A pair of words, that would be more descriptive than an accurate label, could be insecure narcissist. Further, it snugs in under the guise of an "oxymoron", seemingly.
Nepotism is quite a specific word for this, but maybe is too strong for your needs. You could call the person a nepotist.
noun
patronage bestowed or favoritism shown on the basis of family relationship, as in business and politics: She was accused of nepotism
when she made her nephew an officer of the firm.
Origin: 1655–65; <
Italian nepotismo. See nephew, -ism
Dictionary.com, "nepotism," in Dictionary.com Unabridged. Random House, Inc. Accessed: July 09, 2014.
There is also the phrase Blood is thicker than water which means
family is more important than anyone else. This is perhaps a softer term impressing the values of looking after the family over the needs of friends but doesn't provide a term that you can use to call someone directly.
In modern society, the proverb "blood is thicker than water" is used
to imply that family ties (blood) are always more important (thicker)
than the ties you make among friends (water). It generally means that
the bonds of family and common ancestry are stronger than the bonds
between unrelated people (such as friendship).
Wikipedia contributors, "Blood is thicker than water," Wikipedia, The Free Encyclopedia, (accessed July 9, 2014).
Best Answer
Words like egotistic or egotistical ("Believing oneself to be better and more important than others") may apply, as may egocentric ("regarding oneself and one's own opinions or interests as most important or valid") or narcissistic (as used in phrase narcissistic personality disorder). More generally, terms like realistic or unrealistic may apply, depending on whether subject's opinion is correct or mistaken. In some cases, one might call the person a Pollyanna ("person who is persistently cheerful and optimistic, even when given cause not to be so") or Panglossian ("having the view that this is the best of all possible worlds").
Regarding positive or negative connotations of these and other words, among the set of near-synonyms aloof, arrogant, blustery, boastful, bombastic, cocky, conceited, egotistical, flaunting, grandiose, haughty, insolent, narcissistic, ostentatious, pompous, pretentious, self-important, supercilious, uppity, vainglorious, vain, big-headed, high-and-mighty, show-offy, snobbish, snotty, snooty, stuck up, nose in the clouds, holier-than-thou, in my estimation all carry some negative baggage, and those with the least-negative senses include arrogant, egotistical, flaunting, and supercilious; and of those four, only egotistical is adequately close to the meaning requested in question. Note that self-righteous is a rather more negative label than egotistical. Realistic, if you can apply that label, is positive or neutral, and unrealistic is negative or neutral.
I have said terms arrogant, egotistical, flaunting, and supercilious are less negative than others, partly as a consequence of how similar terms are used in Aristotle's Nicomachean Ethics, as for example the lengthy discussion of pride in Book IV part 3. However, the slightly-technical usage there is uncommon, so only a weak basis for comparison.