Several years ago I had the good fortune of visiting Dubai. It was a fascinating and exciting place. There seemed to be no limit to Dubai’s potential. What happened?

The rise and apparent fall of Dubai are nothing new. We have seen the same happen repeatedly over time.

The strategy of the leaders was outstanding. The execution appeared to be flawless. However, like many before them, the leaders began to believe their own publicity. Their initial success led them to believe that they could do no wrong; that they were smarter than everyone else. Thus, instead of moving forward at a controlled and manageable pace, they accelerated the rate of implementation and greatly expanded the scope of their strategy. Ego and hubris overcame good judgment and sound planning!

This is not unique to the leaders of Dubai. Jeffrey Skilling’s proposal to Enron to change its model from one of owning hard assets to one of becoming a leader in the new fields of trading electricity, broadband, water, etc. was brilliant. He saw the enormous potential for trading as a result of the impending deregulation of many sectors of the economy. Enron did become a leader and enjoyed great success at first. But like the leaders of Dubai, the senior management and traders of Enron  imitated Icarus and flew too close to the sun. Enron cratered causing much greater losses than Dubai ever will.

Imagine how the history of the world might have evolved if Hitler had been content with his capture of continental Europe and had ignored Britain and Russia? Hubris and ego led to his downfall.

There are many other business examples where initial success encouraged people to put their expansion plans into overdrive. Among them are Peoples Express, Worldcom, Olympia and York, Drexel Burnham, the Japanese banks in the 1980s, Sandy Weill and Citigroup, hedge funds and private equity firms. And this is just the tip of the iceberg of examples.

In all these cases, the individuals who created and ran these companies developed and executed excellent strategies. They truly were remarkable people. However, they were not content with slowly building upon their initial successes. Like celebrities placed on pedestals with everyone fawning all over them to please them, these business leaders succumbed to their overconfidence and the financial institutions who fell all over themselves to provide capital and advice. Money was plentiful and cheap. Every major financial institution wanted to tie itself to a winner. Why else was Dubai able to accumulate tens of billions of dollars in debt for what were becoming questionable investments?

No one asks questions of winners. No one refuses the requests of a winner. No one says no to a winner.

There are many important lessons here. Humility and objectivity always are important. People should never be reluctant to ask questions and to point out that the emperor has no clothes. Leaders should not surround themselves with “yes men”. And so on.

There also is an important lesson for governments. All of these blow-ups were the result of financial institutions, as creditors, foregoing their roles as second guessers. Instead of being blinded by fees, they should have take more critical positions in assessing demands for money, and in evaluating the inherent risks of the investments. They should have said no, or at least properly priced the loans. They were the last line of defense against strategies driven by ego.

Hence, new regulations for the financial systems should aim to make these institutions more responsible.