Psychopaths and the Financial Crisis

This article first appeared as a guest blog on Dr Alf’s Blog.

Moral Defects in the Financial Machine

The movement against war is sound. I pray for its success. But I cannot help the gnawing fear that the movement will fail if it does not touch the root of all evil – human greed.


The story of the Financial Crisis is not simply a tale of the misdeeds of a few greedy bankers.

It is the story of how, for forty years, neoliberalism provided psychopaths and people with narcissistic disorders with the smokescreen they needed to rise to positions of influence in global financial organisations, to loot those financial institutions with the support of governments, and ultimately to bankrupt the Western financial system.

Neoliberalism as Ideology

History has many examples in which ideology has played a crucial role in helping pathological groups rise to power. To be effective for this purpose, an ideology must resonate powerfully both with the mass of psychologically normal people as well as with the personality-disordered minority. Neoliberalism was such an ideology. Its messages of individual freedom and economic growth resonated both with pathological elites, and with many ordinary citizens around the world.

Political scientist Manfred Steger has outlined how neoliberalism’s central claims, together with the historical context in which it arose, made it such a powerfully attractive creed:[1]

It presented all governments –including democratic governments – as a threat to individual liberty.

It promised that the triumph of free markets over governments would strengthen freedom and democracy.

It insisted that the triumph of markets over governments was inevitable and that there was no alternative.

It claimed that neoliberal economies were self-regulating and were best left untouched, and

It claimed that the alchemy of neoliberalism would transform greed into gold for all.

Like all powerful ideologies, neoliberalism was based on partial truths. It resonated with ordinary people because it promised prosperity, democracy and freedom. It resonated with working people’s dreams of becoming rich and escaping economic hardship. It also resonated powerfully, however, with those with dangerous personality disorders for whom greed and exploitation are the core of their nature.

Snakes in Suits

According to Robert Hare, psychopaths make up around 1 per cent of the population. This proportion is such that most of us will come across at least one psychopath during a typical day. Those with narcissistic personality disorders make up a similar percentage of the general population. Although always present, the influence of this minority waxes and wanes as the environment encourages or deters their emergence. The amoral culture cultivated within the global financial system actively encouraged their emergence.

Psychopaths and narcissists exhibit tremendous energy and push extremely hard to get what they want. They are profoundly competitive, are adept at self-promotion and have a talent for seeking the limelight. They thrive on their confident, aggressive delivery style which more than makes up for their lack of substance. Financial institutions found these confident, assertive personalities extremely attractive. One study of 200 high-potential executives found that 3.5 per cent fitted the profile of the psychopath[2] – three and a half times higher than in the general population. All of the individuals identified in the study had traits of the manipulative psychopath: grandiose, deceitful, irresponsible, lacking remorse and devoid of empathy.

Cultures of Deceit

In the absence of psychological testing, it is impossible to say that any particular individual suffers from psychopathy or narcissistic personality disorder. It is possible however to say that a culture is pathological, and the evidence shows that a critical number of psychopathic personalities were at work in shaping that culture. In ECONned Yves Smith summarised the environment that evolved within financial institutions as one characterised by weak or absent regulation; where supervision is inherently difficult because high levels of responsibility are devolved to even relatively junior employees; where huge incentives fuel a highly aggressive competition for promotion; and where hiring and pay practices incentivise short-term focus, rule-bending and aggression[3].

The pathological culture in financial institutions has been graphically described by many former employees. Former Morgan Stanley employee Frank Portnoy relates how the aggressive environment he worked in made him ‘crave the sensation of ripping someone’s face off[4]’. He recounts one colleague as saying, ‘You have to be a criminal to be good at this business.[5]’ Former Goldman Sachs director Nomi Prins has admitted, ‘To retain supremacy, banks had to prey upon their existing and emerging corporate clients…’[6] And former CEO of Morgan Stanley John Mack was known for his mantra, ‘There’s blood in the water, let’s go kill someone.’[7] One employee of derivatives trading firm Bankers Trust was caught on tape saying that the firm’s objective was ‘to lure people into the calm and then just totally fuck ’em.[8]‘ This aggressive, predatory, greed-without-consequences culture was the perfect environment for pathological individuals to thrive.

Little Has Changed

The crisis has changed little. Following bailouts costing billions of taxpayers’ money, there is little evidence that the predator culture in the financial industry has altered. In 2010 New York Judge Jack B. Weinstein declared during a trial involving financial fraud that the evidence presented ‘laid bare the pernicious and pervasive culture of corruption in the financial services industry… Supervision is seriously negligent; greed and short-term gain are so enormous that fraud and arrogant disregard of others’ rights and of ethics almost encourage criminal activities…[9]’ In 2012 Goldman Sachs executive director Greg Smith resigned publicly in a letter to the New York Times stating that the environment in the firm was as toxic and as destructive as he had ever seen it. He described a culture in which management encouraged employees to rip off the firm’s clients, who they regularly referred to as ‘muppets’. ‘Today, if you make enough money for the firm (and are not currently an axe murderer),’ Smith wrote, ‘you will be promoted into a position of influence.[10]

Economist David Harvey has written that a new global economic order is urgently required, based on a nobler concept of freedom and a worthier system of governance than those that currently underpin financial capitalism[11]. The development of a fair and ethical global economic system, capable of addressing the needs of the majority of humanity, will clearly not emerge, however, as long as narcissists and psychopaths continue to write the rules.

[1] Manfred Steger, ‘Globalisation and Ideology’ in The Blackwell Companion to Globalisation, 2007

[2] Paul Babiak and Robert D. Hare, Snakes in Suits: When psychopaths go to work, Harper, 2007:193

[3] Yves Smith, Econned: How unenlightened self-interest undermined democracy and corrupted capitalism, Palgrave Macmillan, 2010:171

[4] Ibid:150

[5] Ibid:134

[6] Quoted in Yves Smith, Econned: How unenlightened self-interest undermined democracy and corrupted capitalism, Palgrave Macmillan, 2010:135

[7] Quoted in Paul Mason, Meltdown: The end of the age of greed, Verso, 2009:4

[8] Ibid:129

[9] ‘Pervasive Culture Of Corruption in the Financial Services Industry’ Cited By Judge In Sentencing Ruling, Steven Meyerowitz, Financial Fraud Law, 01/26/2010,

[10] Greg Smith, Why I am leaving Goldman Sachs, New York Times, 14 March 2012

[11] David Harvey, A Brief History of Neoliberalism, Oxford University Press, 2011:206


6 thoughts on “Psychopaths and the Financial Crisis

  1. Pingback: Renting | The Thoughts of a Ginge

  2. Reblogged this on Jake Kuyser and commented:
    I’m re-blogging this post as I found it interesting. I’m not sure if psychopaths are the cause of our current financial state. This post points out some things that might be wrong with capitalism and human psychology. It’s a useful perspective on things. 🙂

  3. Narcissists might be a nuisance, but are they really comparable to psychopaths and their lack of conscience? At least they might be dealt with – psychopaths, on the other hand, are a problem a lot more complicated …

    And: I’m afrarid you’re wrong with your estimates. According to Hare, Stout, and others, psychopaths alone might make up 2% to 5% of the population. Lobaczewski even speaks of 6%. Which won’t make it easier to deal with them.

    • You raise an interesting question – are narcissists as damaging as psychopaths? Of course any answer has to recognise that these conditions often coexist in a single individual. That makes such individuals even more dangerous. If you consider Hitler, Stalin or Mao, their psychopathic propensity for mass murder was propelled to extreme levels by their narcissistic fantasies of total domination.
      Second, i you look at the dynamics of pathological groups – such as the Nazis, the Bolsheviks and Mao’s CCP – you also see how psychopaths, narcissists and people with paranoid personality disorder work together to magnify the damage that such groups inflict. The psychopathic killers may act under the command of a narcissistic tyrant, who rises to power on a wave of hatred stirred up by the oratory of a paranoid personality targeting the acceptable enemy. Between them, the three dangerous personality types generate the atmosphere which Bertolt Brecht was referring to when he wrote ‘the bitch that bore him is in heat again.’
      Finally, I agree with you that narcissists, acting alone, lack the cold bloodedness of psychopaths. Nevertheless they play a major role in distorting the cultures within organisations and within entire societies – from cooperation and compromise towards confrontation and conflict. Their unshakable belief in their own superiority leads them to justify, and create, damaging levels of inequality. Their intransigence often provokes violent conflict. And remember, narcissistic personality is a cognitive disorder. This means that many narcissists make it to positions of power, but don’t have the cognitive ability to perform the roles they fill. That has profound implications for how our societies are run, and detrimental consequences for us all – as the Financial Crisis demonstrates.

  4. Pingback: Do Psychopaths Rule Corporate Finance? | disorderedworld

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s