OverLeveraged — A Blog About Debt

"You will only be successful if you truly try to satisfy that burning desire inside you. And for you, that burning desire is to tell that story." – James McBride

Greed: Sometimes It’s Just Because You Can

Screen Shot 2013-01-17 at 8.48.50 PM

David L. Sokol seemed to have it all. Born in 1956 as the youngest of five children in a second-generation immigrant family he worked himself up to become a highly respected businessman and beloved philanthropist, personalizing a rise from blue collar background to prosperity that makes a spotless example of the American dream.

Then came March 30, 2011.

The former Berkshire executive, widely regarded as Warren Buffett’s potential heir, was forced out of office by the Oracle after it became known that he had engaged in dubious (insider)trading for his own account.

Buffett forcefully condemned how his former protégé had purchased shares of Lubrizol, a New Jersey-based chemical manufacturer shortly prior to Berkshire announcing its intention to acquire the company, and then sold them.

Sokol, who was notified on January 4 that the Securities and Exchange Commission would not charge him with insider trading, delivered Buffett a poisonous response:

“I will never understand why Mr. Buffett chose to hurt my family in such a way, but given that he is rapidly approaching his judgment day I will leave his verdict to a higher power.”

By failing to adhere to one of the most fundamental rules of institutional finance (you don’t try to eat off of your boss’ plate) Sokol, worth several hundred million dollars according to the Wall Street Journal, put at stake a stellar career, solid reputation, and bright future by buying $10 million worth of shares in Lubrizol.

The payoff? $3 million.

This preposterous equation raises a fundamental question. What causes someone to risk so much for so little?

The situation baffled me for a number of hours until an entirely unrelated article I read months ago came to mind: a delightfully humoristic causerie by Café Magazine’s Fredrik Backman about venturing 400 miles from Stockholm to Ytterån to take a stab at Sweden’s largest hamburger. The reason? Avid fast food gourmet Backman explained:

“My wife asked why I necessarily feel that I have to eat Sweden’s largest hamburger. I wasn’t entirely sure how to respond. At some point I read that Allan Reiss, professor at Stanford, showed in a study conducted in 2008 that the pleasure center in men’s brains to a much larger extent that women’s is stimulated by the ‘sense of conquering’. Reiss let his subjects try to accomplish certain tasks in an Xbox-game. Both men and women understood what to do, but only the women asked: ‘Why?’

So I put it truthfully to her. ‘Because it exists.’”

The study Backman refers to was conducted at Stanford in 2007, led by Allan Reiss, professor in psychiatry and behavioral science, aiming at exploring the underlying neural processes of playing video games, an area of psychology that was rather unmapped at the time.

By scanning the test subjects’ brain activity Reiss and his team could conclude that the male gamers experienced a heightened rush of satisfaction from accomplishing the assigned tasks than their female counterparts, which in return drove them to learn the game quicker and achieve better results. The game was rather pointless, and yet the male gamers quickly got hooked and actively strived to improve.

Although a Google search of its title renders no more than 2,500 results, indicating that the study failed to gather any substantial attention outside the world of behavioral psychology, the findings are rather compelling when put into a different perspective.

This male desire to perform and conquer despite an apparent lack of sound reasons ties Sokol back into the equation. Why would a man belonging to the highest echelon of finance put his entire future at stake for a gain corresponding to about one percent of his total net worth?

Because he can. Or at least thought he could.

It is an example of a complete detachment from reality, of a man reaching the point where money has lost its value and everything that matters is the next conquest. It proves how failing to maintain a holistic perspective can cause greed to run havoc and outmaneuver reason.

Bottom line, it’s illegal and, given Sokol’s situation, plainly stupid.

About these ads

One comment on “Greed: Sometimes It’s Just Because You Can

  1. Tobias Härnvi
    January 18, 2013

    Bud Fox: Why do you need to wreck this company?
    Gordon Gekko: Because it’s WRECKABLE, all right?
    Wall Street (1987)

Leave a Reply

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

WordPress.com Logo

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

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s


This entry was posted on January 18, 2013 by .



Get every new post delivered to your Inbox.

%d bloggers like this: