Monday, March 5, 2012

STUDY: 10% on Wall Street are Psychopaths

Business Insider summarizes a fascinating article in the March/April issue of the CFA Magazine titled "The Financial Psychopath Next Door."

CFA Magazine is a publication for the Research Foundation of CFA Institute, a non-profit organization established to promote the development and dissemination of relevant research for investment practitioners worldwide.

The article was based on a study done by Dr. Robert Hare, who has 35 years of experience researching psychopathy. Hare received his Ph.D. in experimental psychology at University of Western Ontario and is professor emeritus of the University of British Columbia where his studies center on psychopathology and psychophysiology.

Some shocking statistics jumped out from the article:

Studies conducted by forensic psychologist Robert Hare indicate that about 1 percent of the general population can be categorized as psychopathic, but the prevalence rate in the financial services industry is 10 percent. And Dr. Christopher Bayer believes, based on his experience, that the rate is higher.

Bayer is a well-known psychologist who provides therapy to Wall Street traders.

The type of psychopath the author is writing about is characterized by compulsive gambling. And the Wall Street psychopath doesn't necessarily show up to his or her first day of work in this condition. From the CFA Magazine article:

Taken to the extreme, some traders become compulsive gamblers. The behavior is often latent--neither they nor anyone else knows they have this propensity. They hide small losses and keep doubling their position to try to eliminate them. When those trades turn sour, they dig themselves into a deeper hole and deny any wrongdoing or failure. They rationalize by telling themselves that poor investment decisions are an occupational hazard. They lie to family members or others to conceal the extent of their involvement with gambling and commit forgery, fraud, theft, and embezzlement to support their habit.

A little more color on these particular types of psychopaths:

These "financial psychopaths" generally lack empathy and interest in what other people feel or think. At the same time, they display an abundance of charm, charisma, intelligence, credentials, an unparalleled capacity for lying, fabrication, manipulation, and a drive for thrill seeking.

A financial psychopath can present as a perfect well-rounded job candidate, CEO, manager, co-worker, and team member because their destructive characteristics are practically invisible. They flourish in fast-paced industries and are experts in taking advantage of company systems and processes as well as exploiting communication weaknesses and promoting interpersonal conflicts.

Unfortunately, writes the author, the best candidates for many Wall Street jobs exhibit the traits of a financial psychopath.

In Other Studies:

Too Much is a project of the Institute for Policy Studies and reported in their newsletter this week: "This past August a team of psychologists reported out research on how the life experiences of the wealthy may leave the rich less altruistic than other people of more modest means."

Last week brought still another round of research on the rich, this time from scholars at the University of Toronto business school and the University of California at Berkeley. And this latest research seems to be attracting far more media attention than any other research on rich people’s behavior to date.

Why all the attention? The new research, as one British daily puts it, delivers “a withering verdict on the upper echelons of society.” The wealthiest among us, the research documents, will routinely lie, cheat, and not stop for pedestrians. They’ll even snatch candy away from little kids.

The five investigators behind this new research didn’t set out to demonstrate how abominably people of means can behave. They set out to better understand the origins of ethical behavior.

To get at these origins, the researchers conducted seven studies, with two of these “field-based” and the rest conducted in lab settings.

In the field studies, the investigators concealed themselves at a San Francisco intersection and rated the affluence of motorists who passed through the intersection by car make, age, and appearance. They then contrasted the subsequent behavior of the motorists toward other drivers and pedestrians.

Drivers of high-status vehicles, the investigators found, cut off other drivers twice as often as the drivers of low-status cars. Half the drivers in the highest of the five car status levels the researchers tracked — the Mercedes level — didn’t yield for pedestrians. All of the drivers of cars in the lowest status cars did.

Similar results showed up across a range of lab experiments that involved everything from dice games to candy jars. In all the studies, the most affluent behaved less ethically than the least affluent.

What’s going on here? The five researchers caution against any use of their data to predict how any one wealthy individual will behave.

“We’re definitely not suggesting that any upper-class person,” notes Stéphane Côté, an expert in organizational behavior at the University of Toronto business school, “is going to be less ethical than every lower-class person.”

But the researchers do believe that “the upper class may be more disposed to the unethical.” Both structural and psychological factors, they explain, contribute to this predisposition.

“If you occupy these higher echelons, you start to see yourself as more entitled and develop a heightened self-focus,” as researcher Paul Piff told an interviewer last week. “Your social environment is likely more buffered against the impact of your actions, and you might not perceive the risks of your behavior because you are better resourced, you have the money for lawyers and so on.”

In this situation, an affluent individual tends to not particularly care what happens to others. Society, on the other hand, definitely does need to care about the inequality that nurtures this “heightened self-focus.”

“Our findings,” sums up University of California psychologist Piff, “suggest that if the pursuit of self-interest goes unchecked, it may result in a vicious cycle: self-interest leads people to behave unethically, which raises their status, which leads to more unethical behavior and inequality.”

And this blogger would also like to add: The top 1% is also the mostly likely to cheat of their tax returns too.

My post Proof that CEOs are Evil Psychopaths is about Eli Roth and his recreation of the infamous Milgram Experiment, and concludes: "The same qualities that are in a psychopath or serial killer are the qualities we look for in a CEO. You want them to kill the competition and make tough decisions, to be a strong leader, a dictator, a president. They have similar brain functions to a psychopath -- or someone that can just turn off and kill another person.”

In 2010 I went to Steve Wynn's website to apply for a busboy job at his hotel and casino. After I completed the initial application, I was directed to another website to take a psychological exam. Almost immediately I received an email saying my application was rejected because I failed the exam. No reason was given, but I was invited to re-apply in 6 months. Maybe I should have applied for a CEO position.

Just a few examples of financial psychopaths:
  • Bernie Madoff holds the world-record for biggest Ponzi scheme in history. Madoff stole billions while chairing the Nasdaq and maintaining cushy relationships at the SEC. He received the maximum sentence of 150 years in prison.
  • Jon Corzine, the former CEO of Goldman Sachs and of MF Global, a financial services firm specializing in futures brokerage. The company filed for bankruptcy protection in October 2011, and he can't account for over $1 billion that's missing.
  • Joseph P. Nacchio - The CEO of Qwest Communications International. He was convicted of 19 counts of insider trading in Qwest stock and was sentenced to six years in federal prison
  • Kenneth Lay and Jeffery Skilling -- Enron!!!
  • Thomas Joseph Petters - The former CEO and chairman of Petters Group Worldwide and convicted for turning his company into a $3.65 billion Ponzi scheme. He received a 50 year federal prison sentence.
  • Eugene Plotkin and David Pajcin, both formerly of Goldman Sachs, were the masterminds behind a complex Wall Street con and a scam using strippers to solicit information from Wall Street bankers.
  • Richard Scrushy - He was once the superstar CEO of HealthSouth, a huge provider of outpatient rehab services until federal prosecutors accused him of masterminding a $2.7 billion fraud.
  • Samuel Israel III turns his wall street hedge fund Bayou Investments into a Ponzi scheme after poor management, then attempts a fake suicide to flee prosecution.
  • Dennis Kozlowski - He was once described as "The Most Aggressive CEO in America," now sits behind bars. A poster boy of excess, the former CEO of Tyco stole millions from his company, using the money for a lavish party, a gilded shower curtain and expensive art.
  • Anthony Elgindy - "The Mad Max of Wall Street" - The founder of Pacific Equity Investigations waa a short seller who made millions in a trading scam using government secrets.
  • Lou Pearlman - The manager of bands like *NSYNC and The Backstreet Boys and masterminded scams of $500 million from investors in the longest running Ponzi scheme.
  • Al Parish - An economics professor and a trusted financial advisor was sentenced to federal prison after pleading guilty to financial fraud. Nearly 600 people lost up to $90 million invested in Parish Economic's private investment pools.
  • Sholam Weiss - He helps fix the National Heritage Life Insurance's gaping $35 million accounting hole, and ends up partnering up with them - and bilking customers out of $500 million. He was sentenced to 845 years in prison.
  • Robert W. McLean - An investment manager and arts patron who traveled by limousine and ran a Ponzi scheme that had siphoned tens of millions of dollars from close friends and business associates. He eventually killed himself.
  • Stephen Trantel was once a Wall Street insider, a broker making hundreds of thousands of dollars in the Manhattan trading pits. After becoming unemployed, he started robbing banks.
  • Nancy Kissel murders her husband Robert Kissel, who had been a vice president in Goldman Sachs' Asian special situations group. His brother, Andrew Kissel, who had been accused of defrauding a New York co-op board of millions of dollars, was found murdered at his rented Greenwich, Connecticut estate.
  • Alberto Vilar - An investor who was known as "a patron of opera". He was tried and convicted in November 2008 on charges of money laundering, investment advisor fraud, securities fraud, wire fraud and mail fraud, and was sentenced in February 2010 to nine years in prison.
  • Danny Pang - He was the CEO of Private Equity Management Group who ran a Ponzi scheme and made millions betting on when people will die. His wife, ex-stripper Janie Louise Pang, was murdered in the Villa Park house, possibly by a contract killer, after she took steps toward a divorce. He has also since died. Wall Street Journal
  • Marc Harris promised financial freedom to people with off-shore bank accounts as a way to keep assets out of the reach of government. But the "guru" was running a Ponzi scheme and bilking clients out of millions of dollars.
  • Robert Allen Stanford - He was the chairman of the now defunct Stanford Financial Group and was a sponsor of professional sports - - now accused of a massive Ponzi scheme.
  • William “Boots” Del Biaggio III - A venture capitalist and former co-owner of the hockey team San Jose Sharks. He was sentenced to eight years in prison and more than $67.4 million in restitution for misappropriating funds from individual investors he advised.
  • Martin Frankel - A financier and con-man who vanished with $200 million dollars. A story of money laundering, prostitution, bizarre sex and drug abuse.
  • Bernard Ebbers - The CEO of WorldCom becomes the poster child for everything that went wrong on Wall Street in the 1990s. WorldCom's eventual downfall shakes the financial community and the lives of thousands of investors.
  • Stefan Wilson - Operated a fraudulent investment fund. His Ponzi scheme took almost $13 million from over 50 investors and landed him 20 years in prison.
  • Marc Dreier is a high-powered lawyer with celebrity clients. But Dreier is a conman and steals more than $700 million from hedge funds.
  • Arthur Nadel - Manages the hedge fund Scoop Management Co, a $350 million fund. In the blink of an eye, he disappears and leaves clients without their life savings.
  • Kenneth Starr - An accountant to stars like Sylvester Stallone, Diane Sawyer, and Wesley Snipes, but mismanages his clients’ money, pockets millions, and then he marries an exotic dancer. But then later he gets more than seven years behind bars for a multimillion-dollar investment scheme.

* This article's image depicts the movie American Psycho, a story told in the first person by Patrick Bateman, a serial killer and Manhattan businessman. Watch CNBC's series American Greed for more.


Higher social class predicts increased unethical behavior 

Understanding Our National Empathy Deficit 

Why the Rich Are Less Ethical: They See Greed as Good 

Upper class people are more likely to behave selfishly, studies suggest 

Richer people break the law, take candy from children 

The Shocking Statistic About Psychopaths On Wall Street 

Shame on the Rich 

*Excerpted from the article Like Taking Candy from a Baby, Only Worse by Paul Piff, Daniel Stancato, Stéphane Côté, Rodolfo Mendoza-Dentona, and Dacher Keltner - Proceedings of the National Academy of Sciences, February 27, 2012.

1 comment:

  1. Another good take on the studies:

    "The Banksters like Stealing Candy from Little Children" by Louise Hartmann