and during the battle he did not know what was going on.” There are other personality quirks among managers such as pettiness, micro-management, the common occurrence of a thin skin, and being obsessed or jealous of others’ success: Stan O’Neal was Merrill Lynch CEO until the crash and was apparently obsessed with comparing his firm’s performance to that of Goldman Sachs. He even lived in the same building on Park avenue as Goldman CEO Lloyd Blankfein. Which is the worst trait? @ Michael And genius is leverage in a rising market. Jeff Immelt could never manage to deliver the performance at GE that Jack Welch did. Welch was there at the right time. @ MH “Journalists typically build up CEOs and politicians where they are linked with success and blame them for failures that may have been beyond their control.” Too true. The media are looking for drama, preferably personalized drama, because that’s what sells newspapers. You can find drama in the story of the ambitious banker from an unprivileged background who rose to the top of the most successful bank in the world through hard-work and well-judged risk-taking. And you can also find drama in the story of the narcissistic reckless chancer who turned his bank into the worst in the world and ran it into the ground. Some people allow themselves to be drawn into (and ulimately victimized by) the media’s characterization of their personal story, whereas others resist it. Not sure about Tolstoy’s view of great men though. His angle was that the tides and trends of history produced a movement whereby the people of French inevitably attacked the people of Russia. Actually I think a relatively small number of people probably made that decision. MH, “Individual leaders themselves typically claim responsibility for success, which may well be just timing luck and they of course avoid responsibility for failure. “ “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” Warren Buffett “We shape our buildings, and afterwards our buildings shape us.” Winston Churchill. W. Edwards Deming has said that 95% of variation in the performance of a system is caused by the system itself and only 5% is caused by the people. Having the example of Cowen, Lenihan, Kenny and Gilmore in front of us we need to accept that changing leaders is not going to change the system. Kicking them out is worthwhile but the problem is not the Dail personnel but the centralising nature of the system. Leaders will be justified in the term leader when they begin to change the system. Begin is the important stage because it is the most difficult, but also because the values, rather than the actions, of the beginning have a disproportionate effect on the outcome. @COB If the problem is the system, why is kicking them out worthwhile? @Ossian 🙂 @MH Agree on media, but increasingly I’ve been pondering the role of shareholders. Don’t they love their superstars too and demand the exit of CEO’s who fail to inspire them? @Sarah Buy and hold shareholding is a dying art. Average time shares are held these days is less than 6 months iirc. 6 months… I’m trying to get my thoughts together on what the implications of that on long term sustainability are, but my children are screaming. Doesn’t the evidence show that the more you trade the more you lose? Buying and holding winners is the key to long term profits. @ Sarah. On principle. Also a slow evolution of homo politicus hibernia by making life uncomfortable for them @ All FYI http://online.wsj.com/article/BT-CO-20130924-701748.html Looking on the bright side, Ireland is not even mentioned. @ All FYI http://online.wsj.com/article/BT-CO-20130924-708031.html And Regling did not say anything about a treaty change being required, simply a unanimous decision by the ESM with reference back to parliaments in some instances. Which countries could he possibly be talking about? @sarah If the market goes sideways for long stretches broken by bouts of sheer panic and then wild euphoria followed by more sideways , holding does not make sense. JP Morgan shares have broken some price 25 times since 1997 i think , just basically going around in circles. Punters want to time buying and selling because if there is no growth it is the only way to make money. And huge volumes of trades are computer driven rather than analysis based. @ All This article is frustrating. For the life of me, I can’t see how it contributes to the ‘literature’, or advances an explanation, or promotes our understanding, of what went wrong with our banks – and one bank in particular, the identity of which is pretty obvious as the subject of this article. I’m open to correction, and hopefully it may come (?). Fair dues to the authors, they do acknowledge that: ” it is likely that different researchers will arrive at different subjective interpretations…” In fact, they acknowledge the subjectivity of their quest at least eleven times throughout the text and the possibility that others might interpret their interpretations differently. As an article, I guess teh bbest you could say about it is that it’s good fun. Perhaps it may be included in the literature cache provided to Dail deputies charged with carrying out the forthcoming ‘Bank Inquiry’. As they read through the list of 15 ( or so) criteria that qualify one as having ‘narcissistic’ tendencies, that ultimately manifest themselves in destructive ‘hubris’, they might recognise character traits that apply unto their good selves. (But I guess if they’re narcissistic, and hubristic enough, it may pass them by? Oh dear.). Then again, if one stood, as a researcher, at the bottom of an escalator in a shopping centre, and interviewed a random sample of persons on the downward moving stairs, and then ticked off the criteria for narcissism on the basis of individual responses to a particular set of questions, it is possible that you might record a more substantive result that this paper’s authors did in their coding of CEO shareholder letters and annual reports. Simple reason: everyone is exercising power in some domain of life, be it private or public; otherwise how else could life be made bearable? Plus, hubris and narcissism are thus to the messy business of human life. The authors did not interview the subject of their study. Further, the article appears to be based on the assumption that the CEO in question was the sole author of letters and documentation which they have retrospectively perused for indications of narcissism and hubris. Therein lies the problem: the article does not really examine the ‘exercise of power’ and its collective miasma. This might have provided a much more interesting, and effective, focus for their study. Moreover, people either individually, or acting collectively, are about a great deal more than isolated characteristics of vanity, or preoccupation with media celebrity, or misguided notions of self-importance or ‘superman’ status. I’m reminded of what Richard Feynmann said in 1974 about ‘cargo cult science’, which, with a little adjustment, might be made to apply to our own collective view of ourselves and our potential – absent a few contrarians – throughout the bubble period and, sadly, in the current ‘open for business’ austerity period as well. As Feynmann put it: “The first principle is that you must not fool yourself – and you are the easiest person to fool.” Too right. Sarah and Veronica, all Of over 2000 books I read so far, this probably would make it into the one recommended dozen: “The Halo effect” 2007, Phil Rosenzweig, from the IMD in Lausanne It is, at first, just a rebuff of books like “In search of excellence”, “Built to Last”, “From Good to Great”, you know, all that stuff aspiring managers read in the 20 years leading up to 2007, me too : – ) How do you build a “great” company, and how do you detect on to invest in it? Dozens of people spending thousands of hours, scanning 10 thousands of pages, corp. statements, interviews, and it boils down to Great people, great strategy, great execution. Just what that is, remains to be really identified : – ) What is really significant, is that he compares the succeeding financial results of the identified winners, to market average, and then to the identified “losers”. Compact, but very significant tables. And what comes out, is a very brutal reverse to the mean. And the same people doing the same thing, are heroes today and stupid villains a few years later. I don’t want to waste space here, writing a lengthy summary, the book is affordable (24 Euro, I have zero affiliation with the guy). And that means for Sarah, you should sell (part of) your winners, to rebalance, but more on a time scale of 5 years, and not every 5 months, to keep your broker profitable. And for Veronica, what is today genius visionary, is very likely the idiot 5 years down the road. Going on a little tangent: 10 years ago, Germany was also the sick man of Europe, doing everything wrong, because we did and do not succumb to the Anglo / IMF, OECD, etc “expert advice” and hubris. They are all trotting out endlessly, that Germany should spent urgently more money on infrastructure and education, and “liberalize” our labor market, meaning killing our apprenticeship system. Based on what data or objective, quantitative reasoning? @ DOCM, all You love to cite the FT here so frequently, can you point me to some article there, which refers to any facts? According to the WEF Global competitiveness Report 2013, Table 5, 6 , whatever that’s worth, Germany already ranks 3 out of 150 on OUTCOME in infrastructure and higher education (despite our “horrifically low” numbers of tertiary education), but only 41 in “labor market efficiency”, because we are so “neo-liberal” ….. ROFL I tell you what we do, we are running an experiment to organize the hair cutters, with a little tacit hood and wink and successive branch specific, local, and staged minimum wages. They are notoriously hard to organize, but, if successful, would be wonderful multipliers. Everybody talks with his hair cutter every few weeks : – ) @Francis Thanks for the recommendation. Kahneman quotes Rosenzweig and I thought it very compelling. As for Germany – bang on. There’s a terribly funny editorial from the IT somewhere from around 2006 telling Germany that they really should emulate Ireland’s example and spend more money. It contained the immortal phrase “The student has become the master”. I’ve no online sub so can’t supply a link alas. Sarah, You can check out the interviews on ‘The Open Mind’, with Ira Millstein, an American lawyer on the notion of longer term shareholder investing too. Millstein has been talking about it over in America, for a long, long time. BOH. Rosenzweig’s Halo Effect is the reference work here – a marvellous book. Interestingly, Rosenzweig demolishes the pseudo-scholarship of Jim Collins and others of his ilk for their lack of scientific rigor – no heed to control samples etc and apparently no awareness of their importance. The Brennan/Conroy paper is a superficial work that even cites Collins extensively! @ Sarah, That editorial in the Irish Times was on 24 August, 2006. But your recollection is slightly off beam: it was not about exhorting Germany to spend more; it was worse than that. Its main thrust was to castigate Germany for “refusing to abandon the social model of generous welfare provision and extensive public services”, which were leading, inevitably, at least in the view of the editorial-writer, to breaches by Germany of the Stability Pact and German economic stagnation. By contrast, the editorial opined, Ireland had ’embraced’ the Pact and observed its terms to the letter etc. It was in that context that this unfortunate phrase, ‘the student has become the master’, was used. Veronica, thanks a lot for pointing to the content !! http://dublinopinion.com/2010/08/17/geraldine-kennedy-2006-germany-must-follow-irelands-lead-for-the-student-has-now-become-the-master/ shows part of it. Is there more? I really want this, because this is such a perfect example of the same people doing the same thing, but then vilified as the socialist simpleton and now as the mercantilist monster. Merkel just kept to the policy red / green had decided, in 2003, not to forget, and we slightly violated the 3% limit for a fourth time, because things take a little longer time now, but in hindsight we might have even been better with a little less changing. @ Francis, The Dublin Opinion site has the lot of it. That’s all there is. Yes, it all goes to show that ‘context’ is everything, and nothing transforms context more quickly than a good old economic crash. Incidentally, newspapers like the IT have a ‘panel’ of writers for the lead item – the editorial. So D.O. may be attributing authorship to the previous editor of the IT, though she may not, in fact, have been the author; more likely it was someone with a finance background. veronica, thanks for closure and putting IT things into perspective. Since we had a recent chat on pensions, I think you might enjoy a new Taibbi piece (the guy who called goldman sachs a giant vampire squid : – ) http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926 @Francis, Many thanks for the link. I wonder what Taibbi would call a government that put its hand in the pockets of private pension funds for a ‘jobs stimulus’ programme that hasn’t exactly delivered the promised rewards? And is a about to fritter the remains of the national pensions reserve fund on so-called job creating ‘sustainable’ infrastructure projects that haven’t exactly delivered the goods anywhere else they’ve been tried… Best leave it at that. It’s the weekend! Comments are closed.