One exemplar of the fashionable nonrational approach to management was Joe Gregory, former president of the former investment company Lehman Brothers. According to a 2008 article in New York magazine, Gregory was known as a “warm and fuzzy” person, a good golf companion, and, as Gregory himself put it, a “Feeler” with a capital F. Not for him the tedium of detailed risk analysis. “He was Mr. Instinct,” in the words of another Lehman executive. “Trusting your instincts, trusting your judgment, believing in yourself . . . and making decisions on the back of that trust is a remarkably powerful thing,” Gregory had said in a speech to one group, even when that instinct contradicted rational analysis. Sometimes, Gregory’s hunches would lead Lehman to “decide that we should be doing the exact opposite of what the analysis said,” according to one analyst. 18
In April 2008, I interviewed one of the few dissenters from the prevailing positive-thinking consensus. Eric Dezenhall is a Washington, D.C., “crisis manager”—someone companies call in when faced with a potential public relations disaster. A short, blunt, intense man with an impeccable Republican background (he was an intern in the Reagan administration), Dezenhall has often found himself at odds with his own clients: “A lot of corporate types don’t want to hear what I have to tell them.” In fact, he said, it can be a “career ender” to be the bearer of bad news. However dire the situation, “corporate America desperately wants to believe there’s a positive outcome and message.” When called in by companies to deal with a crisis, he starts by telling them, “I’m going to tell you something you’re not going to like: ‘A crisis is not an opportunity.’ ” I asked him whether he thought corporate decision makers went so far as to embrace the “law of attraction,” or the idea that you can control the world with your thoughts, and he replied that this way of thinking was “viral” in corporate America. “They believe this stuff. Corporations can be ruthless about making money, but when it comes to being realistic . . .”
The once sober finance sector was not immune to the “virus” of positive thinking. Finance companies hired motivational speakers and coaches like Tony Robbins, who boasted to Larry King in 2008 that he’d “had the privilege of coaching one of the top 10 financial traders in the world for 16 years” and was currently consulting to a group of traders including “the smartest minds around.” 19 Some finance companies even generated their own motivational speakers. Chris Gardner, for example, whose account of his rise from homelessness to a top-earning position at Bear Stearns—The Pursuit of Happyness—became a best seller and a Hollywood movie, is a popular motivational speaker. Another motivational speaker, Chuck Mills, spent several years with Bear Stearns as a trader for a $300 million portfolio before going on to found his own financial services firm and speaking business. So profound was the optimism of the finance sector that, when the crisis hit in 2008, Merrill Lynch suddenly found itself having to “temper the Pollyannas in its ranks” and force its analysts to occasionally say the word “sell.” 20
Or consider the somewhat tipsy case of Countrywide Mortgage, the company whose rash lending practices almost singlehandedly set off the subprime crisis that preceded the global credit meltdown. In 2004, Countrywide’s CEO, Angelo Mozilo, ever smiling through his bright orange tan, had been the recipient of the Horatio Alger Award as “an individual who has emerged from humble beginnings to prove that hard work, determination and positive thinking are key to successfully achieving the American dream.” 21 Even as his company’s stock plummeted in early 2008, the press consistently found him “optimistic” and “upbeat.” Bruce C. N. Greenwald, a finance professor at Columbia Business School, said of Mozilo: “People who get themselves in trouble are good at self-hypnosis. That is why they are such good salesmen—they convince themselves about the story. . . . And he had lived in a world where there had been no defaults for so long that he didn’t believe they could happen.” 22
The same happy conviction prevailed throughout the company during its years of glad-handed lending. In a tell-all book about his time as a senior vice president at Countrywide, Adam Michaelson describes the “marginally cultish behavior” at the company, characterized by what he calls a “woo” culture of high fives, motivational speakers, and loud “woo” cheers. When, in 2004, he questioned the assumption of ever-rising housing prices, he was told, “You know what? You worry too much.” Even as the subprime mortgage market imploded, he writes, the woo culture prevailed: “These are the times when that one person who might respond with a negative comment or a cautious appraisal might be the first to be ostracized. There is a great risk in noncomformity in any feverishly frothy environment like that.” 23 Interestingly, among the motivational speakers I could find listing Countrywide as a client was Buford P. Fuddwhacker (actually the fictional alter ego of the real motivational speaker Roger Reece), who is described as “a down-home motivational speaker who brings the fervor and energy of a fired-up country preacher to the platform. When you unleash Buford on your audience, get ready for music, laughter, kazoos, karaoke, and outrageous audience participation.”
In a remarkable essay entitled “The End of Wall Street’s Boom,” business writer Michael Lewis provides a glimpse into how positive thinking turned toxic on Wall Street. He set out to find insiders who had anticipated the disaster, and, not surprisingly, some of the people he found had been under pressure over the years to improve their attitude. Ivy Zelman, an analyst at Credit Suisse who foresaw the bursting of the housing bubble, “alienated clients with her pessimism, but she couldn’t pretend everything was good.” Another analyst, banking expert Steve Eisman, faced criticism for putting a “sell” rating on a company because, as Lewis quotes him, “it was a piece of shit. I didn’t know that you weren’t supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you picked the one you thought you should.” He was, in other words, a holdover from a more rational approach to business, when the job of midlevel people was not just to soothe or flatter the men at the top. Lewis relates that Eisman “was pressured generally to be a bit more upbeat, but upbeat wasn’t Steve Eisman’s style. Upbeat and Eisman didn’t occupy the same planet.” 24 When I talked to Eisman by phone a couple of weeks after Lewis’s article came out, he said the finance industry had “built assumption on top of assumption”—such as that housing prices would never fall—and that “no one saw any reason to question those assumptions.” There was a good reason to remain silent about the enveloping madness, he told me: “Anybody who voiced negativity was thrown out.”
One such martyr to the cause of financial realism was Mike Gelband, who ran the real estate division of Lehman Brothers. At the end of 2006, Gelband was getting nervous about what looked increasingly like a real estate bubble. “The world is changing,” Gelband told Lehman CEO Richard Fuld during his 2006 bonus review. “We have to rethink our business model.” Fuld promptly fired the misfit and, two years later, Lehman went bankrupt. New York magazine reports that, as of late 2008, Fuld still had not absorbed what Gelband was trying to tell him:
At night, Fuld has trouble sleeping. Most of the time, he lives in Greenwich, Connecticut, in one of his five houses. He can wander through the twenty rooms, eight bedrooms, the poolhouse, tennis court, squash court. Mostly, he sits and replays Lehman’s calamitous end. “What could I have done differently?” he thinks. . . . How, he wonders, did it all go so disastrously wrong? 25
Or we might cite the case of Armando Falcon, a government official charged with oversight of Fannie Mae and Freddie Mac. When he issued a report in 2003 warning that the two mortgage giants were in parlous financial condition that could result in “contagious illiquidity in the market”—that is, a general financial meltdown—the White House tried to fire him. 26
It’s almost impossible to trace the attitudes of failed titans like Fuld to particular ideologues of positive thinking—the coaches and motivators who advise, for example, that one purge “negative people” from the ranks. Among top executives, there’s a de
gree of secretiveness about the use of coaches. In the UK, for example, an estimated one-third of CEOs of FTSE 100 companies used personal coaches in 2007, but as a writer in the Spectator commented, “Consulting a coach is still regarded by senior businesspeople as private and absolutely not something to declare openly.” 27 More likely, though, a top guy like Fuld didn’t need anyone whispering in his ear that he could have anything he wanted, if only he concentrated on it hard enough. At $60 million a year—his average compensation between 2000 and 2008—this was already his reality, without his even having to concentrate.
Corporate leaders, in the finance sector and elsewhere, had ascended into a shimmering bubble of wealth floating miles above the anxieties and cares of everyone else. Between 1965 and 2000, the ratio of CEO pay to that of a typical worker soared from 24:1 to 300:1, and the gap also widened between the CEO and his or her third in command. 28 Robert Frank documented the fabulous wealth at the top in his book Richistan: A Journey through the American Wealth Boom and the Lives of the New Rich. If, for example, you were in your Palm Beach home and found that you’d left the Château Latour in your Southampton wine cellar, a private jet could be dispatched to fetch it. 29 Take the case of Jack Welch, whom we last saw in chapter 4, mowing down middle-class jobs. He retired from GE with a monthly income of $2.1 million, as well as the use of a company-provided Boeing 737 and an $80,000-a-month Manhattan apartment, in addition to free security guards for his various homes. 30 On one postretirement trip to London, the Independent found him “installed in the suite of suites in the Lanesborough Hotel overlooking Hyde Park. Dark-suited flunkies with little GE lapel pins stand around looking menacing. One or two have earpieces and curly wires going back down their necks, like G-men protecting the President.” 31
One obvious price of this lifestyle is extreme isolation—what Dezenhall calls “bubble-itis.” Subordinates suffer from “the galloping desire to bring good news” rather than honest reports, leading one billionaire CEO to complain to Dezenhall that “I’m the most lied-to man in the world.” Dezenhall can’t offer examples from among his own clients, of course, but he points to the film Michael Clayton, in which Tilda Swinton’s character arranges to have a whistle-blower murdered rather than confront her boss with the developing mess. Again, the defunct Lehman Brothers provides a case study. According to New York, by the summer of 2008:
There was a disconnect to the outside world, and the risk was substantial. “The environment had become so insular,” said one former executive. Fuld okayed decisions, but [Joe] Gregory packaged material so that the choice was obvious. And the executive committee offered no counterweight. . . . In truth, the relentless optimism, both inside and out [of the company], was probably doing as much harm as good. 32
Then there is the effect of being walled inside a world of unstinting luxury. Fuld had his five homes; Gregory commuted to work by helicopter from one of his “sprawling Long Island homes.” 33 “The problem with this,” Dezenhall and his coauthor write in a book on crisis management, “is that when a subject goes from a Gulfstream V airplane to a limousine to a catered meeting to a four-star hotel, he lives in an artificial bubble of constant, uncritical reinforcement. He becomes a demigod who is a consumer of reassuring clichés, not of life’s friction.” 34 And of course one thing that would be invisible from 30,000 feet up in a Gulfstream jet was the kind of everyday emergency that was derailing so many mortgage holders—a child’s illness leading to medical bills and days lost from work, a costly car breakdown, a surprise layoff.
Steve Eisman is far harsher about the executive mind-set that led to the market crack-up. He calls it “hedge fund disease” and says “it should be in the DSM-V [the latest manual of psychiatric disorders, currently in preparation]. It used to be suffered only by kings and dictators. The symptoms are megalomania, plus narcissism, plus solipsism.” If you’re worth $500 million, he asks, “how could you be wrong about anything? To think something is to make it happen. You’re God.” This is the state of mind promoted by every positive thinker from Mary Baker Eddy to Joel Osteen, from Norman Vincent Peale to Rhonda Byrne. Corporate chiefs had, perhaps somewhat cynically, long recommended it to their underlings. They had distributed motivational books and brought in motivational speakers to inspire people to visualize success, to work harder and complain less. The problem is that they came to believe it themselves, with the eventual result that, in a short period of time, about $3 trillion worth of pension funds, retirement accounts, and life savings evaporated into the same ether that had absorbed all our positive thoughts.
“Where were the grown-ups?” asked the commentators as the economy unraveled in 2008. Where were the regulators, the watch-dogs, the rating agencies, like Moody’s, that were supposed to make careful assessments of investment risks? Well, the rating agencies, as we have learned, were in the pocket of the very companies they were supposed to be judging—were even paid by them, perversely enough. 35 As for the public and quasi-public sector, it was in the grip of its own optimistic faith—market fundamentalism, or the idea that markets are self-correcting and in no need of burdensome regulation. One true believer was Alan Greenspan, chairman of the Federal Reserve until 2006, who had crowed in 2005 that “the impressive performance of the U.S. economy over the past couple of decades offers clear evidence of the benefits of increased market flexibility,” with “flexibility” meaning freedom from regulation and burdensome trade unions. Three years later he was eating crow, famously admitting to a congressional committee that “those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity are in a state of shocked disbelief.” 36
And what was market fundamentalism other than runaway positive thinking? In the ideology that prevailed in the Bush administration and, to a somewhat lesser extent, the Clinton administration before it, there was no need for vigilance or anxiety about America’s financial institutions, because “the market” would take care of everything. It achieved the status of a deity, this market, closely related to Mary Baker Eddy’s benevolent, ever-nurturing, and all-supplying universe. Why worry, when Adam Smith’s “invisible hand” would straighten everything out?
The purveyors of positive thinking did not slink off into the night like foreclosed-upon homeowners when the prospects for instant wealth tanked in the late years of the decade. Not at all. In fact, they seemed to redouble their efforts. Positive thinking has always thrived in adversity, with the Great Depression bringing forth such classics of self-delusion as Napoleon Hill’s Think and Grow Rich! In late 2008, as the financial meltdown touched off general economic decline and widespread unemployment, as the commentators increasingly questioned the durability of capitalism itself, attendance was soaring at evangelical churches, including those offering the prosperity gospel. 37 Joel and Victoria Osteen took to the national media with their message of victory and faith, telling Larry King that their advice to people who had lost their jobs, their homes, and their health insurance was to avoid seeing themselves “as victims”: “You’ve got to know that God still has a plan and that even if you lost your job, even if one door closes, God can open up another door.” A new series of “Get Motivated!” seminars was announced, featuring Rudolph Giuliani, Robert Schuller, and veteran motivator Zig Ziglar. A speakers agency reported that requests from mortgage companies for motivational speakers rose 20 percent as the mortgage industry declined in 2007. 38
Employers turned to the motivation industry for the usual reason—to maintain discipline within a demoralized workforce. The pharmaceutical company Novo Nordisk, for example, bought up seven hundred “Positive Power” CDs from motivational speaker Ed Blunt, hoping they would serve as “a catalyst for employee productivity.” 39 A late November 2008 conference on “Happiness and Its Causes” attracted, among hundreds of others, a senior vice president of a large mortgage company. As the New York Times reported, she said that “she had laid off more than 500 people in the last six months, and was there to learn how to bo
ost the morale of employees working weekends and holidays and making do with bonuses cut in half, . . . adding that companies like hers were not totally at fault for the mortgage crisis.” 40 The message to downcast employees could be fluffily optimistic, like Osteen’s, or downright harsh, like that of the motivational speaker who told a St. Petersburg, Florida, business conference that when people write to her saying “they can’t pretend to be upbeat at work when they feel so miserable,” she tells them to “fake it.” As for workplace “change,” generally meaning layoffs, her advice is, “Deal with it, you big babies.” 41
With real jobs disappearing, the positive thinkers counseled people to work ever harder on themselves—monitoring their thoughts, adjusting their emotions, focusing more intently on their desires. All the usual nostrums were invoked: Banish negative people and steer clear of “office water-cooler whinefests.” 42 Limit your consumption of negative news. Even on the liberal news site the Huffington Post, a blogger advised, “Studies show that you will sleep better with less news intake late at night. Focus your mind on what is upbeat and positive.” 43 Above all, it was important to be vigilant and learn how “to spot when negativity is sneaking up on you personally,” according to an advertisement for a positive-thinking seminar directed both at managers and at “individuals who are experiencing a personal loss of drive and feeling of futility.” Bear in mind that even in the worst catastrophe someone usually comes out on top, Tony Robbins assured viewers of the Today show, citing Sir John Templeton, “the greatest investor of all time,” who “made most of his money when markets were crashing.” 44 If just one person can get rich during a crash or economic downturn, then no one has an excuse for whining.
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