Malcolm Gladwell at HPU | North Carolina Colleges

is in German good evening and welcome to Haifa University this is your University and we're delighted that you're here students I'm so glad to see so many of you here now I want to tell you a little secret no University in North Carolina has been able to get malcolm gladwell so students you know we bring you the finest speakers in America we bring you yeah you know that you know that you know we spare no resources exposing our students to the finest thought leaders in the world and we always tell our students if you think of somebody that you want to hear let us know who they are and we'll move heaven and earth to get in here and we have done that we have brought some remarkable remarkable speakers of this campus and we bought them in a timely in a topical way so that students can really connect to ideas that are very much timely and this at this position in in the world in terms of economic disruption in terms of political hemisphere in terms of the global village in which we live so tonight I'm very proud ladies and gentlemen our guests are here tonight but mostly hyper university students in this audience we gave our tickets first the hyper university students and I'm very proud to introduce you to a gentleman who has in some very special way changed the world I mean think about it what changes the world somebody with an idea somebody who's willing to take a risk somebody who's willing to be thought-provoking somebody who moves us from the comfort zone to a new position and says yes you can think about it this way so this is our speaker tonight his name is Malcolm Gladwell he's the only guy I know who's got four books four books at the same time on the bestseller list New York Times bestseller his first book was published in the year 2000 called the tipping point and a tipping point was a remarkable book we all use now the words the tipping point as if as part of our vocabulary 376 weeks in a row on the New York Times bestselling list that book appeared in the top 20 unbelievable I'll tell you a secret you know I wrote 15 not a thumb we're on the list without I'm telling you and I did pretty well so you can imagine how well he's done this dude let me tell you so the tipping point came on the year 2000 he followed them by with another book called blink fabulous book you had to be at this afternoon to go into the books maybe he'll go into them a little bit and then he folded by a book that everybody's talking about called outliers I made the point this afternoon to him into our audience that High Point University is an outlier by every definition of his book High Point University is an outlier and then his latest book is called what the dog saw it's a fabulous book it's essays from his columns in the his essays in the New Yorker magazine so he's been a writer for New Yorker magazine before that he was with the Washington Post his father is his English his mother is Jamaican his family moved to Canada he is the youngest of three children he doesn't like to talk about much about the awards that he is one he actually plays them down he was one of the 100 Time magazine picked him has one of the 100 most influential leaders in the world in the year 2005 the most remarkable thing about this guy is you can't go into a company you can't go into an association you can't go into college campus that someone doesn't know his work that's remarkable and I believe it's extraordinary that we were able to get him here tonight ladies and gentlemen let me introduce to you mr. Malcolm Gladwell [Applause] thank you for that it's a very nice introduction that was she written by my mother and it's I'm glad to be here in North Kalani usually when I'm in North Carolina I'm hanging out with Duke fans I have to pretend that I'm a Duke fan and or I'm hanging out with people who are fans of UNC and have to pretend I'm fans of UNC so I'm very pleased to be here tonight and I can finally tell the truth which is that I only cheer for Big Ten teams and I'm thrilled to be in this extraordinary place and I I would love to stay longer but I'm leaving tonight because I worried that if I stayed until tomorrow I hope you put to work in construction on one of those one of the 19 new buildings that you're by the way I mean I live in New York City and I my first thought was in Manhattan and I my first thought when I came here today was that was really really what I heard about like what's happened here the last five years that I was really grateful that High Point is not in Manhattan because you would have expanded into Central Park and I really do enjoy the park so I am I wanted to give a talk this evening about an episode that that all of us I think would rather have been done and forgotten and that episode is the financial crisis we like to pretend it never happened don't we but I had a conversation a couple weeks ago with a friend of mine who looks for a hedge fund and she said to me she said you know Malcolm they're back I said what do you mean she goes well all of the that attitude that was around in 2007 it's nothing's changed took when my friend said that when she goes down and talks to traders it got some banks and things like that they were behaving with the same kind of attitude they had back then and it struck me that we had missed an opportunity in this country to actually learn from that crisis the great benefit of crises like that is they are opportunities for us to examine our assumptions in our behavior and to do better next time and I think we did a really lousy job of doing that kind of examination of the financial crisis so what I thought I would do this evening is do an examination and the financial crisis maybe try and start a conversation in which we learn about what went wrong and why it went wrong and hopefully at the end I'll have some time when we can do some Q&A it'll be very informal because I guess there won't be microphones but you can all speak up but I'll see what how our our how our time goes but I wanted to the part of the financial crisis I want to talk about is not the technical side I'm not going to talk about derivatives and subprime mortgages and all that stuff because I don't really understand that and nor by the way I did many of the people on Wall Street instead I want to talk about something that is always fascinated me about the financial crisis which was that this was a crisis that was caused by a group of people who were very very good at their jobs right who were really smart well-educated highly experienced people now that's weird because normally when we think about people who are involved or implicated in some catastrophe we explain the failure their failure the catastrophe by looking at some by pointing to some flaw by something that some deficits something that went badly wrong we explain the second world war by saying that the guy who started it Hitler was a lunatic in the grip of a powerful and debilitating and psychotic prejudice right we if any of you were to drive home tonight and get a no car accident we would explain the car accident by pointing to what went wrong you were distracted you were on your cell phone something went wrong with your car you've been drinking I mean you're a bad dry your name experienced driver you got your license and we could go I mean we would come up with all kinds of reasons why you didn't perform at the level we wanted you to perform the last thing we would say is that you got into a car accident because you're a good driver right but that's precisely the situation that we're in with the financial crisis these guys weren't they were mostly guys they weren't drunk or distracted or inexperienced or in the grip of some powerful psychosis know they were thoughtful educated interesting people with deep experience in their fields who nevertheless made a series of catastrophic mistakes this was an example in other words of expert failure and I think expert failure is a really fascinating topic first because I don't think we have a good understanding of what it means what it means when people fail because they're good at something and secondly because I think that in the world that we live in as gets more and more technologically complex expert failure is going to be something we're gonna confront again and again and again and we better get a grip on what it means and where it comes from so that's what I want to talk about tonight which is what does it mean when good people make mistakes and smart people make mistakes and to do that I want to tell you a story and I want to tell you a story from a world that is perhaps thought more about this particular problem than any other and that is the world of the military and a story I want to tell you is the story of the Battle of Chancellorsville in the American Civil War now for those of you who are Civil War buffs I apologize you're gonna a lot of this is going to be familiar to you but the Battle of Chancellorsville took place in the spring of 1863 and it was at a time at the midpoint of the Civil War right right smack-dab in the middle when the outcome was still very much in doubt and at that point in the northern theatre of the war the north and south the battle line in between north and south was divided by the Rappahannock River which runs through the middle of Virginia east to west and that North was dug in on the northern side and the South was dug in along the hills on the southern side and the commander of the southern army of the rebel army at that point was robert e lee right the most famous and the most brilliant general perhaps in all of American history at that point in the war he had won four consecutive devastating victories over the Union troops he was the most feared military figure in the entire conflict a man of extraordinary brilliance and integrity and that made the north very very nervous and the North was also very very nervous because there are troops at that point in the battle were in very very poor shape they just lost for war for consecutive battles to Lee they were demoralized people were deserting in droves they hadn't been paid in seven months their food they're barely being fed they were just there was outbreaks of dysentery and and smallpox and and typhus I mean incredibly rough shape and in Washington and Abraham Lincoln was getting very very nervous right because this bedraggled group of troops was all that stood between robert e lee and washington right that was the last barrier that stood between the rebel army and taking over the capital of the Union so for months the two sides are Dougie and other side of this river and there's a kind of stalemate right these two and though throughout the winter of 1863 there they are staring at each other now when I say staring at each other that's literally what they were doing the Rappahannock is not the Nile right it's like a hundred and fifty feet across it at some of its widest point it's this little narrow River they could hear each other talking another side of the river in fact when the when the when the bands the marching bands for the north would go through and try and cheer up the troops the southern troops would hear it and they would call out their favorites and try and get them to play you know Dixie or some other and they used to trade back and forth the southerners would send tobacco and you know they put it on little boats and floated across the river and in exchange the Union troops would would send would would was send down coffee I mean it was that kind of extraordinarily like intimate situations that happen so often in pre-modern pre modern Wars anyway so this stalemate is going on and on and on and Lincoln is getting more and more and more worried because he knows this cannot last and it will not end well for the north and finally in sides that he has to take action and what he does is he replaces the general who had been in charge of the Union Army and he brings in someone entirely new and the guy he decides to bring in is a guy called fighting Joe Lee Hooker now one of the many myths about fighting Joe hooker is that the reason that he was a man of such indiscriminate sexual appetites that the reason we call prostitutes hookers today is in his honor this is not true but it's one of those things that could easily be true because hooker is that kind of guy he's this tall strong incredibly good-looking lantern-jawed blue-eyed broad-chested blond-haired charismatic guy that when he walks into a room every single eye turns to him he'd been a military hero in the Mexican conflict he'd caught the eye of northern leaders on multiple occasions he was notorious for his confidence and brilliance and brashness and Lincoln just says this is the guy to turn around my army so he brings in hooker and sure enough it's like night and day hooker comes down and strides into that army and all of a sudden every single soldier just turns and faces this guy and the morale which had been rock-bottom suddenly goes up to the sky and the desertion the people deserting who had been an incredible problem for the army that ends and he goes in there and he cleans things up and he promises the man that he'll pay them and most importantly says I'm gonna feed you properly he promises them fresh bread and fresh vegetables and he says once a week you will get fresh meat in fact he turns famous he stands and turns to the people who are responsible for all the provisions and says my men will be fed before I'm fed you could imagine how that meant to this group of demoralized bedraggled troops facing almost certain defeat at the at the hands of this brilliant general across the river but the most important thing that hooker does though is he sets up something called the Bureau of military information and the Bureau of military information is the precursor to modern military intelligence units no one had really done this before no one had set up a separate unit of a military fighting force that was responsible for the collection and analyses of intelligence and hooker is thinking he's so far ahead of the game he's thinking this is going to be a crucial part of modern warfare and what he does is he sets up a group of analysts people whose responsibility it is to figure out what was going on on the other side of the river in Lee's Army and they do an extraordinary job first of all he sets up a spy network among Lee's troops that's second to none he basically gets incredibly accurate timely information about everything Lee is doing and then he breaks these codes so he is reading Lee's mail he knows exactly what Lee is up to and then even more brilliantly he discovers that Lee has broken his codes so he starts feeding Lee all the false information he can come up with wait that's how far ahead of the game is he finds a guy a physicist called professor Lowe who has a balloon one of those hot-air balloons because remember this is the 1860s there's no such thing as satellite you have no idea what your enemy is up to you can't see your enemy but hookers got this brilliant idea that he can put a guy up in a balloon they can float up high above the Rappahannock with a telescope and can look down on leaves positions and report back to him what's going on and he does that and he combines all the information to the point where his knowledge of Lee is such that in one of the historic histories written about the Battle of Chancellorsville Hollow a historian wrote that by the spring of 1863 hooker knew more about Lee's army than Lee knew that's how profound the asymmetry is in the information about that battle so hooker sits down and takes all of this information that he has about Lee and he tries to figure out what it means and the first thing he realizes is that he has a hundred and thirty one thousand troops and Lee has sixty-four thousand troops he has Lee outnumbered more than two to one right and then he figures out he knows exactly where at Lee's a guns are he knows exactly where what his fortifications looked like he knows exactly where his cavalry is he's got the complete picture and using that complete picture he devises what is considered by military experts to be one of the most brilliant battlefield plans in recent military history you know they make these lists what are the most what are the greatest strategic plans for battle and hookers is always up there at the top of the list what he does is is he divides his army into three groups three groups equal groups of 40,000 troops and the first group he sends down River East and across the Rappahannock of Fredericksburg takes 40,000 men cross the Rappahannock of Fredericksburg and march up and sit directly on Lee's right flank the second group of 40,000 men he leaves exactly where they are across the Rappahannock from Lee Brock blocking Lee's access to Washington and the third this is the genius part the third group of 40,000 men one morning at the end of April in 1863 2:00 a.m. they wake up and as quiet as 40,000 men can be no bugles no campfires they creep out of their campsite and they march 14 miles up the Rappahannock west and they cross at a crossing and overwhelm Lee sentries and creep back down the other side until they come to a place called Chancellorsville which is directly on Lee's left flank right and that afternoon Lee sends out some cavalry who are on a routine reconnaissance mission and they're marching along and they come to this clearing in the forest which is chances Ville and they see to their horror that there are 40,000 Union troops there and they go running back to Lee and they say general we're in trouble we've got 40,000 troops on our left flank 40,000 troops across the river and 40,000 troops now without even we didn't know it was happening 40,000 troops on our right flank we're surrounded right we got nothing we got nowhere to go what are we gonna do our only option is to retreat back to Richmond back to the capital of the Confederacy and Hooker once he once he reaches chances Ville he knows he realizes that he's pulled off an extraordinary coup and he says our plan is perfect right and it is perfect because what can we do he's in a pincer overwhelmed two-to-one and he and hooker corresponds with Lincoln Lincoln says to him you know something something if you get to Richmond and hooker interrupts him and says there is no if in this instant mr. president I will get to Bridgeland that's how sure he is and why not he's got every advantage in the world he knows more about Lee's army than Lee knows he's got a guy up in the sky he's reading Lee's mail he's he's got it completely surrounded right he's in an absolutely unassailable position so that night that they arrived in Chancellorsville hooker puts this together this big stage in front of the clearing and he gathers all of his men in front of him he stands up on a stage this tall blue-eyed lantern-jawed broad-chested handsome charismatic man and he gives this extraordinarily rousing speech in him I'm under a beautiful moonlit sky they talks about how the next day they're gonna take the battle to Lee and a route this guy all the way back to Richmond and he ends with the line God Almighty God Almighty cannot prevent me from victory tomorrow and all 40,000 of his men stand up and they cheer now if you read historical accounts of the Battle of Chancellorsville that speech is always presented as a kind of prologue to the battle to the events of the next two days I don't think it's a prologue at all I actually think the whole story of the battle is contained in that speech that tells us more about what happened than almost anything else and the reason I think that is that the idea behind that speech the thing that propelled hooker to give that speech is the notion that he knew more about Lee's army than Lee knew what that speech the question that speech raises is what are the consequences of perfect information or rather what are the consequences of the belief in perfect information what happens to people when they think they know more about their opponent than opponent knows about himself this is actually a question that psychologists have thought about for many years and one of the most famous studies of looking at this issue was done in the 1950s by a psychiatrist named Stuart Baskin what's - das camp did was he put together a panel of experts psychiatrists and he had them read a short description of one of our scams own patients a young man named Joseph Kidd Joseph Kidd was 29 years old he was an Army veteran he was a college graduate he worked in a flower store he had been in therapy for some time with dr. Rous camp so a scamp gave his panel of psychiatrists a description of Joseph's kids case asked him to read it and then to fill out a questionnaire a diagnostic questionnaire about what exactly was wrong with kid right read about him and then tell me what you think his issues are right relationship with his mother his neuroses as this is that the other thing after they've done that asked him goes back and he gives all of his panel of psychiatrists an extra two pages to read about kid right more information they started out with a paragraph here's two more pages and then go back once you've read those two pages and redo the questionnaire right and then after they've done that he goes and he gives them another two pages and says here's two more pages read that and go back and redo the questionnaire and finally it gives him the whole file he says here's five pages on kid read the whole thing and do the questionnaire and the question that a scamp is trying to answer is as I give an expert more and more information on a problem how much does the experts judgment improve now the answer that seems obvious if I give you more and more information about a problem your judgments gonna get better and better right that's logical in every situation we would think that would make sense but here's what a scam finds it's now what happens when he gives them that first description brief description kids case his psychiatrists get about a quarter the questions right when he gives them two more pages they're still at a quarter when he gives them two more pages on top of that they're at like twenty five point five percent and when he gives them the whole file to read there are twenty six percent in other words giving people extra information about a difficult problem does not greatly improve the accuracy of their decision-making right in other words we greatly overestimate the marginal value of information now since a scam did that study that original groundbreaking study there's been a huge movement in psychology that has come back and has reinforced that notion again and again we are mislead you know our belief in the value of extra bits of information and there's millions of advantage examples of this and if I were going to be speaking about that particular topic I could go on for the rest of the evening just explaining why that's so but that's not what interests me what interests me is the second thing that Oz camp does which is this every time he asks his panel of psychiatrists to fill out that questionnaire on Joseph's kid he asked them to first before they do the questionnaire give him an estimate of how many questions they think they'll get right so when he gives them just a paragraph to read on Joseph's kid they all think that they're gonna do a bad job of answering the questionnaire they've only got a paragraph I don't get how could they know what's wrong with him they think they're gonna get about a quart of the questions right in other words their assessment of the accuracy of their judgement under those conditions is pretty accurate when he gives them two more pages they think they're gonna do a lot better they think Oh we'll do forty percent now when it gives them two more pages they're like Oh 50 percent easy when he gives them the whole file they're like oh we're gonna get this perfect right in other words giving someone more and more information about a problem does not necessarily improve the accuracy of their judgment but it does improve their confidence in the accuracy of their judgment the technical word for that problem is called miss calibration miss calibration refers to the difference between how good you really are and how good you think you are and when you look at the mistakes made by experts what you see again and again is miss calibration this is how experts screw up right they screw up because they're good then they think they're even better than good so remember back during the at the beginning of the Iraq war remember when Baghdad Falls or two weeks in and George Bush's photographs is videotaped on a on a aircraft carrier wearing a flight suit he looks at the camera he goes like this and he goes mission accomplished right that's miss calibration right we were a very very good army but we weren't that good right we're not good enough to bring peace and order and democracy and good government to Iraq in two weeks right mission not accomplished mission still in fact not accomplished right that's miss calibration now miss calibration is actually over conference is actually a really interesting concept if you think about it and what's interesting about it is how profoundly different it is from the traditional kind of failure that we think about which is incompetence so incompetence is the missed are mistakes made by people who don't know enough right but overconfidence are is mistakes made by people who know a lot the reason those psychiatrists were miscalibrated when it came to joseph kid is precisely because they were really smart they were expert psychiatrists and we gave them lots of information about kid their failure was a function of their knowledge right incompetence is the disease of idiots overconfidence the disease of experts the second difference between these two things is there is a two kinds of failure is a huge difference in the consequences of these two sorts of failure incompetent people make lots and lots of mistakes right they're incompetent of course they make lots of mistakes but their mistakes don't matter so much why because they're incompetent they're not in positions of responsibility their incompetence so we keep them down there and sure they do lots of little things but doesn't matter much mistakes of over conference on the other hand are hugely consequential why because they're made by experts they're made by people who are running companies and running countries and running governments and when they screw up it really really matters incompetence annoys me overconfidence terrifies me third and most crucial distinction between these two kinds of failure and that is that we are profoundly conflicted about overconfidence we're not about Oh incompetence incompetence we're really clear on we hate it we and we do a really good job of rooting it out when we find people who are incompetent we had to fire them or we retrain them or we give them one chance or three strikes and you're out I mean no society maybe in history has done a better job at finding and getting rid of incompetent people but overconfidence not so clear if you're in the hospital it's a day before you're about to have brain surgery and the brain surgeon sits down with you and takes your hand in his and says everything's going to be ok right that's overconfidence that's this calibration he doesn't know everything's gonna be ok most of what could happen to you over the course of that operation is outside of his control he's no clue he hasn't even open up your head yet how does he know everything's gonna be ok but do you want your brain surgeon on the night before the operation to take your hand in here and say no what you want is the guy who is tall and strong with a big barrel chest and a lantern jaw and blue eyes and blond hair and charismatic and stands up on that stage on a beautiful moonlit night and says God Almighty could not prevent me from victory tomorrow so back to Chancellorsville Chancellorsville is in a part of virginia central virginia called the wilderness and it's called the wilderness because in colonial times there had been a foundry there and they had chopped down all the old-growth forests to feed the furnace of the foundry and in its place had grown up this really thick underbrush of constructs crub oak and pine and other things and almost impenetrable this kind of of of underbrush and what people had done in that area is they had cleared these narrow winding roads and one big clearing which was the town of Chancellorsville 70 acres in the middle so the first thing that hooker does when he arrives at Chancellorsville is he has to find out where lee is right because he can't see him with all this kind of thick underbrush so in the morning of May 1st he sends out a couple of units of his cavalry to go on a kind of mission intelligence gathering mission and the notion is once he knows where Lee is then he can attack and rout this guy and they go back and they go out and they go cutting down these roads and they figure out where Lee is and they come back with his information and over the course of the day as Hooker listens to this he realizes that he doesn't want to attack Lee doesn't make any sense and if you read history or historical accounts of Chancellorsville there's a huge debate about why he chose not to attack on the morning of May 1st and whether he should or whether he shouldn't but I find all of those debates to be beside the point because the key issue is there was no reason for him attack he had me outnumbered two to one he had him surrounded there was nothing for Lee to do except to retreat back to Richmond and when an army is in retreat it's never more vulnerable right so the logical thing from hookers perspective was to do nothing that Lee make the first move and when Lee actually turns tail and runs back to Richmond pursue him and destroy him at your leisure right so he does nothing May 1st May 2nd rolls around next morning poker does the same thing he sends out his troops and his cavalry to give him information about what's going on with Lee and put the Scouts up in trees with telescopes and people positioned in key places in this little narrow winding warren of roads and the first report comes back at around 8:30 in the morning someone says I think they're up to something there's clearly activity in Lee's camp okay not then at 10 o'clock someone had been up in tree of the telescope comes back and says they're definitely moving and then at 10:30 some guy comes up back and says clearly they're up to something fact there's old skirmish between some of pokers men and some of Lee's men and when hooker hears this he turns to one his trusted aides and he says the game is in our hands 12 o'clock comes around lunchtime and he talks to one of his trusted aide hey it's a guy named sickles he tells sickles I want you to go out and personally figure out what leads up to sickles goes out and comes back at 1:30 and says to Hooker Lee is moving south and Hooker hears this and he's like of course exactly as I thought Lee is retreating back to Richmond and it gives an order at that moment to all of his troops and he says look clean your weapons you know get your horses fed get get your get your affairs in order tomorrow morning at first light we are going to take off and chase Lee all the way back to Richmond now why is hooker so sure that Lee is treating to Richmond that's not what sickle said sickles say is going south well going south could mean any number of things first of all we're talking about Lee here the kg n't most ingenious strategist of in American military history just because Lee looks like he's doing something doesn't mean he's doing it secondly we're talking about the wilderness a place where every road goes like this right just because Lee's going south one moment doesn't mean he's going south the next could be going west north east who knows third thing maybe is going south to Richmond but maybe what he's doing is going down a bit and then gonna circle back around and attack hooker from the rear there is no basis whatsoever for hooker to believe that Lee is moving back to Richmond at the very best all he can say is that Lee might be retreating to Richmond or might be doing something else and he doesn't know which one it is and he'll be prepared for either eventualities but he doesn't say that and doesn't believe that and why doesn't he because he is deeply and profoundly miscalibrated he is wildly overconfident and when you get wildly overconfident you lose track of the world around you now this is the point where I think hookers story intersects with the story of the financial crisis because what happened in the financial crisis well over the course of the decade leading up to 2007 we gave traders on Wall Street more and more tools and pieces of software and algorithms and implements that allowed them to believe permitted them to believe that they had perfect information about the market that they could understand accurately and completely the nature of the risks they were engaged in and could prepare for them and could make sure that they would never blow up and those tools led them to believe that they were in absolute command of their environment that they could prepare for every catastrophe and avoid it it led them into a dangerous level of overconfidence I don't know how many of you read there's a book that came out about three years ago right after the financial crisis by a guy named William Cohan it's called house of cards and it was just the story of Bear Stearns Bear Stearns if you remember was an investment bank that was the first casualty of the economic meltdown and that was there was Bear Stearns going under that helped to kick-start the entire cycle catastrophic cycle that took us as close to complete economic Armageddon as we had been since the 1929 market collapse and the thing that book reminds you is that in the years leading up to the financial crisis of 2007 Bear Stearns was one of the most respected firms on Wall Street it was the fern everybody respected they were as profitable as any firm on Wall Street they had they had just built themselves a corporate headquarters that was that cost one billion dollars just one building still there and in midtown Manhattan looks like the Taj Mahal and their leader their CEO is a guy named Jimmy Kane and everyone thought that Jimmy Kane was one of the most brilliant men ever to set foot in the financial community they worshipped Willy Jimmy Cayne so what did Jimmy Kane do during the spring and summer of 2007 as it became apparent that Bear Stearns was holding an extraordinarily large and dangerous portfolio of subprime mortgages did he try to offload some of this risk to somebody else try and sell some of that incredibly toxic portfolio no did he try and raise money from other people to give his bank a cushion in case things went bad no did he try and merge the bank with someone who was larger and more powerful and could provide a kind of safe haven in case as seemed increasingly clear these bets would would turn wrong no what did he do well one of the things he did that summer was it on Thursday afternoons he would have his chopper pick him up in midtown Manhattan and fly him back to his country home on the Jersey Shore so he'd get a round of golf in before it got dark and then during the really crucial period where the bank was an act of free fall he decided to go to a bridge tournament in Tennessee in Nashville and one of the rules of the bridge tournament was that during tournament play you couldn't have your phony or Blackberry on so nobody could get in contact with him there's a moment in cohan's book they'll never forget where cohan is interviewing Jimmy Cayne and it's after the financial crisis is over and Bear Stearns has gone from being one of the most valuable investment banks in the world to being worth zero and king himself has seen a 1 billion dollar personal fortune wiped out in the crash and he's been humbled right I mean he he impoverished scores of people across this country who had faith in his company he made some of the most catastrophic errors that any CEO has made in recent economic history and Kohan is walking him through the final week in the history of Bear Stearns and they're talking about the last-ditch effort that Jimmy Cayne made to fake to save his company and that's when he went to the the New York Fed the Federal Bank of New York the government essentially arm in New York and asked the head of the New York Fed to bail out his company and the head of there was head of the Fed at that point was Timothy Geithner who was now the Treasury secretary of the United States so Kane goes to Geithner to ask for an emergency loan the day before Bear Stearns goes under and Geithner said no that's why Bear Stearns went under and this is this opportunity remember here is this man who's been chastened by one of the most extraordinary bank failures in American history who has blundered his way to a catastrophic loss and he is now talking to a prominent journalist for a book that is destined to be a best-seller and you would think it is an opportunity for him to show some Christian to say to the world I screwed up by I blew it I destroyed the livelihood of tens of thousands of Americans because of my own stupidity but that's not what he says this is what he says I had to find it and I apologize for the language but there's nothing that can be done about it because because this is in fact what Jimmy Cayne had to say just so we're clear Jimmy Cayne head of Bear Stearns talking about Timothy Geithner the man who wouldn't give him alone the audacity of that prick in front of the American people announcing he was deciding whether a firm or not of this stature and this whatever was good enough to get a loan like he was the deciding factor it's like a flea on his back floating down underneath the Golden Gate Bridge getting a hard-on saying raise the bridge this guy thinks he's got a big dick he's got nothing except maybe a boyfriend this is the savviest and on Wall Street this is how he handles his own personal disaster now I'm not saying they're all like that no of course they were not all no no other banker was nearly as foul and as delusional as Jimmy Cayne at his lowest moment but there is a pattern here that we have to recognize and that is the pattern that happens to the expert the expert has success and gets confident as a result of that confidence they have more success as a result of that greater success they grow to be overconfident and as a result of that overconfidence they begin to make catastrophic errors exactly the same thing happened in 1929 in nineteen the Bear Stearns of 1929 was goldman sachs goldman sachs was this high-flying investment bank in 1929 and the head of Goldman Sachs in 1929 was a guy named Waddell Catchings and what all Catchings was the wunderkind of Wall Street he was this tall handsome charismatic square-jawed barrel-chested blue-eyed blonde-haired genius who everyone thought was the most brilliant man they'd ever had ever seen and in the summer of 1929 Waddell catching started a hedge fund at Goldman Sachs and made ever more extravagant bets that all were predicated on the fact that the market would keep rising and rising and rising and rising they took every penny of all the investors of goldman sachs and all the partners of goldman sachs and invested in these wild bets and in august of 1929 the chairman of Goldman Sachs that the grandson of the founder Walter Sachs who was vacationing in Europe heard about what what out Catchings was up to and became alarmed and he rushed back from Europe as much as you can rush back from Europe in 1929 and he goes to see 1o Catchings at his suite in the plaza and he says are you crazy right and what Oh Catchings turns to Walter Sachs and says the problem with you Walter is that you have no imagination and two months later my end of October 1929 boom everything goes boom South Goldman Sachs is wiped out right they don't make another they don't make another penny in profit until 1949 20 years later they sell the last lawsuit from that hedge fund in 1969 forty years later that's how completely that man destroyed that Investment Bank by virtue of his Mis calibration and the lesson of Waddell Catchings is the same as the lesson of Jimmy Cayne which is the same as the lesson of what happened in Battle of Chancellorsville right which is people who are profoundly in the grip of Mis calibration lose contact with reality the world around them changes and they don't see it so back to Chancellor's Phil one more time it's now the afternoon of May 2nd there are people up in the trees looking what Lee is up to and they begin to realize that Lee has changed not marching anymore he's actually his troops have stopped and they're they're not don't look like they're going back to Richmond right so some kid was up in a tree comes running back with the news to Hooker that no Lee looks like he's preparing for battle and he's met with taunts people say no you're just a coward crazy then senior officer in Harper's army goes and personally observes what are clearly signs that Lee is getting ready for something serious and goes back and writes a note to Hooker saying Lee is massing for battle for God's sake take measures to receive him hooker doesn't even care less another guy sees sees that actually them setting their guns up and like getting in formation and comes rushing back to Hooker and now it's like 3:30 4 o'clock and says hooker I mean this is really serious pokers people won't even let him into the headquarters one that I talk to her 6 o'clock it's dinnertime remember I said that one of the promises that hooker made to his men way back when was that once a week they would eat meat well this was meat day so hooker orders the cows on the rear of the supply chain to be brought up to the front and slaughtered and steaks were distributed to all the men and they took off their coats and they put two rifles off to the side and they started to barbecue meat on this beautiful aroma of barbecue beef filled the air and a marching band went to all the men playing these extraordinary patriotic songs getting them psyched up what was gonna happen the next day and the mood was jubilant and optimistic and they were full of the of the kind of fire and fight that comes with people who know the next day they're going to route their enemy as they sit there they hear this really strange noise it's coming from the underbrush over at the edge of the clearing and they don't know what it is and so they kind of stop and I think what is that all of a sudden they see all of these quail come rushing out of the forest as if they're being pursued by someone or something all the men look at each other and just saying damn this thing what could be causing it they go back to their dinner and then a couple minutes later they hear it even louder a noise and this time they look up and they see all these deer come rushing out of the underbrush as if they're being pursued by something and the men look at each other and just say what is going on so strange go back to their dinner minute passes and they hear al even louder noise and they look up and this time it's Lee's men with their bayonets fixed shouting out the rebel yell and hookers army who outnumbered their opponent to the one who knew more about their enemy than their enemy knew about her themselves who God Almighty could not prevent from victory drop their stakes and abandon their rifles and will run for their lives not as a postscript to the Battle of Chancellorsville first thing is that hooker is relieved of his command at this being a moment in American history where if you screwed up you lost your job but but Lee Lee was emboldened he had just pulled off one of the most extraordinary upsets in the annals of modern military history now it was his turn to be overconfident Oh what did he do well for the first time in the war he decided he would carry the battle into northern territory and he crossed over the mason-dixon line and he marched through his men with his men into union territory now he knew he knew this was a risky move he knew that all of a sudden he was an unfriendly terrain right didn't know his way around locals weren't supporting him he knew that that his supply chain was stretched about as far as you could stretch a supply chain he knew that he was on perilous ground with an army that had taken major losses over the course of the next two years but he didn't care he didn't care because he was in that same position that experts always get into when they become overconfident and he marched through Union territory until he came to a little town called Gettysburg right and a Gettysburg Lee was dealt the most grievous defeat of his career it's because of Gettysburg that today this is one country and not two and the lesson of Gettysburg is the same as the lesson of Chancellorsville and the same as the lesson of 1929 the same as lesson of 2007 and that is that in times of crisis we think what we want from our leaders is the benefit of their expertise and that's not true what we want from our leaders is the benefit of their humility at the gun I can now see you I couldn't actually see you before I wasn't I didn't know whether there was five of you or or in fact five hundred of you so it's very I'm enormous ly gratified now to learn that I've not been speaking to an empty house but I I think I we have time for I think you're time for some questions like I say this is gonna be very informal you'll have to shout them out and I will um I will repeat them so the rest of you can hear them but if anyone we got about 15 minutes maybe we can if anyone has anything they would like to ask about sure oh good question what's an example of a leader who maintained his humility even as he even as he had enough while have enough confidence to inspire his troops because you're right it's a balance you don't want someone who is all humility because in difficult times we need to read the reassurance of real leadership but who has done a good job of keeping that in balance Wow yeah I mean there are there are some there are some good if you look at someone just chatted out Roosevelt I don't I think that's not a bad suggestion part of what what the the way in which this kind of humility is often manifested is is best manifested is people who are willing to keep listening that is to say who are willing to have a team around them that they respect and trust and continue to seek the counsel of right they don't retreat into their own certainty Hocus problem is that he just stops talking to anybody he's made up his mind that he's finished and he care less right so if you look at leaders the second one was not a bad example of what's interesting with the second war is the extent to which the Allied leadership in the second world war was collective it was many many many people contributing to the war effort and they were all forced to listen to each other Eisenhower was for all of his faults and he had some was a listener right was not a non man with an enormous ego dealt with some incredibly goes Montgomery among others but um by the way on the in under the in day dictionary under ego you basically start with a picture patent and then you get a picture so yeah there so there are examples but they are people who who have very consciously built a team and that seems to be the the key the key ingredient well I think that we have an opportunity right now in the midst of our difficulties to to learn a little humility to understand that we are not the dominant power that we were twenty years ago or even ten years ago and to understand what the limitations the real limitations of government are both domestically internationally I happen to be I can say this cuz I'm a Canadian so I you know I know a new state but I mean the war the two wars we've been fighting for the last ten years are extraordinary were extraordinary acts of overconfidence unparalleled the notion every single army that has gone into Afghanistan for the last thousand years has been defeated why do we think we could fail we could succeed where everyone else has failed right it's just you I mean there was a kind of failure to read same thing that notion of sailing into Iraq with no long-term planning no notion this is gonna be a long drawn-out fight that when Colin Powell said you know very early on remember you break it you own it right he was the only one who because he remembered Vietnam he's like you this is not going to be over in a year it's gonna take a long day you have to you have to be honest if you want to do this you have to be honest with the American people and say I think we should invade Iraq and by the way expect ten years and two trillion dollars that's the conversation we should have had that is the honest calibrated conversation right it's hard we're not omnipotent but if we want this and we willing to commit to it we can do it we did not have that conversation and we really should have we did not have a conversation about Afghanistan I mean really should have and I hope that in the future when we want to embark on these kind of adventures we're honest about what I mean I'm not even talking with the merits of the war that's a separate issue argue about that all you want I'm just saying that you need to be to have an accurate assessment about what you can and can't accomplish and make that plain to the American people and don't pretend you can waltz in and make it all good in some foreign country in six months because that's lunacy so there I think I hope that what we have learned from these two adventures by the way two trillion dollars is an understatement about what it's going to cost us at the end of the day I hope that we have learned a little humility and about what that you can what you can accomplish with military force in today's world is really limited and particularly if you are a power superpower whose influence in the world is on the wane so yeah I would I think there's a an amazing opportunity for us to kind of really examine who we are and what we want to do there was questioning yeah well what it's gonna take is I mean at this point I mean we have taken a series of regulatory steps which I'm not you know we can quarrel about how good they were I'm not crazy about some of them I don't know whether we have addressed the core issue which is that there's a cultural problem in some of the financial markets where we've forgotten what the function of financial markets are that if people would like to roll the dice with their money or other people's money that's fine I have no problem go and do it but you can't do it in such a way that imperils the whole system so problem number one is making it very clear that if you are in a dominant position if you are part of the structure of the financial in health of this country you can't play those games just can't do it you know I like referring to Canada baby you know in Canada we made a decision when we set up our banking regulation years ago that banking was going to be boring and really clear if you want excitement don't go into banking if you want to make a lot of money don't go into banking if you want to go into banking be clear that regulators is going to be sitting right next to you the entire time your job is to build stable organizations that take a couple baby steps every year and return have a decent return to their shareholders and never bet the farm right that's a conscious decision and the result was that in good times Canadian banks did not as good as their American counterparts but in bad times they did exactly the same as in good times right ken did not have a banking crisis and if you look at the banks that did well in the financial over the course the last couple years they were the boring ones that's one that's a cultural thing though it's nothing very hard to kind of that requires people just to sit to understand look that there are as a certain level of risk that we can't take when we're part of the establishment the infrastructure of the country so that's sort of that's a big part of it is this just kind of scaling back our expectations of how much excitement can be generated from those kinds of fields I'd much rather you know what's interesting to me is that in the financial realm as I said in the very beginning there are tons of really really brilliant people working on Wall Street as traders really brilliant people who have a capacity for risk-taking and imagination and and they're putting all those extraordinary skills to use in some of the most least meaningful devising ever more exotic derivative trades why why don't you go and start a company that creates wealth and employs people why would you put all that brilliance to use in something that is of such marginal value I mean that's that's the other cultural piece of this that I have nothing I love people who are miscalibrated if they're taking chances if they're trying to come up with a with a new computer or a piece of software or they're doing the kind of entrepreneurs are miscalibrated but that's what we want miss calibration we don't want people who are miscalibrated who are running major institutions sure well I I you know in the earlier iteration I answered that question one way I now answered another way cuz I worried you know you know I live in Manhattan and every you know what man is like it's like we're all so far the left and then you forget when you come to rest of the country that the rest of the country it's not so we have to kind of be careful like let me answer so I answered it one way to swing this happening what I will say about this is that there's a core issue here that's pretty important and that is that over the last 20 years this country has undergone a transformation that is almost unprecedented in certainly unprecedented in our history with the exception of the Gilded Age and that is that we you know through the 50s and 60s this was a country that had a great deal of of economic equality the gap between rich and poor was really quite narrow that did not mean and then when when the gap was dimension 4 is like this it means that social mobility is enhanced it's actually pretty easy to go from the middle of the top and from the bottom bottom of the middle and that's the kind of healthy vibrance no surprise that we were never stronger than when we were relatively economically equal what has happened over the last twenty years you all know the story is that there has been this unprecedented movement of wealth to the top 5 and 1% of the country and that's problematic for a number of reasons that one threatens we are now if you lose you can use measures of economic inequality where it's a really simple one where you measure the gap between the 20th percentile and the 80th percentile it's called the Gini coefficient but just how much gap is there between the reasonably poor people and the reasonably wealthy people we used to have a gap of this much now we have this the only countries that are more economically unequal than us right now are Hong Kong and Singapore we're more economically unequal than Mexico that's frightening it's unsustainable you can't have a society where all of the income growth is is is taking place in the very very top and middle class people are seeing the livelihoods Stetten movement stagnate decline right so to the extent that Occupy Wall Street is concerned with raising our awareness of the consequences of economic inequality I am very much in favor of it my worry about them is that they have I feel that their efforts are being are being label ideologically labeled I don't think this is anything to do this is nothing to do with left and right Democrat Republican you could make a very strong case in fact that Republicans should be more concerned with economic inequality than Democrats right because the that because economic growth and productivity and entrepreneurship come from position conditions are relative inequality so that's my worry I worry that they've taken this in an ideological direction and they shouldn't this is something we should all be profoundly concerned about we have time for one more question so that pressure is really on this has got to be a great question yeah well everyone will remember for as long as I mean at least 10 or 15 minutes oh you are yeah yeah I mean I have I don't know I was really but all those books were written before the financial crisis so the financial crisis had a it had a very sobering effect on me you know I it is weird because we have what amazed me is how quickly we swept it under the rug so why I want to talk about that tonight you know we came this close I I was a time I was out conference a hedge fund conference in New York and so these big muckety-mucks were there guys who know more about the stuff than any of us will ever know and there were one this one very very senior financial guy in New York and Wall Street said you bet he said totally serious he wasn't making hyperbola he said we were this close to money not coming out of the ATM right do you realize how this we skated this close to the precipice risk the entire thing the entire thing could have come tumbling down and we just barely escaped and yet somehow we've shrugged it off and like we don't want to talk about anymore whatever that's 2007 crazy crazy so that really what I the more I thought about it I read all those books about it I was like oh my god it was this was like a this was a catastrophe and that really made me rethink a lot of my what I realized now are some of my in some of my writing and I'm not the only one I think all of us were naive about expertise and we forgot that it's not about how smart you are it's about your values right I now care way more about someone's values that I cared before I want to know is that person can that person stay on the straight and narrow will it go to their head or not if it's going to go to their head I don't care if they have an IQ of 180 I don't want them anywhere near any position of power I want someone who understands that that they are one small piece of a very large complicated picture and they need to keep their perspective and they need to understand the importance of humility and they need to rely on a team of like-minded and properly motivated people in order to get us through difficult times and if they don't have that attitude I don't want I'm not interested in them [Applause] [Applause]

Channel: High Point University

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Id: 7rMDr4P9BOw

Length: 68min 41sec (4121 seconds)

Published: Mon Jan 16 2012