San Diego Housing Bubble News and Analysis

Dave: Another key factor and one that is outside the scope of this article is the hubris found in banks like UBS, Deutsche, Citi and RBS.

Most of these banks started out as solid regional or national players (UBS, which is Union Bank of Switzerland, was for years a safe, stolid player in middle Europe), but began to have visions of themselves as international players. That desire to be perceived as a "player" meant branching out into areas that they were unfamiliar with, such as currency trading, derivatives and M&A.

Combine this with the necessary "bulking up" (meaning acquisitions) to have the weight and heft to perform internationally and you now have large, unwieldy and poorly managed behemoths like Citi. Management often has little to no idea what certain divisions are up to (like UBS and Royal Bank of Scotland and their exposure to subprime), or the devastating potential for loss (think Jerome Kerviel at Societe Generale) that exists.

And history apparently teaches them nothing, for the lessons of LTCM and Barings are clearly written on the wall, but ignored.

Allan: Agree completely. One of the problems - and this gets back to incentives - is that a large portion of a bank CEO's (and the other folks in the C-suite) pay is essentially tied to the size of the institution. So, even uneconomic transactions for the acquiror are often pushed forward because management benefits.

Every academic study ever conducted on banking efficiency has found that once you get to a couple of billion in assets (which is a pretty small bank in relative terms), economies of scale are offset by diseconomies of management bureaucracy.

Ego and Greed (the bad kind, not the socially beneficial kind) have gotten us here.

Have they been changed?