Expert Failure-1

THE BATTLE OF CHANCELLORSVILLE
I want to give a talk this evening about an We explain the Second World War by saying
episode that all of us would rather have done that the man who started it-‐Hitler was a lunatic
and forgotten and that episode is the financial in the grip of a powerful and psychotic
crisis. We like to pretend it never happened-‐ prejudice. I any of you were to drive home
don’t we? tonight and were to get into a car accident, we
would explain it by pointing to something that
I had a conversation with a friend of mine who went wrong—you were distracted, there was a
works…err used to work for Lehman Brothers, mechanical failure, you were blinded by an
and he said, Shubham they are back and I said intense beam of light or because of talking on
“what do you mean” and he said, well all of that the telephone or perhaps break failure or you
attitude and risky work styles are back, nothing are a bad driver or you were under the
has changed. My friend said that when he goes influence of alcohol. I mean, all of us would
to financial institutions or when he meets come up with reasons to explain why you could
investment bankers, they behave with the same not perform upto the level we wanted you to
old attitude that nothing ever happened… and perform. The last thing we would say is that
then it struck me that we probably missed an you got into a car accident is BECAUSE you are
opportunity to learn something from the a good driver…Right?
financial crisis….. the great benefit of crisis like
that is that they are great opportunities for us But that’s precisely the situation we are in with
to examine our assumptions and our behavior the financial crisis. These guys were not drunk
and to do better next time. or distracted or inexperienced or in the grip of
some powerful psychotic prejudice. NO. They
So, lets do an examination of the financial were thoughtful, educated, interesting people
crisis… maybe try and start a conversation to with deep experience in their fields who still
understand and learn about what went wrong made a series of catastrophic mistakes. This
and why it went wrong… and hopefully by the was an example, in other words of EXPERT
end of this session, we will walk out of those FAILURE.
doors with more thought provoking minds than
before. And I think expert failure is a very fascinating
topic. Firstly, because I don’t think many have a
Now that part of the financial crisis that I want good understanding of what it means. It means
to talk about is not the technical part. Im not people fail at something because they are good
going to talk about the derivatives and sub at something. So, we will talk about what
prime mortgages and all that stuff because I happens when good people make mistakes,
don’t understand that.. and my friend at when smart people make mistakes.
Lehman Brothers assured me that there are not
many in wall street who understand that either. And to do that I want to tell you a story and I
Instead I want to talk something about the want to take you to a place where perhaps this
financial crisis that has always fascinated me has been thought about more than any other
which was that this was caused by a group of and that is the world of the military. And the
people who were very very good at their jobs. story I want to tell you is the story of the Battle
RIGHT?.. who were very smart, well educated, of CHANCELLORSVILLE in the American Civil
highly experienced people and that’s weird War.
because normally when we think about people
who are involved or implicated in some The battle of CHANCELLORSVILLE took place in
catastrophe we explain the failure in the the spring of 1863 and at the mid point of the
catastrophe by pointing to some flaw or to civil war, when the outcome was still very
some gap, some deficit, something that went much in doubt.
badly wrong .
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And at that point, in the Northern theatre of the Lincoln is getting more and more worried.
war, the battle line between the North and Because he knows this cannot last and it will
South was divided by the Rappahannock river not end well for the Northern troops. And
which runs through the middle of Virginia-‐east finally, he decides that he has to take action. So
to west. what he does is he replaces the general who
had been in charge of the Northern (Union)
The commander of the Southern Army, of the army and he brings in someone entirely new.
rebel army at that point was Robert Lee-‐widely And the guy he decides to bring in is a guy
regarded as the most famous and the most called Fighting Joe Hooker. Now hooker is this
brilliant general perhaps in all of American tall, strong, incredibly good looking, lantern
history. And at that point in the war, he had jaw, deep blue eyes, broad chested, blonde hair,
won 4 consecutive devastating victories against charismatic guy that when he walks into a
the Union troops. He was a most feared military room every single eye turns to him. He had
figure in the entire war. A man of extraordinary been a military hero in the Mexican conflict, he
brilliance and integrity. And that made the caught the eye of Northern leaders on multiple
North very very nervous. And the North was occasions….he was notorious for his confidence
also very very nervous because the troops in and brilliance and brashness and Lincoln just
the battle were in a very poor shape. They had says “this is the guy to turn around my army.”
just lost 4 consecutive battles to Lee, they were
demoralized, they were soldiers deserting, they So he brings in Hooker and sure enough it’s like
hadn’t been paid in 7 months, their were not night and day. Hooker comes down and strides
being properly fed, soldiers were weak and into that army and all of a sudden every single
there were frequent medical outbreaks… I soldier just turns and faces this guy. The morale
mean they were in an incredibly rough shape.. which had been rock bottom suddenly goes up
And so, in Washington, Abraham Lincoln was to the sky and the desertion – people who had
getting very very nervous. Because this group been deserting the army and which was a big
of troops was all that stood between Robert Lee problem ends and he cleans things up and he
and Washington. That was the last barrier that promises the men he will pay them and most
existed between the rebel army and the Capital importantly he says, “I am going to feed you
of the Union. properly.” He promises them fresh bread, fresh
vegetables, he says “once a week you will get
So for months, the 2 sides were pitched across fresh meat”. In fact , he stands and turns to the
each other on the 2 sides of this river. It was people who are responsible for provisions and
kind of a stalemate. Throughout the winter of he says “my men will be fed before I am fed.”
1863, they were staring at each other… and You can image what it would have meant to this
they literally were staring because this river is group of demoralized troops facing almost
not very wide at all. The Rappahannock is not certain defeat at the hands of this brilliant
the Nile. At best it would be 150 feet at its general across the Rappahannock river.
widest point… they can hear each other talking
on the either side of the river. In fact, they were
so close, that when the band of the northern
army would play tunes to cheer up the army, But the most important thing Hooker does
the southern unit would hear it ad try and call though is he sets up the “Bureau of military
them to play their tunes…. And there was secret intelligence. And the bureau of military
trade going on between the 2 units… The intelligence is the precursor to modern military
northern army would send rations of coffee in intelligence units. NO one had ever done this
little boats and float it across the river and in before. No one had set up a separate unit of
return the southern army would send tobacco. military fighting force that was responsible for
So, this stalemate is going on and on and on and the collection and analysis of intelligence. And
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Hooker is thinking, he is so far ahead of the one of the brilliant battle field plans in recent
game. He is thinking-‐this is going to be a crucial military history.. You know they make these
part of modern warfare. And what he does is lists that what are the most strategic plans for
he sets up a group of analysts, whose battle, and Hooker’s is always up there at the
responsibility it is to figure out what was going top.
on the other side of the river in the Lee’s army
and they do an extraordinary job. What he does is, he divides his army into 3
groups. 3 equal groups of 40 thousand troops.
First of all, he sets up a spy network among And the first group, he sends down river-‐EAST
these troops that’s second to none. He basically and they cross the Rappahannock at
gets incredibly accurate and timely information Fredericksburg and march up and sit directly
about everything Lee is doing. And then he on Lee’s right flank.
breaks Lee’s codes, so he’s reading Lee’s mails.
He knows EXACTLY what Lee is upto and then The second group of 40 thousand men-‐he
more importantly he discovers that Lee has leaves exactly where they are-‐across the
broken his codes so he starts feeding Lee all the Rappahannock from Lee blocking Lee’s access
false information he can come up with. That’s to Washington. And the third-‐ this is the genius
how far ahead of the game he is. He finds out part-‐ the third group of 40 thousand men, one
about a physicist called Professor Lou, who has morning in April 1863, 2 A.M-‐ they wake up
a balloon, one of those hot air balloons. and as quite as 40 thousand men can be, no
Remember its 1863, there is no such thing as a bugles, no campfires, they creep out of their
satellite. You have no idea what your enemy is camp site and they march 14 miles up the
upto. You cant see into your enemy. But Hooker Rappahannock West and they cross at a
has got this brilliant idea that he can float a guy crossing and creep back down the other side
up in the balloon and have him high up in the until they come to a place called
air on the Rappahannock with a telescope and Chancellorsville which is directly on Lee’s left
look down upon Lee’s positions and report flank.
back to him on what’s going on and he does
that. And he combines all this information to And that afternoon, Lee sends out some cavalry
the point where his knowledge about Lee is who were on a routine recon mission marching
such that in one of the historic accounts about along and they come to this clearing in the
the battle of Chancellorsville, one historian forest which is Chancellorsville and they see to
wrote that by the spring of 1863, Hooker knew their horror that there are 40 thousand troops
more about Lee’s army than Lee knew. That’s there and they go running back to Lee and they
how profound the asymmetry is – in the say “General, we are in trouble. We’ve got 40
information about that battle. thousand troops on our left flank, 40 thousand
troops across the river and 40 thousand troops
So, Hooker sits down and takes all of this on our right flank without knowing about it.
information that he has about Lee and he tries We didn’t even know it was happening. We’re
to figure out what it all means. And the first surrounded. We got nowhere to go. What are
thing he learns is that he has 131 thousand we going to do?. Our only option is to retreat
troops and Lee has 64 thousand troops. He has back to Richmond, back to the capital of the
Lee outnumbered more than 2 to 1. And then confedors.
he figures how he knows exactly where Lee’s
guns are, he knows exactly what his And Hooker, once he reaches Chancellorsville,
fortifications look like, he knows exactly where he knows, he realizes he has pulled out an
his cavalry is … he has the complete picture. extraordinary coup and he says “Our plan is
And using that complete picture he devises perfect” and it is perfect, because what can Lee
what is considered by military experts to be do. He is surrounded, overwhelmed by more
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than 2 to 1. And Hooker corresponds with It’s actually a question that psychologists have
Lincoln and Lincoln says to him something thought about for many years. One of the most
something and if you get to Richmond and famous studies of looking at this issues was
Hooker interrupts him and says “There is no IF done in the 1950’s by a psychiatrist named
in this instant Mr. President and I WILL get to Steward Askemp. What Steward Askemp did
Richmond.” That’s how sure he is. He’s got was put together a panel of expert
every advantage in the world. He knows more psychiatrist’s and he had then read a short
about Lee’s army than Lee knows. He’s got a description of Askemp’s own patients.-‐ a young
guy up in the sky. He’s reading Lee’s mail. He’s man names Joseph Kip. Joseph Kip was 29
completely surrounded; he’s in an absolutely years old, he was an army veteran. He was a
unsalable position. college graduate, he worked in a flower store.
He had been in therapy sometime with Dr.
So, that night when they arrive at Askemp. So, Askemp gave his panel of
Chancellorsville, Hooker puts this big stage in psychiatrist a description of Joseph Kip’s case
front of the clearing and he gathers all his men and asked them to read it and to fill out a
in front of him and he stands up on the stage, questionnaire , a diagnostic questionnaire
this tall, blue eyed, lantern jawed, broad about what exactly was wrong with Kip?. Read
chested, handsome, charismatic man and he it out and tell me what you think his issues
gives this extraordinary rousing speech under a are… relationship with his mother, his neurosis,
beautiful moonlit sky and je talks about how his other issues etc etc .
the next day they are going to take the battle to
Lee and push him all the way back to Richmond After he has done that, Askemp goes back to his
and he ends by saying “GOD ALMIGHTY. GOD psychiatrist and gives them an extra 2 pages to
ALMIGHTY CANNOT PREVENT ME FROM read about Kip. More information. He started
VICOTRY TOMORROW.” And all 40 thousand of out with a paragraph, here are 2 more pages.
his men stand up and cheer. Read that and go back and redo the
questionnaire. And after they had done that he
Now, if you read the Historical accounts of the goes back and gives them another 2 pages and
Battle of Chancellorsville, that speech is always he says “here are 2 more pages, read hat and go
presented as a kind of prologue to the battle, to and red the questionnaire”. And finally he gives
the events of the next 2 days. Malcolm Gladwell them his whole file and says here’s 5 pages on
does not think it’s a prologue at all. He thinks Kip. Read the while thing and redo the
the whole story of the battle is contained in that questionnaire. And the question that Askemp
speech. It tells us more than about what was trying to answer is “As I give an expert
happened than almost anything else. And the more and more information on a problem, how
reason I think that is that the idea behind that much does the expert’s judgment improve?”
speech, that propels Hooker to give that speech
is the notion that he knew more about Lee’s Now the answer to that seems obvious. If I give
army than Lee knew. you more and more information about a
problem, you’re judgment is going to get better
The question that speech raises is “What are and better. Right? .. that’s logical. With every
the consequences of perfect information?” situation, we would think it would make sense.
rather “What are consequences in the belief of Here’s what Askemp finds – THAT”S NOT
perfect information?”. What happens to people WHAT HAPPENS
when they think they know more about their
opponent that the opponent knows about When he gives them a brief description of Kip’s
himself? case, his psychiatrist’s get a quarter of the
questions right. When he gives them 2 more
pages, they are still at a quarter. When he gives
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them 2 more pages on top of that, they are like
at 25.5.%. When he gives them a whole file to So, remember back during the beginning of the
read, they are a 26 %. In other words, giving Iraq war. Remember when Baghdad falls,
people extra information about a problem does George Bush is photographed in an aircraft
not necessarily improve their ability in decision carrier wearing a flight suite, he looks at the
making, In other words, we greatly overvalue camera like this and he goes “Mission
the marginal value of information. Now, since Accomplished”.. Right.. that’s Mis-‐caliberation.
Askemp did the original ground breaking study, The US was a very very good army, but they
there’s been a huge movement in Psychology were not that good. They are not good enough
that has come back and has reinforced that to bring peace and democracy and goodwill to
notion again and again – WE ARE MISLED IN Iraq in 2 weeks. Mission not accomplished…
OUT BELIEF IN THE VALUE OF EXTRA BITS OF mission still infact not accomplished. That’s
INFORMATION and there are millions of mis-‐caliberation.
examples of this. But we are not after that part.
What interests us is the second thing that Now, mis-‐caliberation is overconfidence. And it
Askemp does, which is this. is very interesting. It is interesting in the
profound nature of how different it is from the
Every time he asks his panel of psychiatrist’s to traditional nature of failure, which is
fill out the questionnaire on Joseph Kip, he asks incompetence. So, incompetence is a mistake b
them to first give him an estimate of how many someone who does not know enough.
questions they think they will get right. So,
when he gives them a paragraph to read on The reason those psychiatrist were mis-‐
Joseph Kip, they all THINK that they are going caliberated is precisely because they were
to do a bad job of answering the questionnaire really smart, they were psychiatrists and WE
on Kip… they only got a paragraph. How do GAVE THEM LOT’S OF INFORMATION ON KIP.
they know what’s wrong with him. They think Their failure was a function of their knowledge.
they are going to get a quarter of the questions Incompetence is a disease of idiots.
right. In other words, their assessment of the Overconfidence is a disease of experts. The
accuracy of their judgment under the second difference between these 2 things is
conditions is pretty accurate. that there are 2 kinds of failure. There is a huge
difference in the consequences of these 2 kinds
When he gives them 2 more pages, they think of failure. Incompetent people make lots and
they are going to do a lot better “ Aw… we’ll do lots of mistakes. But their mistakes don’t
40% now.” He gives them 2 more pages “Ah… matter so much-‐Why?.. Because they are
50% easy.” When he gives them the file, they incompetent. They are not in positions of
are like “Ah.. we get are going to get this responsibility. So we keep them down there
perfect.” In other words, giving someone more and sure they do lots of things but that doesn’t
and more information or a problem does not matter much. Mistakes of overconfidence on
increase accuracy of their judgment, but it does the other hand are hugely consequential. Why?-‐
improve their confidence in the accuracy of the because they are made by experts. They are
judgment. The technical word for that problem made by people who are running companies,
is mis-‐caliberation. Mis-‐caliberation is the running countries and running governments.
difference between how good you really are And when they screw up, it REALLY REALLY
and how good you think you are. And when you matters. Malcolm Gladwell says “Incompetence
look at mistake made by experts, what you see annoys me, Overconfidence terrifies me.”
again and again is mis-‐caliberation. This is how
experts screw up. They screw up because they Third and most crucial distinction between
are good and they think they are even better these 2 kinds of failure is that we are
than good. profoundly conflicted about Overconfidence.
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Not for incompetence… for that we are clear, where Lee is and they come back with the
we hate them and we do a really good job of information and over the course of the day as
rooting them out. When we find incompetent Hooker listens to this, he realizes that he
people, we fire them or we train them or we doesn’t want to attack Lee-‐doesn’t make any
give them one chance or 2 chance or 3 strikes sense. And if you read historical texts about the
and then you are out of there. No society, battle of Chancellorsville, there’s a huge debate
maybe in history has done a better job at about why he did not chose to attach Lee on the
finding and getting rid of incompetent people. morning of May 1st., but I find all those debate
But overconfidence-‐ummm-‐ not so great. If you besides the point, because the issue is there
are in the Hospital for a brain surgery day after was no reason for him to attack. He had Lee
tomorrow and the brain surgeon examines you outnumbered 2 to 1, he had him surrounded.
and takes your hand in his and says There was nothing more for Lee to do except to
“Everything’s gonna be okay.”. That’s retreat back to Richmond. And when an army is
overconfidence. That’s mis-‐caliberation. He in retreat, its never more vulnerable. Right.. so
doesn’t know everything’s gonna be okay. Most the logical thing from Hooker’s perspective was
of what could happen during that operation is to do nothing. Let Lee make the first move and
outside of his control. He has not even open up when he realizes his mistake and runs away,
your head yet except for probably looking at a pursue him and destroy him at leisure.
few tests and MRI scans. Do you want you brain
surgeon to take your hand in his and say May 2nd-‐next morning-‐Hooker does the same
‘aaaaiiin.” What you want is a guy who is tall thing. He sends out his troops and his cavalry to
and strong and big barrel chest with a lantern give him information on what’s going on with
jaw, blue eyes and blonde hair to stand up on a Lee and he had this guy up with a telescope and
stage under a beautiful moonlit night and say people positioned in key places. The first report
“God almighty can not prevent me from victory comes back at 8;30 in the morning and he says
tomorrow.” “I think he’s upto something. There’s a lot of
activity in Lee’s camp. Hooker nods. Then at
So, back to Chancellorsville. Chancellorsville is 10’O clock, someone who had been in the trees
in a part of central Virginia called the comes down and tells “clearly, there upto
‘Wilderness’. And it’s called the Wilderness something and when he hears this he turns to
because in colonial times, there had been a one of his trusted aides and he says, the game is
foundry there and they had chopped down all in our hands,.
of the old growth forest to feed the furnace in
the foundry. And in its place had grown this 12 o clock comes around, lunchtime and he
really thick underbrush of scrub oak and pine. days to his trusted aides, he calls him sickles.
Almost impenetrable-‐this kind on underbrush. And he says to Sickle “I want you to go out and
And what people had done in this area was that personally figure out what Lee is upto.” Sickles
they had cleared the narrow winding road and goes out and comes back at 1:30 and says “lee
one big clearing which was the town of is moving south.” Hooker hears this and thinks-‐
Chancellorsville, 70 acres in the middle. So, the Of course, exactly as I thought. He’s retreating
first thing that Hooker does when he arrives at back to Richmond. And he gives order to all his
Chancellorsville is to find out where Lee is troops and he says “look, clean your weapons,
because he can not see him with all this thick get your horses fed, get your affairs in order-‐
underbrush. So, in the morning of May 1st he tomorrow morning at first light we are gonna
sends out a couple of units of his cavalry to go take off and chase lee all the way back to
on a kind of a mission – intelligence-‐gathering Richmond. Now, why is hooker so sure that Lee
mission. The notion is once he knows where is retreating to Richmond? That’s not what
Lee is, he can go back and attack and win the Sickles said. Sickles said, he’s moving south.
battle. They go trotting out and they figure out Going south could mean any number of things.
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First of all, we are talking abut Lee here. The catastrophic cycle of financial meltdown that
most brilliant genius, strategist in American took us close to economic Armageddon…And
military. Just because he looks like doing the thing the book reminds you is that in the
something doesn’t mean he is doing it. years leading upto toe financial crisis in 2007,
Secondly we are talking about the wilderness-‐a Bear Sterns was one of the most respected
place where every road goes like this.. Right.. firms on Wall Street. They were profitable as
just because Lee is going south one moment any other firm on Wall Street. They had built
doesn’t mean he is going south the next. He themselves a corporate headquarters that cost
could be going north, west, east.. Who knows? them S1 billion… Just one building. Its still
Third thing-‐Maybe he is going south to there in Midtown Manhattan… looks like the
Richmond and then he’s going to circle around Taj Mahal.
and attack hooker from the rear. There is no
basis whatsoever for Hooker to believe that Lee Their leader, still is was a guy names Jimmy
is moving back to Richmond. At the very best, Cain, Jimmy Cain was one who everybody
all he can say is that Lee might be retreating to thought was one of the most brilliant man to
Richmond or might be doing something else ever set foot in the financial community. They
and he doesn’t know which one it is and he’ll be worshipped Jimmy Cain. So, what did Jimmy
prepared for either eventuality. But he doesn’t Cain do in the summer of 2007 as it became
say that and he doesn’t believe that and why very clear that Bear Sterns loss was greater
doesn’t he… because he is deeply and than its market value and that it was holding an
profoundly miscaliberated. He is wildly over extraordinary large amount of risky assets.
confident. And when you get wildly over
confident, you lose track of the world around Did he try to offload some of those assets?. Did
you. he try to sell some of the toxic portfolio to
somebody else? Did he try to raise more money
Now this is the point where I think Hooker’s from banks to make room for more cushion in
story intersects with the story of the financial case things get more bad. NO
crisis. Because what happened n the financial
crisis. Well, over the course of a decade leading Did they try to sell and merge the bank to
upto 2007, we gave traders at Wall street more someone larger to provide a safe haven as it
and more tools and pieces of software , became increasingly clear the debts would turn
algorithms and implements that allowed them wrong. NO… What did he do?
to believe that they had perfect information
about the market. That they could understand Well, one of the things he did that summer is
accurately and completely the nature of the that on Thursday afternoon he would have his
risks they were engaged in and they were chopper pick him up in mid town Manhattan
prepared for them and could make sure they and fly him home to his country home on Jersey
would never blow up. And those tools led them shore so he could play a round of Golf before it
to believe that they were in absolute command got dark. And during a very crucial period when
of their environment. That they could prepare the bank was in an active freefell , he decided to
for every catastrophe and that led them into a go a bridge tournament in Tennessee in
dangerous level of over confidence. A book Nashville and one of the rules of the Bridge
came about 3 years ago, right after the financial tournament was that during the Bridge
crisis, written by an author William Cohen tournament you could not have your
called The House of Cards and it was just the Blackberry/ phone on so nobody could get in
story of Bear Stearns. Bear Sterns if you contact with him.
remember was an investment bank, that was
the first causality of the economic meltdown. There is a moment in Cohan’s book that I’ll
And that was it. Bearn Sterns started the never forget where Cohan is interviewing
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Jimmy Cain and that is after the financial crisis This is the saddest moment of Wall Street. This
is over and Bearn Sterns went from being one is how he handles his personal disaster. Now,
of most valuable firms in the world to Zero. I’m not saying all of them were like him NO. not
And Cain himself saw a personal fortune of $1 all bankers were as fowl and as delusional as
billion wiped out. And e is being humble. He Jimmy Cain at his lowest moment. But there is a
devastated scores of people around USA and pattern here that we have to recognize and that
the world and invested in his company. He is a pattern that happens to an expert. An
made some very catastrophic errors that none expert has success and gets confident. As a
of the CEO ‘s had ever made in economic result of that confidence they get more success
history. And Cohan is walking him through the and as a result they grow to be over confident.
final week in the history of Bear Stearns and And as a result of that over confidence, they
they are talking about the last ditch effort that begin to make catastrophic errors. Exactly the
Jimmy Cain did to save his company. And that’s same thing happened in 1929. The Bear Sterns
when he went to the New York Federal Reserve of 1929 was Goldman Sachs. Goldman Sachs
/ The Government’s essential arm in new York was this highflying investment bank in 1929
and asked the head of New York Fed to bail out and the then head of Goldman Sachs in 1929
his company. And the head of the Federal was the wunderkind of Wall Street. And he was
Reserve then was Timothy Guitner who later this broad chested, square jawed, blonde haired
became the US head of Treasury. So, Cain went and blue-‐eyed man who everyone thought is
to Guitner to ask for an emergency loan the day the most brilliant man they had ever seen. And
before Bear Sterns went down and Guitner said in the summer of 1929, the head of Goldman
“NO” Sachs increased their predatory investments all
based on the hunch that the market would keep
And this is the opportunity here, remember on rising and rising and rising. They took every
here’s this man who has been set back by one penny of all the investors and partners of
of the most extra ordinary bank failures in Goldman Sachs and invested in these wild bets.
American history who has blundered his way to And in August of 1929, the chairman f Goldman
a catastrophic loss and he is talking to a Sachs, the Grandson of the founder Walter
prominent journalist for a book that is destined Sachs, who was vacationing in Europe heard
to be a bestseller and you would think it is an about what his CEO was upto and he became
opportunity for him to show some contrition. alarmed and he rushed back fro Europe and as
To say to the world “I screwed up.” Right… “I fast as you could rush back from Europe in
blew it. I destroyed the livelihood of tens of 1929 and he goes to see the CEO at his suite in
thousands of people.” Because of my own the Plaza and he says “Are you crazy?”… And
stupidity. the CEO turns to the Chairman and he says,
“The problem with you Walter is that you have
But that’s not what he says… This is what he no imagination.”
says. And I apologize for the language, but
there’s nothing that can be done about it… 2 months later, end of October 1929… boom,,,
everything goes south. Goldman Sachs was
The audacity of that prick in front of the wiped out. They don’t make another penny in
American people announcing he was deciding profit till 1949…. 20 years later. They sell the
whether a firm of this stature of whatever was last lawsuit from that hedge fund in 1969. .. 40
good enough to get a loan. Like he was the years later. … That’s how completely that man
deciding factor. It was like a flea on his back destroyed that investment bank by virtue of his
floating down the golden gate bridge with a mis-‐caliberation. And the lesson of Walter
hard on saying, “raise the bridge.” Castchings is the same as the lesson of Jimmy
Cain and is the same as the lesson of what
happened in the battle of Chancellorsville,
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which is that people who are profoundly in the As they sit there, they hear this very strange
grip of mis-‐caliberation lose contact with noise. Its coming form the underbrush, over the
reality. The world around them changes and edge of the clearing and they don’t know what
they don’t see it. it is and they are wondering “What is that?” and
then they see all these quail rushing out of the
So, back to Chancellorsville one more time. forest as if they are being pursued by someone
Now is the afternoon of May 2nd. There are or something. All the men look at each other
people up in the trees looking at what Lee is and they say “it’s the dumbest thing. What
upto. And they begin to realize that Lee has could be causing that?”
changed. He is not marching any more. He is
not doing anything. His troops have stopped. It They go back to their dinner and then couple of
does not look like they are marching back to minutes later they hear a louder noise and this
Richmond. So, some kid who has been up in the time they look up and they see all these deer
trees comes running back to Hooker and says rushing from the underbrush as if they are
“No, looks like Lee is preparing for battle. He is being pursued by someone or something. And
met with taunts… No-‐you are just a coward.” all the men look at each other and they say
Then, a senior officer in Hooker’s army goes “What is going on. So strange?”
and personally observes what Lee is upto and
he notices clear signs that Lee is upto And then they go back to their dinner. Minute
something very serious. He goes back and passes and then they hear an even louder noise
writes a note to Hooker saying, “Lee is and they look up and this time it’s Lee’s men
preparing for a massive battle. For god sakes, with their bayonets fixed shouting out the rebel
take measures to receive him.” Hooker doesn’t yell and Hookers army who outnumbered them
even look at it. He couldn’t care less. Another 2 to 1 , who knew more about Lee’s army than
guy sees them getting their guns up and getting lee did , who god almighty could not prevent
in formation and goes back running and now is form victory dropped their steaks and
like 3:30 – 4 o clock and says “hooker, I mean abandoned their rifles and ran for their lives.
this is really serious.”. Hooker’s people wont
even let him into the Headquarters. Wont let Now, there is a postscript to the battle of
him even talk to Hooker. Chancellorsville. First thing is that Hooker is
relieved of his command this being a moment
6’O clock. It’s dinnertime. Remember I said that in American history where if you screwed up
one of the promises that Hooker made to his you lost your job. But lee was happy. He had
men was that once a week they would get meat. just pulled off one of the greatest upsets in the
Well, this is meat day. So, Hooker orders cows annals of modern military history. Now, it was
from the rear of the supply chain to be brought his turn to be over confident. And what did he
forward and slaughtered and steaks were do?. Well, for the first time he decided he would
distributed to all the mean and they took off carry the battle into the Northern territory. And
their coats and they put their rifles off to the he crossed over the Mason Dickson line and he
side and they started to barbecue meat. And marched with his men into the Union Territory.
this beautiful aroma of barbecued meat filled Now he knew this was a risky move. He knew
the air and marching band went to all the men that all of a sudden he was in an unfriendly
and played all the patriotic songs and all were terrain, locals weren’t supporting him, didn’t
getting charged up about what was going to know his way around, his supply chain was
happen the next day and the mood was jubilant stretched a far as you could stretch a supply
and optimistic and they were full of the fire and chain, but he didn’t care because he was into
fight that comes with people who know that the same position that experts always get into
next day they are going to rout the enemy. when they become over confident. And he
marched through the Union Territory until he
9
came to a town called Gettysburg. And at

Gettysburg, lee was dealt the most grievous
defeat of his career. Its because of Gettysburg
that USA is one country and not 2. The lesson of
Gettysburg is the same as the lesson of
Chancellorsville and is the same as the lesson of
1929 and is the same as the 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 entirely true. What we
want from our leaders is the benefit of their
humility.

Thank you
10

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THE BATTLE OF CHANCELLORSVILLE

came to a town called Gettysburg. And at

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