Friday, November 28, 2008


A truism is an adage you have to apologize for. How can you imagine that your friend does not know something that is self-evidently true and that you first heard in the fourth grade?

At times, a truism is an adage that has been worn out from overuse. Everyone knows it, everyone accepts it, but... so what! Almost by definition, truisms and adages are a lot easier said than done.

Of course, it doesn't matter whether you know it and accept it. What matters with an adage is whether you do as it says.

Everyone knows Ben Franklin's adage: a penny saved is a penny earned. Some people even understand it's meaning: that saving money is work. And yet, being thrifty is a different challenge.

If you tell a profligate spender that a penny saved is a penny earned, he will feel insulted. What kind of friend forces you to face a character flaw.

Our therapy culture has taught us to take offense when someone tells us what to do. This has helped to foster disobedience and indiscipline. Thus, our therapy-addled minds will not look kindly on this Franklin adage: "He who won't be counseled can't be helped."

Obviously, counsel means advise. Franklin is saying that a person who cannot take advice cannot be helped. And yet, psychotherapy, at least since Freud, has insisted that therapists should never offer advice, lest the patient begin to doubt that he or she is an independent, autonomous free spirit.

Therapists have been teaching their patients not to follow advice. It prefers insight to counsel even if-- following Franklin-- this means that it is not in the business of helping people.

Beyond therapy lies management. In management you often tell people what to do and you expect that they will do what you tell them. This will sound like a truism, because it is.

The other day I was reading a review of a book about management theory and found the reviewer apologizing for offering a sampling of the "truisms" that were dotted through the book. Link here.

Management theory is full of adages and truisms: first, because managers have to make themselves understood, and second, because they do not have the luxury of wallowing in insights. The problem with management is implementation: how well things get done.

The book in question is Umesh Ramakrishnan's "There's No Elevator to the Top." Among the truisms the reviewer offered is this: "Work hard at what's in front of you. Make sure you succeed at the task you are given rather than waste time plotting your next move."

This means that you should not rush. As the old saying went: haste makes waste. Being anxious to get to the next task will make you do the current job poorly.

We can make this sound more pithy and even Zen-like: Focus on the job you are focusing on.

The principle behind the adage comes from the playing fiend. It means: don't take your eye off the ball until it is in your hands or glove.

Even if you only watch sports occasionally, you have heard an announcer say that the shortstop bobbled the ball because he started to throw it before he had caught it.

Or else, think of the football team that is playing a weak opponent this Sunday and a strong opponent next Sunday. If it looks through this week's game to next weeks it will be unfocused and will risk being upset.

This is not an injunction to live in the present; it is telling you to do one thing at a time. Being focused on this week's project does not mean that you have not made any plans for the future.

I have already written some thoughts about how to gain focus. See my post: The Eye of the Tiger from 6/20/08.

Here I want to extend my remarks by picking up by a suggestion offered by Ramakrishnan. His advice: be a team player. Everyone knows what this means. You are not going to feel that it is an epiphany.

More specifically, he is saying that when your idea has been rejected you need not only to work on the plan that was accepted, but to do everything in your power to ensure that it succeeds.

Why is this worth stating at all? Because when your idea is rejected you might well take it as a personal affront. After all, it is a trauma, even if only a mini-trauma. And we know that when you have been traumatized everything feels personal.

The truism is telling us that one way to overcome the pain of trauma is to throw ourselves into teamwork. It tells us not to question, not to complain, not to introspect, and not to feel sorry for ourselves. If you indulge any of those habits you will become what Franklin would have called... lazy.

Acting as a loyal and reliable member of a team will enhance your ability to focus on the task at hand.

Sometimes adages try to offend us, to shake us out of complacency, to show us our failings.

This one refers to good sense, by which I think Franklin is referring to sound judgment: "Good sense is a thing few have, all need, and none think they want."

Tuesday, November 25, 2008

Buy and What?

Until recently investors had been lulled into complacency by a mantra. They were convinced that the best approach to investing was to buy and hold.

Market analysts used sophisticated charts of past performance to demonstrate that someone who had chosen to weather bear markets had always been bailed out by the ensuing bull markets.

Yet, this analysis was based on the idea that the past will necessarily repeat itself. And this, need I say, is far from guaranteed.

We are assuming, as Keynes wrote, that "the existing state of affairs will continue indefinitely, except in so far as we have reason to expect a change."

Those who were recommending buy-and-hold always factored in the worst that we have ever seen, the Great Depression. They concluded that if it was alright to hold through the depression, it was always right to buy and hold. (For a more detailed explication of Keynes' view, see Paul McCulley's article here.

For now it appears that buy and hold means buy and hold on for dear life.

Take the mutual fund that had racked up year after year of solid and impressive performance, Bill Miller's Legg Mason Value Fund. What could be safer?

Yet, the current market collapse has no spared the fund. In fact, it has erased all of the gains of the past years and then some. Over the past twelve months, the fund is down 63% Over the past five years the fund is down 14%.

Had we given the mantra some thought, we would have concluded that it was too good to be true. It makes you feel that the market is a parent who will always take care of you. It makes you feel like a privileged heir: someone who can get rich by doing nothing.

The buy and hold strategy seemed to suggest that less work was better, that inactive management was better than the more active kind, and that you could get rich by not working.

If the markets are in the business of taking care of us, whatever they take away they will give back many times over. By taking things away they are testing our faith. It is almost as though buy-and-hold was based on the notion of a providential faith that would offer an eternal reward for all of our current sacrifices.

Just as markets move from excessive optimism to excessive pessimism, so do investor attitudes. Nowadays those who have abandoned all hope that the market will ever make them whole again might start believing that the market is in the business of destroying us.

Some believe that the market is an instrument of divine justice. It is punishing people for their capitalistic excesses. Others believe that it was all a fraud to begin with. The market was setting people up, raising their hopes and aspirations... waiting for the chance to crush them underfoot.

Both stories are attempts to deal with a trauma. When people have been traumatized they try to make the trauma make sense by placing it within a narrative. The narrative is like a bridge loan; it is supposed to get you from here to there; to tide you over until the old routines have been re-established. It is not a place where you should put down roots and set up a new life.

The risk is that people take the new story of the crash for the truth about markets. Of course, some will do just that. They might conclude that they should never buy another stock. Or they might believe that they can only restore the old order by enhancing their spiritual virtue. Others might decide that individuals should no longer be allowed to direct their own accounts.

This last sounds the strangest, but keep in mind that the government of Argentina decided a few months ago to confiscate private pensions, on the grounds that individual citizens are not competent to direct them.

Sunday, November 23, 2008

Jim Rogers: The Grandmaster

Prophecy is an inexact science. You can know what happened last month with a lot more certainty than you know what will happen next month. Which is why so many people spend so much time mired in the past.

The past is not prologue, but it can provide lessons. If you are trying to deal with a problem, you can look to the past to find analogous situations, identify different actions taken, and weigh the outcomes.

This kind of exercise is at the core of an effective coaching practice.

In some ways it's like playing chess.

when you are considering a move in chess you must consider your opponent's possible counter-moves. Then you must consider the moves you can make to counter those counter-moves. And so on.

Grandmasters are the ones who think furthest into the future. They quickly think beyond the immediate because they can see the largest number of moves and counter-moves.

The grandmaster uses experience to train his mind. Experience has taught him what does and does not work. He can assess moves and outcomes far more rapidly than lesser players.

When the grandmaster is playing the game he looks toward the future. He knows that looking backward is not going to do him any more good than it did Orpheus.

A grandmaster need not be a person. In business the "person" who can see the farthest into the future with the greatest accuracy is the financial markets.

The markets represent the collective wisdom of the investing class. Everyone has the right to case a ballot in an election, but the investing class can also vote with its money.

The markets are not a democratic institution. Many people do not vote in the stock market and the people who do vote do not have an equal number of votes.

More successful people have more votes than less successful people; they have more capital and more credit at their disposal.

Obviously, the collective opinion of a group of people is not infallible. The market has, as people like to say, predicted eight of the last five recessions.

The future is not predetermined. Government and personal actions can steer it in one direction or another. They may forestall calamity, hasten its arrival, or delay recovery. How we deal with the current crisis will make the future brighter or darker. Given the damage done already, we can say with some confidence that we are not heading to a bright new morning.

In chess, as in bridge, you have to be a great player to understand another great player's moves. With some sports you can be a mere fan and know the difference between great and mediocre plays. When you are dealing with a grandmaster like the stock market, only the best players really know what it is saying.

Jim Rogers is an investing grandmaster. He does not just move his money around; he moves himself and his family around too.

A year or so ago Rogers sold his townhouse on the Upper West Side and moved his family to Singapore. His move was vote of no confidence in the United States and the American dollar.

Here is some of what he said at the time, in December 2007: "I am still short Citigroup. I'm still short Fannie Mae. And I just increased my short positions on investment banks last week because that is where the excesses have been in the United States economy.... You see 29 year-old kids making $10 million or $20 million a year and thinking: 'This is the way the world is. This is normal.' Well, it's not normal."

What would you give for having put on that trade a year ago?

Rogers often comes to mind when people in my practice address this question: Is New York over? The question has not yet reached the cover of the magazine that bears the city's name, but it is certainly worth consideration.

If the dollar losing its status as reserve currency, this will make the financial services industry a shadow of itself. If that happens, what hope is there for the real estate market, the retailing business, restaurants, newspapers, and government services?

The second question people are asking is this: Is Asia the future. So said a report last week from the National Intelligence Council. Link here.

Jim Rogers has long since thought so. Right now the signs point in that direction. For now we will wait for the turbulence to pass before we will know what the future will look like.

Grandmasters at the investing game are, however, already taking their positions. When you learn to look through storms you will be better prepared to make decisions before everyone else. And as Rogers suggests, it is not just about where you put your money; it is also about where you put yourself and your family.

Thursday, November 20, 2008

Capital Preservation

The world financial system is in turmoil. Something like twenty trillion dollars of equity has vanished. The American automobile industry is on the verge of bankruptcy. Rescues and bailouts seem to be as effective as a lifeboat in a tsunami.

If it has not affected you, it has certainly affected people you know. Those who still have jobs are surrounded by empty workstations. Along with sympathy for their former colleagues, they also feel anxious and demoralized.

Winning and losing seem no longer to be in question, since there are not going to be any big winners any time soon. Even Warren Buffett's fund is getting crushed.

The real issue is survival, having enough resources to fight again. More prosaically, the question is how to preserve capital. How can you hold on to what is left of a job, a career, a brokerage account, a real estate investment, or a retirement fund?

Capital is a financial resource that can be invested in production. You use capital to buy the plant and equipment that will manufacture the products whose sale will give you a return on your investment.

Thanks to economists, sociologists, and psychologists we now know that there are other kinds of capital, all of which are essential to our socio-economic well-being. These too need to be invested, grown, and preserved. They are: human capital, social capital, and psychological capital.

They have been usefully distinguished as follows: human capital is what you know; social capital is whom you know; psychological capital is who you are.

In other words, human capital is your knowledge and experience; social capital is your connections; psychological capital is your character.

In time of trouble we should develop strategies for preserving, and even increasing, each of them.

In most cases, when you lose your job, your human capital remains intact. You may not be using it productively, and you may suffer for its inanition, but it is still yours, and it is portable. Think of the mortgage banker who goes to work for the government on a mortgage program.

The exception occurs when the skill set you have developed is rendered obsolete by changing circumstances. The world's leading expert in producing buggy whips lost his human capital when the automobile was mass-produced.

Most people spend considerable time and effort growing their human capital. They take extra courses, study on their own, and enter retraining programs.

When your investments have suffered severe losses, it is a good opportunity to increase your human investment capital, thus to learn more about markets and to work harder managing your money. Similarly, many laid-off investment professionals are now returning to graduate school.

Social capital is a different story. When you lose your job or a large part of your wealth, it will quickly impact your social activities.

Jobs provide us all with social networks, routines, and rituals. Even if you have not lost your job, when many of your colleagues lose theirs, you will have lost social capital. Your everyday social interactions will be negatively affected.

If you suffer a loss of income or wealth you will not be able to afford certain social activities: charity events, country clubs, dinner out with friends, and vacation trips.

Even if you substitute picnics in the park and and golf on the public course, you will feel diminished for not having the same old gang around.

Social capital can be preserved and even rebuilt, but it takes effort, especially when so many people are not feeling very sociable, and when those who are cannot afford the activities they used to enjoy in the past.

Of course, most people will simply adapt to the new circumstances by finding different ways to socialize. Given the loss of financial capital, extravagant spending is no longer the admissions ticket to social life.

When you cannot use your human capital effectively and when you have lost a significant part of your social capital, you are going to feel demoralized. You will have lost psychological capital: the confidence, optimism, and resiliency that would help you to overcome your current problems.

Psychological capital is necessary to rebuild your wealth. It takes courage and character to start over again, to address current problems constructively, and to readjust expectations, habits, and routines.

In my 1996 book "Saving Face" I wrote that psychological capital corresponds to what the Chinese call "face." This term refers to self, but it is more about how others see us than about how we see ourselves.

Clearly, the two are not contradictory. If you are good to your word, people will look forward to their appointments with you. If your good character causes others to have confidence in you, you are more likely to have confidence in yourself. If your good character makes you a trustworthy and reliable member of a community, you will be more likely to respect yourself.

Practice the virtues that constitute character-building and you will build up the psychological capital you need to garner future success.

Tuesday, November 18, 2008

Dating Chaos

People sometimes ask me how I can be both an executive coach and a relationship coach. Aren't they two distinct and separate fields? Actually, they overlap in strange and interesting ways. Consider the following:

A young man attends a workplace seminar where he hears about the importance of ethical behavior. In it he learns that he and his colleagues need to treat each other with respect, to show common courtesy, and to make good connections. All of which makes sense to him.

It even makes sense that workplace diversity might produce anomie, feelings of not belonging to the group for not having understood its codes and customs. He agrees that he and his colleagues need to make a special effort to produce a strong corporate culture. He also accepts that if everyone is just pursuing his own self-interest, the company culture will be undermined.

Later that same evening this young man is hanging out in a bar. After scanning the room he is drawn to a woman he sees at the end of the bar.

He is not a neophyte on the date scene, so he knows how to go about connecting with her. He knows that if he is polite and respectful, women will dismiss him as a chump. He knows that if he is in touch with his feminine side, they will see him as weak and ineffectual. He also knows that bad boys finish first, so he is going to repress his good character, at least for the time being. Having read a book about the "Game" he knows that his first move should be to sneer at her with contempt.

He is happy to play this game, though he is somewhat dismayed that it works at all.

So, here are the new rules of a dating scene that appears to have been arranged so that no one will every develop a relationship. For an extensive report on them, see Kay Hymowitz's article: "Love in the Time of Darwinism." Link here.

If you are not personally involved in this scene, the descriptions are surprising, even to the point that they feel like caricatures. And yet, they do reflect something of the current dating scene.

If you are looking for anomie, the dating scene is a great place to find it. As Hymowitz said: "...the dating and mating scene is in chaos." Single young men: "are moving around in a Babel of miscues, cross-purposes, and half-conscious contradictory female expectations that are alternately proudly egalitarian and coyly traditional."

Hymowitz is especially disturbed to see the most sophisticated, talented, competent generation of young women be so utterly incapable of the most elementary form of self-definition.

These young women do not just want it all; they want to be all things to all people. Hymowitz describes a confused young woman who: "may be hoping for a hook-up, but she may also be looking for a husband, a co-parent, a sperm donor, a relationship, a threesome, or a temporary place to live."

The woman needs to find out more than what she wants. She has to know who and what she is. If she wants to be a girl about town, flitting from one hook-up to another, living a Sex and the City lifestyle, her chances of finding the kind of husband she wants are diminished. If she wants to be a wife and a mother, she would do best not to give herself away for free.

She may think that she is exploring her sexuality, or she may have made a more complex decision, to the effect that she wants to have meaningless impersonal relationships so as not to be distracted from her work. Be that as it may, if she wants to settle down one day, she is making things more difficult for herself. And it will be that much more difficult if she has left an online record of her exploits.

Men are open-minded, and occasionally non-judgmental. Yet, if they know about her past behaviors, they will hold it against her... consciously or unconsciously. They will not accept that she was one kind of woman then, and another kind now.

They will treat her as she defined herself. And women, as men, define themselves by the way they conduct themselves.

Hymowitz sees young men as dazed and confused, put off and angry, generally lost in the funhouse. She sees them disrespecting women and she blames women for not acting like they respect themselves.

Of course, they are also active participants in this culture. One might say that they are simply revealing their predatory side. But one might also say that if a woman offers herself to you for free, you would have to be a cad to turn her down. Saying no would add insult to injury, and most men still feel somewhat gentlemanly... i their own way.

I am not entirely persuaded that these practices are quite as pervasive as everyone things. Surely, they exist. And just as surely, they are more prevalent than they used to be. But people whose lives make for good stories are more compelling, and command more ink, than those who go about things the old fashioned way, who date and mate without incident.

Hymowitz also wants to say that the young people who are practicing these new dating rites are born-again Darwinists.

Darwinian thought posits a male who wants to spread his seed as far and as wide as he can... regardless of the consequences. And it offers a female who is far more selective in her choice of mates. A man can walk away from the consequences of his sexual activity far easier than a woman can. Also, a woman has fewer reproductive possibilities and invests far more in each reproductive attempt than a man does.

Here I differ with Hymowitz. If these young people were fashioning their behavior on Darwinian theory, then the women would naturally be more modest, more selective, and less reckless in the way they deploy their sexual resources.

Darwinian theory might explain why men hook up, but it does not tell us why women do. When women risk their reputations and their sexual health, to nothing of the possible pregnancy, for some thrills, they are not being Darwinians.

Hymowitz would counter that all women are searching for alpha males, for the best providers of genetic material. And she adds, strangely, that this leads some women to look for bad boys, men who mistreat them... omega males, I would call them.

Alternately, we might say that women choose men they consider losers because they run far less of a risk of becoming attached to them, this because they would never seriously consider settling down with them.

You do not have to have lived too long to know that bikers and brutes, muscle-bound behemoths, and down-on-their-luck artists are not alpha males. they are caricatures of masculinity

Some women like these bad boys because it is like having a toy with a pulse. Yet, in the end, they will want to choose husbands who are more capable of providing for a family.

The problem is: if a young woman works her way through a series of bad boys, will she be capable of responding to a man who is not a perverse caricature of some idea of maleness. The attraction to bad boys, however limited it is, feels to me more like a fetish than a rational choice. The problem is, once you get involved in fetishistic behavior, it is not easy all to shift to more normal modes of attraction.

The hook-up culture, the new anomic dating scene, shows what the world looks like when some people decide that they should pursue their own selfish interest, no matter the cost. but it also raises an important ethical issue: if two people decide they are going to use each other for sexual pleasure, and if they both consent to the arrangement, are they both being used?

Sunday, November 16, 2008

Reputations at Risk

You do not always deserve your reputation. In the current financial crisis many reputations are being damaged, some justly, some unjustly. Managing reputation is at the heart of my coaching practice, so, here are some new ways to think about it.

Take an average teenage girl. One day someone wants to hurt her and whispers a false rumor... usually about a sexual indiscretion. The rumor is contagious; it infects the minds of her cohorts, ruining her reputation. At least, for a time.

To a teenager the situation is traumatic. And yet, if the girl in question had built a reputation for being trustworthy and loyal, for being a reliable friend and a responsible classmate, her good character would insulate her against calumny.

Not entirely, but somewhat.

If, however, this girl hangs out with people whose reputations leave something to be desired, her own good behavior will not protect her. She will be condemned for the company she keeps, because, after all, your choice of friends and colleagues reflects on your judgment.

When your reputation has been slandered, the facts are rarely decisive. As they say, it is impossible to prove that something did not happen.

So, how should this girl defend herself? Should she fight back; should she retaliate; or should she ignore it?

If she says nothing, is she offering a silent assent? If she flies into a rage, does the intensity of her emotion make the rumor seem more true, or more false?

We know that she should neither over-react nor under-react. But how does she find the median between the extremes? She needs to discredit the rumor, but she needs to do so without making herself look bad. But which reaction makes her look better or worse?

A parent will tell her to told her head up high, to act with dignity and decorum. This is good advice. But what if her refusal to address the rumor is interpreted as a confirmation of its truth.

When someone defames you, you need to craft something of a response.

Railing against the injustice of it all will not restore anyone's good name. Surely, a slander is unjust. When you become emotionally overwrought about the slander, you look bad. And looking bad does not enhance your reputation.

I want to suggest here that it is not about justice. Reputation has its own marketplace where people invest their psychological capital. That means that your reputation is subject to the vagaries of the marketplace. It can be traded on a short or long term basis, and it can become overbought or oversold.

We like to think that it will eventually have some correlation with your value, that is, your character. But that is certainly not going to happen by itself.

You have to manage your reputation as you manage your other investments, carefully and intelligently.

The problem with markets is that, while value does matter, it is not always decisive. As John Maynard Keynes once said, the market can remain irrational longer than you can remain solvent.

We know about the free market in goods and services. And we know, thanks to Oliver Wendell Holmes, that there is a marketplace of ideas. To be fair, however, Justice Holmes called it the free trade in ideas.

So, let us say that there is a free trade in reputations, and that we learn it first in high school, where the currency, as far as girls are concerned, is sexual behavior. Among adolescent females reputation has a specific, narrow, circumscribed meaning.

(I will mention in passing that this observation refutes Freud's stupid idea that women are, by nature, morally obtuse.)

Now, look at reputation in a larger, more adult sense, one that has an especial salience in the New York financial world.

Say that a firm has filed for bankruptcy; everyone whose identity was caught up with that company will lose something of his or her reputation.

The top executives made bad decisions, perhaps honest mistakes, perhaps miscalculations. If that is the case, then everyone's reputation will not suffer as much as it would if the company had been revealed to be a corrupt enterprise.

Lehman Bros. is not Enron.

Yet, if the firm's bankruptcy threatened the world financial system... that is quite a bit more serious than the aftershocks of the Enron debacle.

Within the financial world honorable employees of Lehman or Bear Stearns are not disrespected for the mistakes of those higher up. Potential future employers look at accomplishments, and do not stigmatize people because their bosses decided that 40-1 leverage was safe.

Outside the financial world, things are different. Bankers who made the system run, who used to be masters of the universe, who were the kings and queens of the city, are today more likely to be held in contempt for allowing the system to fall apart.

To the point that people in finance had to think about whether or not they should announce their profession in public.

I would describe this by saying that many reputations went from overbought to oversold in a very short period of time.

There is a lot more to it than merit. And it is surely not just a function of individual behavior.

A year ago, when the reputations of bankers and traders were seriously overbought, how many of those who were basking in the glow of fame and fortune thought to sell... or better, to sell short?

When your reputation is overbought, it becomes the best stock you have ever purchased. It goes up and up and up; is making you a fortune on paper. You start to feel intensely loyal to a stock that has been such a great friend!

When your broker suggests that you might sell some of your shares, you refuse. It is almost as though he or she were telling you to throw your best friend overboard.

When your reputation is oversold you become convinced that there is nothing you can do to restore it. After all, it has crashed... but not because of anything your yourself did.

In times of market crashes, people sell the good with the bad. That is where the money is, and when you have a margin call you need to come up with the money... very quickly, indeed.

A company can be somewhat insulated from the crash if it has solid earnings, and if it pays a dividend, but that does not prevent it from becoming oversold.

What if you find yourself unemployed for reasons that have nothing to do with your job performance. They are throwing out good employees with the bad... often to cover up a mistake. Still, you are out of a job.

How do you rebuild your reputation? How do you approach your job interviews or your next job? People like me and Dov Seidman tell you to maintain your good character, to behave ethically, and to embrace the corporate culture.

And yet, what happens if you were working at Lehman Bros. or Bear Stearns, and you were called upon to demonstrate your loyalty to the company by investing heavily in the company stock?

It is as though you were punished for having good character. It is going to be difficult to show the same loyalty at your new firm.

Given the weight of the trauma, given the unjust hit to your reputation and your bottom impulse will tell you that from now on you will be in it for yourself, and only for yourself.

The problem is: that is what got us into this mess. Too many people were bad stewards of the financial system. Some of them made honest mistakes; some of them simply miscalculated.

Yet, they were all profiting handsomely, and could not be bothered to find out what was going on.

Some have had their reputations destroyed by the crash, but many have emerged, up to now, with their reputations intact. At a time when everyone is blaming bank deregulation, Bill Clinton, to his credit, wondered out loud why no one had noticed that he had signed the bill that deregulated the banks.

At the least this shows that it helps to have friends in the media.

When a Robert Rubin, chairman of the executive committee at Citigroup, admits that he did not know what was generating all of those profits, then something is seriously wrong. Rubin may have known that his and his company's reputations were overbought, but he was not sufficiently responsible to try to do something to avert a pending crash.

Thursday, November 13, 2008

Risky Business

Risk made people very, very rich. Now, risk is taking back most of those riches. After all, were the numbers ever real to begin with?

I have worked with several people who have been directly involved in the high-risk, high-reward, Wall Street casino.

Most of them understood how the system was working; most of them know it was hanging by a thread; and most of them assumed that they were smart enough to get out before Armageddon.

Why did so many people accept such high levels of unsustainable risk? Why try to hit the jackpot when you can comfortably make money the old fashioned way, as the now-dated ad said, by earning it.

The problem, as I see it, was an absence of civic virtue. With the support of the therapy culture and the self-esteem gurus, loyalty to the firm was replaced by looking out for No. 1.

And no one was really thinking about systemic risk. Loyalty to the system, to the nation, was for chumps. Patriotism was not a serious emotion in the New York social whirl.

Thinking people were citizens of the world. They did not really belong to a nation; they were not moved by patriotic yearnings; they were in it for themselves.

We have been told that the system lacked oversight, and that the regulators failed to regulate. Undoubtedly, this is true. But Alan Greenspan admitted that he thought the pursuit of self-interest would automatically regulate the system.

Here he was clearly wrong. The financial system will regulate itself only if it is run by people whose first loyalty is to the system, and who feel that they are its stewards.

Civic virtue would have regulated the financial system. Self-interest has been a bust.

As I have mentioned, hard work should be on the list of civic virtues.

Risky bets offer the promise of inordinate profits without inordinate effort. In a world that values leisure over work, too many people have been seduced by the notion that they need to cash out as soon as possible, the better to kick back and do nothing.

As though doing nothing was the meaning of life.

From my consultations I have observed that for many high-level risk-takers, risk is a tonic, a medicine. It provides a rush and a thrill. If you think that Prozac is a miracle cure, try the rush of high risk gambling, when hundreds of millions of dollars are involved in your trades, leveraged at 30 to 1.

Risk was something like a solution to a real problem. That problem was a pervasive social anomie, a feeling of not really belonging, of not being part of the group, of not sharing its traditions and its successes.

Anomie is a natural state in a highly diverse corporate culture. It becomes institutionalized when weak corporate cultures fail to integrate people from diverse backgrounds.

Risk gives you a rush because it makes you a player. It puts you in the game. It makes you a participant, not a spectator. You could have grown up on a potato farm in Idaho; you did not know the difference between Broadway and the Bowery; you were clueless about the New York dating scene.

When you became a trader you found a place. You knew the rules; you made a fortune; and you gained status from your wealth.

That was the only status you knew. If you wanted to advance you merely had to assume greater risk. Then you would glean greater rewards and enhanced status.

You would hope against hope that you could exit the game before the system crashed around you. Because, after all, your loyalty was to yourself, and perhaps to your family.

You had no real feelings of loyalty toward the firm, because, after all, the firm had never shown much loyalty to you. They loved the numbers you produced; they compensated you generously.

But they knew, and you knew, that the day you stopped producing would be the day that you became expendable.

Wednesday, November 12, 2008

The National Mood 2

Today's New York Times offers a story that touches on many of the same points I made in Monday's post. The crux of the story: the extraordinary decline in consumer spending poses a severe threat to our economic well-being. Link here.

The author, David Leonhardt, even considers my proposal... that our new president follow George Bush's lead and encourage people to shot. He adds that it might not do any good this time, because people feel so financially depleted.

He may be right. And yet, it may not be a bad idea for Obama to tell people to go out and shop. It's good to see the notion enter the public debate.

In either case, the article is worthwhile and worth reading.

Monday, November 10, 2008

The National Mood

Do you remember, in the days after 9/11, that defining moment when George Bush ordered the traumatized nation to go out and shop?

If so, you also remember the gales of derision that were thrown at him. Only a fool could turn a tragedy into inanity.

As it happened, people from all over the country did flock to New York to do their Christmas shopping in September. Everyone was grateful for the gesture of solidarity.

Everyone, that is, except the great American thinking class. Appalled at the triteness of the presidential gesture, it insisted that, in time of trouble, the president should have called for sacrifice. We needed sackcloth and ashes, not Prada purses and Chinese toys.

Didn't the president know that we needed to heal. How dare he ignore the therapy culture's assertion that we were a psychically troubled nation in need of long term therapy? In place of the mindless consumerism the president was promoting, the therapy culture told us to introspect... the better to understand why they hated us?

Most serious thinkers draw their theoretical sustenance from the radical left. And the radical left did not see 9/11 as an attack on American freedom and enterprise. In their mythic worldview, 9/11 showed that the world's oppressed peoples were rising up to smite their capitalist and consumerist oppressors.

Of course, pompous intellectuals rant about consumerism all the time. Mostly, they do so from within the safe confines of their tenured professorships. No one really pays them much notice.

But, what happens when people take their critique seriously and begin acting on it?

They look deep into their souls to see how their purchases of doodads and widgets are responsible for all of the world's poverty and hunger and misery. Then, naturally enough, they stop shopping.

Perhaps it is pure happenstance, but that is what is going on right now. Our economic crisis is not merely a credit freeze. It extends to a shopper's boycott. People are not shopping; they have cut back on going to restaurants; they are buying far fewer cars and homes.

As shopping goes, so goes the American economy. Once consumers get out of the habit of shopping, it is not all that easy to get them back into it. Just ask the Japanese. If they stay out of it too long then we will have a severe economic contraction.

The question is: will the national mood continue to be so pessimistic now that we have elected a new president who embodies hope.

Clearly, the Obama message is not entirely clear on these points. Does Obama want to bring out and build on our best or does he want to redeem the nation's flaws, faults, and failures? Does his election herald a new Reaganesque era of optimism about the greatness of America and about our ability to solve any problem or does it promise a new round of public therapy to exorcise the demons of our past?

The two are not the same. One way you will be able to tell is to see whether Obama addresses the nation and tells everyone to go out and shop. Better yet, he should display his optimism about the future by setting an example. The country will be willing to emulate the example he sets with his own wonderful family. Shouldn't he use that leverage by taking them all on a shopping spree?

Christmas is approaching. Retailers always count on Christmas sales to make their years. President-elect Obama would do the nation a great service by showing us all the way... to the mall.

Friday, November 7, 2008

Afterthoughts on the Election

Now that the election is history, I want to review some of my previous hypotheses to see how they worked out in practice.

Politics is a boon to executive coaching. It provides a large and open laboratory where upcoming, and even seasoned, executives, can go to school.

If you follow this blog you know that I believe that good leadership must be based on clearly-defined policies. Policies define actions; they define actions down the chain of command. They must be intelligible and workable. Otherwise, no leadership.

I also suggested that people will vote for a candidate whose policies are clear and wrong over one whose policies are obscure and correct.

I believe that the election bears this out. Obama was always on message. He told us exactly what he was going to do as president. McCain was rarely on message; his campaign was inefficient, ineffective, and filled with psychodrama.

Where Obama told us he was going to lower taxes for the vast majority of the populace, that he wanted to build more windmills and solar power plants, that he will make nice with friends and enemies alike, and that he will spend more money on rescues, bailouts, and handouts.

Now, what was McCain's message. According to his ads, it was: Obama was not ready to lead. That, my friends, is not a policy; it did not tell us what a President McCain would do in office.

That is why John McCain is returning to the Senate.

If this feels trite, consider that the eminent political consultant, Dick Morris, predicted that a series of last-minute ads connecting Obama with Jeremiah Wright would tip the election toward McCain.

Of course, this same Dick Morris insisted that McCain's histrionic gesture of suspending his campaign to return to Washington to provide leadership in the financial crisis was a great idea.

Most sentient individuals believe that that gesture doomed McCain's candidacy.

Now I would add that Obama also took control of the narrative about the financial crisis. Policy and narrative are not the same thing. The first tells what you are going to do; the second tries to explain what went wrong in the past.

While Obama offered his view that the crisis was a verdict on Bush administration policies, John McCain offered a populist narrative blaming Wall Street and Congressional earmarks. His narrative did not comprise the scope of the problem; thus it fell flat.

Life is not a narrative. Yet, in time of crisis, when we endure trauma, when our routines are interrupted, we use stories to provide a semblance of meaning. Stories bridge the time before we can return to our normal life rhythms.

We should not get too carried away with narratives, especially the one that has currently captured the imagination of the world. In that one, the world has been changed by the Obama victory because his own personal story, within the context of the American narrative about race, has a transcendent quality that will inspire and elevate us, while healing and saving the world.

So we have two competing perspectives: narrative and policy. Is the world going to feel uplifted by the Obama narrative or is it going to pass a different judgment on the Obama policy prescriptions.

Clear policies do attract votes, but they are subject to another judgment. Not the judgment of the public opinion polls, but of the marketplace.

As readers of this blog know I have been suggesting that the stock market crash that began in late September was discounting an Obama victory. It coincided directly with Obama's ascendancy in the polls.

For those who did not believe that there was any correlation, the markets have sent an even stronger message these past few days. On the two days after the Obama election the Dow threw down the gauntlet. It took Obama at his word and gave a vote of no-confidence in his economic agenda.

It is a good time to recall the early days of the Clinton administration. At that time, Robert Rubin explained to Bill Clinton that his fiscal policies were going to be judged ultimately by the bond market. To which we should add.... the stock market, the commodity exchanges, and the foreign exchange markets.

No politician can paper over the verdict of reality with soaring rhetoric. In the battle between narratives and the market, the markets, being real, will always win out.

The question we are now facing is this: will Obama understand the vote of no-confidence he has just received and change fiscal course? The world awaits his decision.

Tuesday, November 4, 2008

Blogging and Logging

Perhaps you've seen the ad on television. The one about logging. The one with the police and the protesters and the loggers. For reasons that are far from being self-evident, the ad is trying to convince us to bank at the Hong Kong and Shanghai Bank Corporation. To you and me, that's HSBC.

HSBC, the global banking colossus, is rebranding itself for the new globalized marketplace. Considering that it is one of the best-run banks in the world, you would have thought that it could have played up its strengths. If the ad is any indication forging cross-cultural connections is not one of them.

The ad begins with a group of environmentalists, affectionately called tree-huggers. Literally. They have invaded a logging site and have tied themselves to the trees. They are trying to save the trees from the indignity of being turned into newsprint, currency, and greeting cards.

Ominously, a convoy of police cars arrives. The officers jump from their vehicles and forcibly remove the tree-huggers. Several are taken off to jail. Then the loggers go to work.

In a final dramatic twist, one of the woman protesters, having been put in jail, is bailed out by a logger. Apparently, the two are romantically involved. They jump on a motorcycle and ride off into the sunset.

In adspeak, that is called a happy ending.

The ad does not tell us whether she spent the day in jail while he was destroying the forest, or whether he took the day off to spring her.

The tag line suggests that people with different values can still get along if they love each other: "The more you look at the world, the more you recognize that people value things differently. HSBC, the world's local bank."

I do hope that they did not spend too much on this, because it is pure drivel.

If you have not seen the ad, or have not thought too deeply about it, I recommend John Swansburg's article in It provides a link to the extended version of the ad, along with a cogent, and largely correct, analysis of its failings. Link here.

Clearly, the ad wants to show people getting along across large cultural divides. Forget the fact that getting along with other people is not the same thing as hugging them from the back of a motorcycle-- in many companies it would not be allowed.

The problem with the ad, as Swansburg notes, is that it does not understand that different values are not the same as different customs.

Worse yet, when one member of a couple wants to put the other out of business, that is not at all the same as two people speaking a different language, having different table manners, or observing different social rituals.

Globalization has made it vitally important for different peoples from different parts of the world with different cultural backgrounds to work together in common enterprise. Learning how to do this is one of the greatest cross-cultural challenges we face today.

But how, pray tell, will they ever do so if one group is trying to shut down the other's enterprise.

Someone from HSBC and/or the agency did not work hard enough on this concept. HSBC may have wanted to show us how to bridge cultural divides; it showed us that it does not even understand the problem.

It is not alone. In my executive coaching practice, as well as in my relationship coaching practice, I often see people grappling with similar issues. Most, however, have a better grasp of the problem than HSBC and its ad agency.

And what about the way the relationship between logger and tree-hugger is portrayed? Swansburg describes it as: "either irritating or endearing, depending on your taste in such things.... It's like a 21st century version of those Ernst Lubitsch meet-cute pictures, in which the man who sleeps in the pajama bottoms and the woman who sleeps in pajama tops fall in love at the pajama rack."

Here Swansburg goes off the rails. Do you imagine that when this couple gets home-- assuming that they get there together-- they are going to be ready for a romantic romp?

There is nothing cute about one spouse-- let's pretend they are married-- trying to put the other spouse out of business. It is not just a matter of taste, an aesthetic issue, like the difference between sushi and tacos, or between Vermeer and Giotto.

We are not just talking about two citizens in a democracy voting for different candidates. Not at all. We are within the realm of the ethical, not the aesthetic. The true issue here is loyalty.

The ad's message is that if two people love each other enough, then all is well in Relationship Heaven.


The truth is, relationships do not collapse for lack of love. They often wither and die from disloyalty. Add a hint of disloyalty and the truest of true love will instantly turn to gall.

The problem with the tree-hugger's behavior is that it is disloyal. This is not excused because she feels strongly about the issue. Zealotry aside, there is rarely only one cogent position of an issue. Even if there were, this does not excuse her disloyalty.

The least I can say is, don't try this at home. And if you want to help people from different cultures to work together, don't follow the advice implied in this ad.

Sunday, November 2, 2008

Is Gold Money?

Today, the world is awash in what is called liquidity. Central banks everywhere are furiously printing money to salvage the world financial system before it runs completely aground.

The threat they are facing is not merely the disappearance of everyone's savings. The larger problem is deflation, a systematic reduction of prices and wages.

When you have a lot of debt, deflation is a catastrophe.

Lower prices, lower wages, same amount of debt... a very bad formula, indeed.

Deflation keeps Ben Bernanke awake at night. He has said that if he were forced to choose between deflation and inflation, he would inflate the currency, even if it meant dropping money from helicopters.

According to James Grant, a leading authority on the credit markets, this is good news for gold. And people in the know pay close attention to Grant's opinions.

At the end of a recent analysis of monetary policy, Grant declares: "We envision great things for the gold price." Link here.

Why, pray tell? Grant quotes British economist T. S. Gregory, who said in 1925: "Gold is not a perfect standard of value: it is certain that paper has shown itself a still more imperfect one."

Grant's opinion is based on a philosophical analysis. He is assuming that paper money is a social construct, while gold is the real thing, an intrinsically valuable substance.

The issue is simple: if a piece of paper is money because a government says that it is money, and because people believe that it is money, and because they all accept it as money, why not say that same about gold.

Why should there be any intrinsic value at all.

Of course, some few intrepid souls still believe that gold is intrinsically valuable. It is eternal and immutable; it does not corrode, even when used as dental crowns. Gold has always been accepted as a medium of exchange. It is virtually indestructible and is intrinsically beautiful.

Gold's detractors believe that gold is a commodity like another, only that it is better looking than most.

Where a central bank can print as much money as it likes, there is a finite amount of gold. Alchemy aside, you cannot produce it with magic.

When Jim Grant says that this is going to be a good time for gold, he assumes that gold is real money, and that when people tire of collecting increasingly worthless paper, they will rush to buy gold.

As of today, Grant does not look very prescient. Over the past couple of months the price of gold has been declining with all other commodities.

Right now cash is king. It's the place to be. People who own cash are sleeping better than people who have accumulated other assets. After all, it appears that we are heading straight off the deflationary cliff.

And yet, one should never be too complacent about money. Cash has rarely been a good long term investment.

Jim Grant is counting on the Federal Reserve to inflate the currency, because the alternative is too awful to contemplate.

You may think that he is a prophet of gloom and doom. Quite the contrary. I see him as a great optimist. He is banking on the Fed to produce inflation, because systemic deflation would be far, far worse.

So, if you believe that gold is intrinsically valuable, we are approaching the time when it will be better to put your gold where your money is. By all appearances we are not there yet, but that does not mean that the time will never come.