Breaking News, World News and Taiwan News.

Updated Wednesday, February 18, 2009 10:14 am TWN, By Kevin Hassett, Bloomberg

Sponsors
▪	Buy china wholesale products from reliable chinese wholesalers on DHgate.com!
▪	Save 75% for all hotels in Shanghai, Beijing and whole China. Lowest rates for Flights in China.
▪	Get the best deals for Guangzhou Hotels or choose from more than 10,000 hotels in 499 Chinese cities.
▪	Find great real time deals on China Flights. Book flights to China or China domestic flights 24/7.

Harvard narcissists with MBAs killed Wall St.

Is it just a coincidence that so many superstar minds arrived on Wall Street just as it died? Perhaps not. Wall Street is gone because its firms did a terrible job assessing the risks of the positions they took. The models these firms used to evaluate risks failed. But having a failed model brings a firm down only if the firm collectively buys into the model. To do that, the firm must be run by people who have a great deal of faith in their models, and a great deal of faith in themselves. That's where Ivy Leaguers and MBAs come in.

What do you get from an MBA? One recent study found that MBAs acquire an enormous amount of self-confidence during their graduate education. They learn to believe that they are the best and the brightest.

This narcissism has a real career impact. Psychologists at Ohio State University studied the behavior of 153 MBA students, who were put in groups of four and asked to orchestrate a large financial transaction on behalf of an imaginary company. The psychologists observed that the students who had the strongest narcissistic traits were most likely to emerge as leaders.

According to Amy Brunell, the lead author, the results of the study had large implications for real-world settings, because “narcissistic leaders tend to have volatile and risky decision- making performance and can be ineffective and potentially destructive leaders.” Guys like John Thain (Harvard Business School, 1979) exemplify this behavior when their sense of entitlement is so grand that they can spend a fortune renovating an office while their firm is going down in flames.

How is it that the Romans could build bridges that would last thousands of years, while the ones we build today collapse after a few decades? Back then, they did not have the fancy computers required to calculate exactly how strong a bridge must be. So an architect made a bridge very, very strong. Today, engineers are free to make them weaker.

Another result is less wiggle room for design error. Hence, modern bridges' predilection for collapsing.

The same is true of the financial sector. Back when Wall Street was run by individuals without fancy degrees, they had a proper skepticism toward fancy models and managed their risks with a great deal more humility and caution. Only when failed models became canon did catastrophe strike.

Wall Street didn't die in spite of being run by our best and brightest. It died because of that fact.

Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.

1|2